Cook's Constructions P/L v Stork ICM Australia P/L

Case •

[2006] QSC 160

•

23 June 2006

SUPREME COURT OF QUEENSLAND

CITATION:

Cook’s Constructions P/L v Stork ICM Australia P/L [2006] QSC 160

PARTIES:

COOK’S CONSTRUCTIONS PTY LTD
ACN 004 782 558
(plaintiff/respondent)
v
STORK ICM AUSTRALIA PTY LTD
ACN 004 448 042
(defendant/applicant)

FILE NO/S:

S10993 of 2001

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court

DELIVERED ON:

23 June 2006

DELIVERED AT:

Brisbane

HEARING DATE:

21 June

JUDGE:

Muir J

ORDER:

That the application be dismissed and that the costs of and incidental to the application be the parties’ costs in the cause.

CATCHWORDS:

PROCEDURE – JUDGMENTS AND ORDERS – IN GENERAL – OTHER MATTERS – where applicant applies for summary judgment – where applicant alleges failure to comply with Subcontract – where respondent claims damages for breach of contract – whether matter should proceed to trial

Uniform Civil Procedure Rules 1999 (Qld), r 292

COUNSEL:

S R Grahame for the respondent
K E Downes for the applicant

SOLICITORS:

ClarkeKann for the respondent
McCullough Robertson for the applicant

Introduction

  1. The applicant defendant as contractor and the respondent plaintiff as subcontractor entered into a subcontract (“the Subcontract”) to perform certain works in relation to the construction of an ammonium nitrate plant at Moura. On 5 March 2001 the respondent commenced proceedings against the applicant in the Supreme Court of Victoria claiming $1,661,654 damages for breach of contract. The proceedings were transmitted to Queensland and an Amended Statement of Claim was filed on 2 August 2005. In it a number of discrete claims were made. The applicant seeks summary judgment in respect of the following three claims:

·     The pedestal variation:  paragraphs 109 to 123 and 130 of the 2005 Statement of Claim.

·     The suspended slabs direction: paragraphs 147 to 162 of the 2005 Statement of Claim.

·     The prill store variation: paragraphs 163 to 178 of the 2005 Statement of Claim.

  1. The applicant’s case is centred upon clause 51.1 of the General Conditions of Subcontract. It provides:

“Stork shall not be liable upon any claim by the Subcontractor in respect of or arising out of a breach of the Subcontract unless within 14 days after the first day upon which the Subcontractor could reasonably have been aware of the breach, the Subcontractor has given to Stork’s Representative the prescribed notice.
Stork shall not be liable upon any other claim by the Subcontractor for any extra cost or expense in respect of or arising out of any direction or approval by Stork’s Representative unless within 42 days after the first day upon which the Subcontractor could reasonably have been aware of the entitlement to make the claim, the Subcontractor has given to Stork’s Representative the prescribed notice.
The prescribed notice is a notice in writing which includes particulars of all the following:

(a)the breach, act, omission, direction, approval or circumstances on which the claim is or will be based;

(b)the provision of the Subcontractor or other basis for the claim or proposed claim; and

(c)         the quantum or likely quantum of the claim.
This Clause 51.1 shall not have any application to:

(i)claim for payment to the Subcontractor of an amount or amounts forming part of the Contract Sum;

(ii)any claim for payment for a variation directed by Stork’s Representative or to be made pursuant to Clause 13.3;

(iii)any claim for an extension of time for Substantial Completion;

(iv)        the provisions of Clause 51.2; or

(v)         any breach of contract by the Principal.”

  1. It is common ground that no “prescribed notice” was given in respect of the respondent’s claims within the 14 day period required by the clause. The applicant contends that the consequence of the failure to give the notice is that the applicant is not “liable upon the subject claims”. The respondent’s answer to these contentions is that the subject claims are for payment to the respondent of an amount or amounts forming part of “the Contract Sum” and that they therefore fall outside the scope of clause 51.1 by virtue of the fourth paragraph of the clause.

The respondent’s contentions

  1. It is argued on behalf of the respondent that “claim” has a broad meaning and is defined in clause 2 as “…including any claim, demand, action, proceedings or suit … relating to any fact, matter or thing arising out of or in connection with the Subcontract or the work under the Subcontract …” The term “Contract Sum” is not defined but it refers to the total sum due to the respondent for undertaking the Subcontract works including any additions or deletions thereto. Each of the claims the subject of the summary judgment application are claims for an amount forming part of the Contract Sum under clause 51.1. Clause 51 is a notice provision only, its purpose being to ensure that the applicant has proper notice of claims or potential claims in respect of or arising out of a breach of the Subcontract within a reasonable time of such claims arising.

The applicant’s contentions

  1. The respondent’s claims are all claims for breach of contract and not claims for “an amount or amounts forming part of the Contract Sum”. At law, a claim for damages for breach of contract, which requires an assessment of causation and an award of compensatory damages, is a different type of cause of action (and remedy) from a claim for money due and owing pursuant to a contract. The Subcontract acknowledges and reinforces the distinction by the terms of clauses such as clause 47.1 and clause 51.1.

  1. A claim for payment of an amount forming part of the Contract Sum is a claim by the subcontractor for an amount which forms part of the original price promised for the performance of the works. The Contract Sum cannot include a reference to the total sum due including any additions or deletions thereto because the latter is a plain reference to variations which are dealt with in subparagraph (ii) of clause 51.1.

Consideration of relevant contractual provisions

  1. “Contract Sum” is not a defined term and the ascertainment of its meaning is central to the resolution of the matters for determination on this application. This exercise in construction requires an understanding of the other provisions of the Subcontract which bear on the scope of the works, pricing and payment. It requires also a consideration of whether such other provisions may shed light on the meaning of relevant parts of clause 51.1.  

  1. There is a definition of “Subcontract Sum”. It means:

“(a)       where Stork accepted a lump sum, the lump sum;

(b)where Stork accepted rates, the sum ascertained by calculating the products of the rates and the corresponding quantities in the Bill of Quantities or Schedule of Rates;

(c)where Stork accepted a lump sum and rates, the aggregate of the sums referred to in paragraphs (a) and (b) above,

including provisional sums but excluding any additions or deductions which may be required to be made under the Subcontract.”

As far as I can ascertain in the time available, the expression “Subcontract Sum” does not appear elsewhere in the Contract.

  1. It is common ground that paragraph (a) of the definition does not apply. Part A of Exhibit C to the Contract is a Subcontract Price Schedule and Bill of Quantities. For convenience, I will refer to it as “Part A”. Included in Part A is an extensive Price Schedule which lists a great many items and provides in respect of each a quantity, a unit of measurement, a unit rate and a total price for that identified item or those identified items. The following appears at the foot of this Schedule:

“Total Contract Price for the Sum of
Items 1 to 7 inclusive      $8,753,389.83”

  1. Clause 2 of Part A provides that the applicant is to pay the respondent for “the measured quantity of each item of the work performed” under the Subcontract as certified by the applicant at the appropriate rate in the Schedule and Bill of Quantities. The clause further states:

“All items shall be measured nett in-situ to the profiles and dimensions shown on the Drawings or described in the Scope of Works and Specifications and the Subcontractor shall allow for wastage in the rates for the net quantities given in the Subcontract Schedule Part A – ‘Subcontract Price Schedule and Bill of Quantities.”

  1. It appears from Part A and, in particular, clauses 1 and 2, that the applicant “accepted [the] rates”. Consequently, “Subcontract Sum” means, for present purposes, the sum calculated in accordance with paragraph (b) of the definition. Clause 3.1 of the General Conditions requires the applicant to pay the respondent for work for which the applicant has accepted the rates, the sum ascertained by measurement and determination of quantities in accordance with clause 3.2. Clause 3.2 provides that quantities in the Bill of Quantities or Schedule of Rates are “estimated quantities only” and that the applicant’s representative is not required to give a direction “by reason of the actual quantity of an item … being greater or less than the quantity shown in the Bill of Quantities or Schedule of Rates”.

  1. Clause 3.3(b) provides that where the actual quantity of an item is greater or less than the quantity shown in the Schedule of Rates:

“where [the applicant] accepted a rate for the item, the rate shall apply to greater or lesser quantities provided that where limits of accuracy are stated in the Annexure the rate shall apply to the greater or lesser quantities within the limits and quantities outside the limits shall be valued under Clause 45.5 as if they were varied work directed by [the applicant’s] Representative as a variation.”

  1. Clause 2 of Part A provides that pursuant to clause 3.3(b) the “limit of accuracy” is + 25% of the total value of this Subcontract Schedule Part A – “Subcontractor Price Schedule and Bill of Quantities”.

  1. Part A further provides:

“Should the percentage variations stated above be exceeded or decreased, [the applicant] or the [respondent] may notify the other in writing that he considers an adjustment to the rate of any item should be made.
Adjustment shall be made on mutual agreement only on those items essentially being the cause of variation of the total value of this Subcontract schedule Part A … beyond the range of  + 25 %.”

  1. It is expressly stated that “the summation of totals… [is] inserted merely to enable [the applicant] to ascertain the total price”.

  1. By virtue of clause 5.1 of the General Conditions and the Annexure to the General Conditions, the Bill of Quantities “forms part of the Subcontract only to the extent provided in the Subcontract”.

The meaning of “Contract Sum”

  1. The definition of “Subcontract Sum” is otiose unless “Contract Sum” is a mistaken reference to “Subcontract Sum”. It is a logical enough conclusion. The Contract is after all a subcontract and it is understandable that, by mistake, “Contract” could have been inserted in s 51(1) instead of “Subcontract”. The price schedule in Part A refers to the “Total Contract Price”, whereas clause 1 of Part A refers to “Total Subcontract Price”. If, as the respondent argues, “Contract Sum” means “the total sum due to the Subcontractor for undertaking the Subcontract works including any additions or deletions thereto”, paragraph (ii) would be pointless and the operation of the balance of clause 51.1 would be greatly confined.

  1. But if “Contract Sum” is identical to “Subcontract Sum” the result produced is curious. Quantities in the Bill of Quantities are only estimates[1] and the totals are provided only to enable the respondent to ascertain the total price. The expressed rates apply to quantities shown in the Schedule of Rates to a tolerance of + 25%. Notwithstanding the 25% tolerance, clause 51.1 would apply by reference only to the figure arrived at by multiplying the quantities in the Bill of Quantities and Schedule of Rates by the rates therein. Presumably the figure produced by this exercise is $8,753,389, described in the price schedule as “the Total Contract Price”.

    [1]See clause 3.2.

  1. It is not obvious why the parties would have wished to link exemption from the operation of clause 51.1 to claims within an estimated price rather than to claims by the respondent for payment under the contract made in the normal way. Where clause 3.3(b) applies and the 25% tolerance is exceeded, the excess quantities are to be valued under clause 45.5 “as if they were varied work directed by [the applicant’s] Representative as a variation”. No argument was advanced before me as to whether claims of this nature fell within subparagraph (ii) of clause 51.1.

  1. Although I consider that the better view is that “Contract Sum” in clause 51.1 is a mistaken reference to “Subcontract Sum”, it is arguable that some other construction is open: for example, that sum arrived at by the due determination of duly made progress claims under a specified provision or provisions.

A comparison of the Victorian claim and the 2005 Statement of Claim

  1. The respondent in the Victorian proceedings claimed damages of $343,186 for breach of contract in respect of the pedestal matter by reason of failure to pay progress claims made between March 1999 and April 2000. It was pleaded that, in summary:

1.          There was a direction to execute additional work described as “the Pedestal variation”.

2.          There were written terms of the variation;

3.          The work was performed by the respondent in accordance with the written terms;

4.          The applicant was in breach of contract in failing to pay the full value of the work through not paying progress claims made between March and April 2000 in consequence of which the respondent suffered loss and damage.

  1. In the 2005 Statement of Claim $308,912.33 damages for breach of contract is claimed in respect of the pedestal variation. No variation of contract is alleged but is alleged that there is a contractual entitlement to an adjustment to a lump sum because of an error in the Bill of Quantities.

  1. It is alleged that the failure by the applicant to pay the full amount of the progress claims breached the Subcontract because of the respondent’s entitlement to such adjustment. It is alleged also that the respondent is entitled to the full amount of the progress claims as no progress certificates were validly issued.

  1. There has thus been a substantial change in the way in which the cause of action has been pleaded. There is commonality as to the description of the work done, the way in which the work is to be valued and the allegation of failure to make payment. Moreover, as the applicant complains, the “circumstance on which the claim [is] … based” and the particulars of “the basis for the claim” will not have been supplied by virtue of the Victorian proceedings. Where the fourth paragraph of clause 51.1 applies, however, there is no necessity for a prescribed notice with or without the required particulars. Generally, the same observations apply to the “suspended slabs direction” and the “prill store variation”.

  1. I do not accept that a claim cannot fall within the scope of 51.1(i) if it is expressed in a pleading as a claim for damages for breach of contract. In my view, subparagraphs (i) and (ii) are concerned with the substance of a claim and not with the legal terminology used to express it. In other words, if in substance the subcontractor is seeking payment of “an amount or amounts forming part of the Contract Sum”, the description of that claim as one for damages for breach of contract will not alter its true nature.

  1. There is some difficulty in concluding that the Victorian claims are embodied in or continued by the 2005 Statement of Claim. But whether or not there was a “claim” for the purposes of clause 51.1 which has continued, in substance, in the 2005 Statement of Claim requires careful analysis of not only the two sets of pleadings but of the pleaded facts.

  1. Those factual issues, to my mind, are ones which tend against the granting of summary judgment. There are other considerations which point in the same direction, even apart from the arguability of the central point of construction. Neither the submissions nor the affidavit material address the question of which of the respondent’s claims fall within or outside “the Subcontract Sum”, that is,  whether a claim was for part of the sum of $8,753,389 or not. Moreover, the sum to be ascertained under paragraph (b) of the definition includes “provisional sums but [excludes] any additions or deductions which may be required to be made under the Subcontract”. The potential impact of these qualifying words remains to be addressed.

  1. I accept that there are real difficulties with aspects of the respondent’s pleaded case. For example, paragraph 114 of the 2005 Statement of Claim speaks of “adjustment of the lump sum accepted by Stork for the whole of the work to which the Bill of Quantities relates”. Plainly no lump sum was accepted. Paragraphs 112 and 115 rely on the application of clause 5.4 but it appears to have effect only in relation to circumstances in which a lump sum has been accepted. The pleading also ignores the 25% tolerance in the Bill of Quantities, not to mention the way in which payments under the Contract are structured. Similar problems arise in relation to the Prill storage claim.

  1. Whilst it is tempting to finally determine the issues raised on this application, I am not satisfied that there is no need for a trial of the respondent’s claim.[2] The construction questions are of some difficulty and call for an understanding of the interrelationship of various parts of lengthy contractual provisions. It is difficult on an application such as this to achieve that objective. Nor is it possible to be confident that the merits of the opposing contentions cannot be affected by determinations of fact on a trial of the proceedings and a trial involving questions of construction must take place in any event. Also, I am not confident that all provisions of the Subcontract which bear on the determination of quantum, or even liability have been properly assessed.

    [2]See r 292 Uniform Civil Procedure Rules 1999 (Qld).

  1. Another consideration is the possibility that the respondent’s case may well be able to be improved by amendments to the pleading.

  1. For those reasons, I order that the application be dismissed and that the costs of and incidental to the application be the parties’ costs in the cause.


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