Council of the City of Sydney v Goldspar Australia Pty Ltd
[2006] FCA 472
•3 MAY 2006
FEDERAL COURT OF AUSTRALIA
Council of the City of Sydney v Goldspar Australia Pty Limited [2006] FCA 472
CONTRACT – whether validly terminated – if not, whether repudiation – if so, whether other party ready, willing and able to carry out contract
CONTRACT – whether terms as to cooperation, reasonableness and good faith to be implied
EVIDENCE – whether post contractual conduct relevant to implication of terms of contract
Council of the City of Sydney v Goldspar Australia Pty Limited [2002] FCA 1064 related
Council of the City of Sydney v Goldspar Australia Pty Limited (No 2) [2002] FCA 1268 related
Council of the City of Sydney v Goldspar Pty Limited [2004] FCA 568; (2004) 62 IPR 274 related
Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 applied
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 applied
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 followed
Collins Hill Group Pty Ltd v Trollope Silverwood & Beck Pty Ltd [2002] VSCA 205 distinguished
Commissioner for Main Roads v Reed & Stuart Pty Ltd (1974) 131 CLR 378 followed
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 applied
Foran v Wight (1989) 168 CLR 385 followed
Gardiner v Orchard (1910) 10 CLR 722 cited
Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529 applied
Greaves v Wilson Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575 applied
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 cited
Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91 cited
Jenkins v NZI Securities Australia Ltd (1994) 124 ALR 605 followed
Mackay v Dick (1881) 6 App Cas 251 applied
Magill v National Australia Bank Ltd (2001) Aust Contract R 90–131, [2001] NSWCA 221 distinguished
Meehan v Jones (1982) 149 CLR 571 applied
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 cited
Psaltis v Schultz (1948) 76 CLR 547 cited
Rawson v Hobbs (1961) 107 CLR 466 cited
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 cited
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 applied
Winstonu Pty Ltd (t/a Harvey Norman Electrics) v Pitson [2001] FCA 541 distinguished
Carter and Harland, Contract Law in Australia, 4th ed, 2002
Charles, ‘Interpretation of Ambiguous Contracts by Reference to Subsequent Conduct’, (1991) 4 Journal of Contract Law 16
Greig and Davis, The Law of Contract, (1987) 436–438
COUNCIL OF THE CITY OF SYDNEY v GOLDSPAR AUSTRALIA PTY LIMITED (ACN 002 705 991) AND DOUGLAS RAWSON-HARRIS
GOLDSPAR AUSTRALIA PTY LIMITED (ACN 002 705 991) v COUNCIL OF THE CITY OF SYDNEY
NSD 728 OF 2002GYLES J
3 MAY 2006
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 728 OF 2002
BETWEEN:
COUNCIL OF THE CITY OF SYDNEY
APPLICANTAND:
GOLDSPAR AUSTRALIA PTY LIMITED (ACN 002 705 991)
FIRST RESPONDENTDOUGLAS RAWSON-HARRIS
SECOND RESPONDENTGOLDSPAR AUSTRALIA PTY LIMITED (ACN 002 705 991)
CROSS-CLAIMANTCOUNCIL OF THE CITY OF SYDNEY
CROSS-RESPONDENTJUDGE:
GYLES J
DATE OF ORDER:
3 MAY 2006
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The proceeding stand over to a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 728 OF 2002
BETWEEN:
COUNCIL OF THE CITY OF SYDNEY
APPLICANTAND:
GOLDSPAR AUSTRALIA PTY LIMITED (ACN 002 705 991)
FIRST RESPONDENTDOUGLAS RAWSON-HARRIS
SECOND RESPONDENTGOLDSPAR AUSTRALIA PTY LIMITED (ACN 002 705 991)
CROSS-CLAIMANTCOUNCIL OF THE CITY OF SYDNEY
CROSS-RESPONDENT
JUDGE:
GYLES J
DATE:
3 MAY 2006
PLACE:
SYDNEY
INDEX
INTRODUCTION
[1]
FACTS
[7]
PROVISIONS OF CONTRACT
[122]
VALIDITY OF TERMINATION BY THE COUNCIL?
[140]
Substantial breach
[141]
Express terms
[142]
Implied terms
[154]
Showing cause
[187]
Extension of time
[189]
Termination
[193]
REPUDIATION OF CONTRACT BY GOLDSPAR?
[194]
WAS GOLDSPAR READY AND WILLING TO CARRY
OUT THE CONTRACT?
[199]
CONCLUSION
[208]
REASONS FOR JUDGMENT
INTRODUCTION
This is another round in what is assuming the proportions of a title fight between the cross-respondent, Council of the City of Sydney (the Council), on the one hand, and the cross-claimant, Goldspar Australia Pty Limited (Goldspar), on the other, arising out of a contract between them for supply by Goldspar to the Council of a number of multi-functional street poles, called hereafter ‘poles’ or ‘Smartpoles’.
On 28 August 2002 I delivered reasons for judgment in relation to four separate questions ordered to be determined in this proceeding pursuant to O 29 r 2 of the Rules of Court (Council of the City of Sydney v Goldspar Australia Pty Limited [2002] FCA 1064). On 11 October 2002 I delivered reasons for judgment as to the orders to be made following the earlier reasons for judgment (Council of the City of Sydney v Goldspar Australia Pty Limited (No 2) [2002] FCA 1268). In the result, the orders made on 11 October 2002 were varied on 17 October 2002 and 21 October 2002. The answers to the separate questions related, in essence, to issues concerning copyright and intellectual property.
On 7 May 2004 I delivered reasons for judgment which dealt with all outstanding claims by the Council against Goldspar and Douglas Rawson-Harris (Rawson-Harris), the second respondent (Council of the City of Sydney v Goldspar Pty Limited [2004] FCA 568, (2004) 62 IPR 274). That decision led to orders being made on 18 June 2004.
This hearing relates to a cross-claim by Goldspar against the Council arising out of the termination of the contract. These reasons for judgment are to be read with the previous reasons for judgment and assume knowledge of those reasons and the orders that have been made. This, in effect, is a continuation of the previous hearings. The previous history of the proceeding is a necessary backdrop to this segment of the matter. However, a body of evidence has been led that relates to the cross-claim alone and involves a different focus from that in the previous hearings. The evidence needs to be evaluated with that in mind.
The contract documents were identified by an expert determination agreed to by the parties (Expert Determination). I rejected a claim by the Council for rectification of the contract. It will be necessary to go to the contractual documents in some detail, but, in order to sketch the issues in the case, it suffices to say that the contract provided the framework within which Goldspar would provide poles and accessories to the Council over a period of years. Part of the backdrop was an intention to beautify some of Sydney’s streets prior to the Olympic Games to be held in the latter half of 2000. In respect of each of the three years ended 30 June 1999, 30 June 2000 and 30 June 2001, the contract provided that the Council would take and Goldspar would supply a minimum of 300 poles and accessories. The contract was formally entered into on 29 May 1998, although the manufacture of poles had commenced earlier. A number of poles were supplied in the year ended 30 June 1999, although there is a dispute as to whether the number fell short of 300. No poles were ever supplied in relation to the year ended 30 June 2000. On 10 March 2000 the Council forwarded a notice of termination of contract to Goldspar. By notice of 22 March 2000 Goldspar, in turn, gave notice of termination of contract to the Council, relying upon the Council’s alleged wrongful repudiation of the contract by virtue of the purported termination by it. On any view, the contract had by then come to an end. Goldspar’s cross-claim to be determined is for damages for repudiation of the contract by the Council and for certain associated claims. The Council contends that its termination was effective and not a repudiation of contract. It asserts that, even if this is incorrect, Goldspar was not in a position to itself terminate the contract and sue for damages because it was not then ready, willing and able to complete the contract.
In my opinion, the Council was not entitled to purport to terminate the contract as it did, and in so doing it repudiated the contract. Goldspar was entitled to accept that repudiation and bring the contract to an end, which it did. I am satisfied that Goldspar was ready, willing and able to perform the contract in the relevant sense and is entitled to damages. Although the proper construction of the contract looms large, it is necessary to outline a number of facts and circumstances concerning the performance of the contract prior to the termination of it. The evidence was voluminous and covered many facts and circumstances. Many were not controversial and many had little, if any, ultimate importance. I will only deal with those which I regard as significant in resolving the essential issues. The written and oral submissions ranged far and wide. Again, I shall deal with those that I regard as significant in the end result.
Facts
The manufacture and supply of poles commenced in January or February of 1998, prior to the execution of the formal contract. At that time, Goldspar had indicated that it would install the poles but had set out in some detail a description of how the poles would be supplied on alternative bases—namely, delivery only (described as Arrangement B), on the one hand, and delivery and installation (described as Arrangement C), on the other. Arrangement B was that poles would be delivered to a single address in an unassembled state but ready for assembly with all parts in labelled boxes bearing full instructions on assembly methods. The cranage off the truck was not included in the price. Arrangement C included the following:
‘Our quote was based on being able to gain easy access to the pole site so we can drop the pole directly from the truck onto the rag bolt assembly. All rag bolt installation will be on a site specific basis from a structural point and we need to be flexible in the methods used for installation at these sites. The delivery of the poles to site will be as per our B method above and assembly of poles will happen once the pole is in place. Electrical work will follow.’
The poles were initially assembled on site prior to installation. That accorded with the proposed procedure for supply and installation at that stage. A document of 3 April 1998 entitled ‘Installation Procedures and Loading Parameters Issue D’ was a manual, the purpose of which was to provide relevant parties with step by step instructions on the correct procedure for installing the pole and its accessories. It became part of the contract.
In April 1998, Adele Khreich (Khreich) of the firm of Tracey, Brunstrom and Hammond Pty Ltd was asked to give advice to the Council concerning the process of handling poles on site. The instructions were as follows:
‘This confirms your instruction to TBH to assess the current status of Smart Poles procurement and design a monitoring system that will enhance the management of pole delivery to the contractors on site.
TBH will meet with Goldspar and their suppliers and assess the following:
·Current status of production
·Future productivity schedule
·Assembly and delivery schedule to meet the Contractors requirements on site
Additionally TBH will establish a schedule to be used to manage the communication of site requirements to Goldspar, the tracking of Goldspar and their suppliers future progress, and the communication of likely delivery dates back to site.
TBH will undertake this work as a variation to our existing consultancy, and will itemise and invoice this work separately.’
Khreich reported on 20 May 1998 to Terry Daly (Daly) of the Council with a copy to Bob Howard of the Department of Public Works. Daly was the Deputy Director of City Projects for the Council. Vasilios Angelo (Bill) Tsakalos (Tsakalos) was the Director. Steven Newman (Newman) was then a project manager employed in City Projects. None of Tsakalos, Daly or Newman gave evidence. The report is not directly relevant to construction of the contract as such, but is of relevance because it indicates the then thinking of Khreich which was made known to the Council and is significant in understanding that which took place thereafter. The report is too long to reproduce. Khreich analysed the Goldspar tenders as providing $2000 difference between supply only, on the one hand, and supply, assemble and install, on the other. He assessed the work of assembly and installation as only justifying an additional $900. In particular, he believed the cost for assembly of approximately $1600 was considerably more than the cost of assembly in the factory which he assessed as $500. Khreich’s recommended strategy was to place further orders on the basis of supply only, attempt to arrange a better price for assembly and installation but, if unsuccessful, to vary the Goldspar order to include those items. It is of interest in the light of later events that one recommendation was:
‘COS to commence scheduling pole requirements beyond February 1999, and reconsider the poles procurement process in order to ensure that poles will be available for next year.’
Forward scheduling of the poles was necessary because the contract provided the potential for different types of poles to be installed in different locations. It was also necessary to have advance notice so as to be able to work in cooperation with the contractors engaged by the Department of Public Works in relation to corresponding work on the footpaths and roadways. Goldspar had been provided with one such initial schedule.
On 22 May 1998, Khreich wrote to Goldspar as follows:
‘RE: SMART POLES DELIVERY – LONG TERM PLAN
Please find attached a schedule of poles required in the future to assist you in the placement of material supply orders.
Note that this schedule will be broken down to pole by pole as we approach the delivery dates to assist in coordinating the deliveries.
Note that for George St stages 1+2 and Retail Core (98), i.e.Leightons, Belmadar, and Reed, TBH has already supplied the pole by pole schedule breakup. It is our intention after discussions with you to rework this schedule based on 15 poles per week rather then 6 poles per day. However we need a commitment irrespective to weather that 15 poles a week will be delivered until the existing contracts are satisfied.
Council will issue and order for supply of these poles soon. We will instruct you at a later time with respect to assembly and installation requirements, as soon as we know the details.’
The Schedule extended to March 1999.
After an initial period, Goldspar, in order to improve efficiency, commenced assembling the poles off site and transporting them assembled for installation. To assist in this, Goldspar rented an additional factory at Dee Why dedicated to the manufacture and assembly of the poles.
In August 1998 the Council purported to appoint Khreich as the Superintendent’s representative. The contract provided for the appointment of a Council’s representative but did not provide for the appointment of a representative of the Superintendent. ‘Superintendent’ meant the person responsible for supervising the Site, as nominated by the Council under the relevant clause. The Superintendent was Wayne Anthony Burns (Burns) until he was replaced in September 1999 by Shane Henn (Henn). Each was employed in City Projects. There was also an obligation upon the supplier to have an individual to whom the Council or the Council’s representative could give directions and make enquiries at all times; that person was to be known as the supplier’s representative. The supplier’s representative was initially Antony (Tony) Barnes (Barnes) who was later replaced by Rawson-Harris. It does not appear that either Burns or Henn assumed an active or a decision-making role as the Council’s representative. It rather appears that the day to day administration was left to Khreich, who took his instructions from Daly. Burns was a project manager reporting to Daly. Goldspar acquiesced in the role of Superintendent’s representative, although it sought Khreich’s replacement as such as early as February 1999 and complained about his independence in July 1999.
The minutes of the Smartpoles Procurement Meeting of 2 December 1998 record:
‘WB to issue forward roll out specifications for work beyond March 1999…’
It will be recalled that the then current schedule expired in March 1999. The effect of this entry is controversial. Burns does not accept that it related to the following year. According to Barnes it was preceded by a conversation between Barnes and Burns towards the end of November. Barnes’ version is that he and Rawson-Harris and Burns had attended a meeting and whilst waiting for a lift after the meeting he said to Burns:
‘When will we get the delivery schedule for the next 300 poles?’
Burns replied that he was working on it and hopefully (would) have it in a few weeks. Barnes was unsure whether he referred to delivery schedule or orders. Burns simply denied the occasion. Burns denied that the reference in the minutes of 2 December 1998 related to the orders yet to be placed for the forthcoming year but speculated that it related to tidying up aspects of the current order.
Barnes gave evidence that late in January on an occasion during the Expert Determination, he asked Burns ‘have you got that delivery schedule for me yet?’. Burns said ‘I’m working on it, probably after the determination, I’ll get it for you after the determination, words to that effect’. Barnes agreed that he again was unsure whether he used the words ‘delivery schedule’ or ‘order’. Burns did not recollect any such conversation.
Barnes gave evidence that there was a similar conversation at another break in the Expert Determination. He said to Burns:
‘Have you got the schedule yet because if we don’t get a schedule shortly we’re going to have to close the factory ...’
Burns replied:
‘I’m trying to get it finished – I’m trying to get it for you.’
Burns had no recollection of that conversation either. I will return to this sequence of events later.
On 16 April 1999 Barnes sent a facsimile to Burns in the following terms:
‘I regret to advise that due to Councils failure to supply any further schedules and constant breaches of contract with regards to payments to Goldspar, we have had to take the following action.
1.The factory at Boola Place has been shut and the lease is being terminated.
2.Mr. Phil Price, the Factory Manger, has been made redundant.
3.The other staff have either been let go or transferred to Mona Vale. (only one to Mona Vale)
Mr Ben Stubbs who was managing the accounts etc for the Contract from Mona Vale has been retrenched.
I find it very sad that the antics of Council have caused innocent workers to suffer in this manner.’
On 20 April 1999 Colin Biggers & Paisley, solicitors, wrote on behalf of Goldspar to the solicitors for the Council seeking ‘delivery schedules promised since last November’. The reply of 23 April 1999 responded:
‘With respect to delivery schedules, we are instructed that there are no delivery schedules outstanding.’
On 21 May 1999 Barnes wrote to Burns by facsimile including the following:
‘In early November 1998, you are on record as stating that the next delivery schedule would be issued within a week or so. This was not done before Christmas, despite many assurances that it would be issued. During the Determination process, you again stated that the schedule would be a few days away. This was then changed to “it will be issued as soon as the Determination is over”. The Determination is over and yet you still have not issued any correspondence on this, in fact it appears you will not return any calls or faxes on any matters.’
On 2 July 1999 Barnes wrote to the General Manager of the Council and said, inter alia:
‘We have to now request that you instruct the Superintendent to act independently, as is required by the contract, and to forthwith act on the following matters, as requested previously:
…
3.Issue schedules (as he has already said he would) be issued for supply of poles in November 1998 and again after the Determination.’
The reply of 5 July 1999 from Burns included the following:
‘3.The Superintendent has no recollection of the statement alleged. There are no schedules outstanding. CoS will continue to order the Product in accordance with the Contract.’
The reply of 15 July 1999 from Barnes to Burns included the following:
‘3.With regard to the issuing of further schedules, the minutes of the Procurement meetings in November 1998, held at the offices of TBH, record that “Wayne Burns will issue the next schedule next week”. Goldspar await the issue of this schedule.’
The reply from Burns to Barnes dated 3 August 1999 included the following:
‘3.A number of schedules have been issued since the meeting in question.’
By letter dated 12 August 1999 Barnes wrote to Burns as follows:
‘Goldspar Australia Pty Ltd has discussed with its sub-contractors the closing dates for placement of pole component orders. The purpose of these discussions has been to ensure purchase orders are placed by Goldspar in sufficient time to receive components, and thus manufacture the contracted quantity of poles, before the end of the 12-month Contract period 1 July 1999 to 1 July 2000.
To assist Council with its scheduling of pole deliveries for the Contract period 1 July 1999 to 1 July 2000, Goldspar wish to inform Council that a comprehensive pole delivery schedule must be received by Goldspar no later than 25th August 1999.
In the event that a comprehensive pole delivery schedule is not received from Council by the above date, the subsequent accelerated delivery costs incurred by Goldspar in order to supply poles within the Contract period will be passed on to Council.’
This is how the parties’ dealings as to the Council’s future requirements rested at the time of a significant meeting between Barnes, Khreich and one Martin Greenhill on 29 September 1999 to which I shall return. Other events of significance had occurred in the meantime, some of which cast light upon the issue concerning future requirements.
On 13 October 1998 Khreich advised Burns that Goldspar would not be installing poles in the future, and installation ceased at about that time. This accorded with the earlier advice by Khreich to the Council. There is a question as to whether the Council had the right to make that unilateral decision and, if so, the consequences of such a decision.
In November 1998 Newman and Burns raised with Khreich the possibility of the Council pursuing the acquisition of Smartpole accessories outside the Goldspar contract and by late 1998 Streetscape had supplied Smartpole accessories to the Council. I shall return to Streetscape in due course.
On 24 November 1998, the parties entered into an agreement for the Expert Determination and it commenced shortly thereafter. On 15 January 1999 an Expert Determination was made as to the documents which comprised the contract and, on 19 January 1999, certain other claims were determined. Further Determinations were made on 9 February and 3 May 1999. By July a summons had been filed in the Supreme Court challenging the Determinations.
By no later than 21 December 1998 negotiations had commenced between the Council and Energy Australia as to the manner in which future installations of poles were to be done. On that day there was a meeting between officers of Energy Australia and officers of the Council (including Tsakalos, Daly, Burns and Newman). Newman’s notes of that meeting indicate that the Goldspar contract was discussed in some detail. It was noted, amongst other things, that Goldspar will have supplied 502 poles by mid-late February (1999). Tsakalos and Burns said that a master plan was 70–80 per cent complete and would be complete by, say, the end of January for the remaining 578 poles (to complete 1080). There was a cryptic note within Newman’s notes which said ‘to be issued this week’.
A draft of Annexure A, of what was said to be ‘“Installation and Maintenance Agreement in respect of smartpoles in the City of Sydney Council Area” dated 2nd February 1999’, was produced in early 1999. Burns claims to be the principal author of that document. It was described as a rollout plan, the purpose of which was to specify the scope of works, and associated requirements, for the installation of smartpoles by Energy Australia. The foreword included the following assumption:
‘City of Sydney will continue as Principal of the smartpole supply contract (Contract no. 9733 – Supply of Multi-Functional Street Poles). City of Sydney will order each of the poles and ensure Goldspar complies with the requirements of the supply contract. This does not prohibit Council from augmenting its current supply by contracting to alternative suppliers.’
A summary of Supply Contract 9733 described Goldspar’s responsibility as follows:
‘▪Supplying smartpoles to the specified quality.
▪Provide a defects liability of 12 months from issue of a certificate of acceptance by City of Sydney.
▪Supply poles within 12 weeks of an order being placed, and full production specification being provided.
▪Supplying poles that comply with statutory requirements and relevant Australia Standards.
▪Supply production drawings for fabrication of the smartpoles
▪Supply the smartpoles in a form ready for assembly and installation’
The next draft sub-paragraph was as follows:
‘2.2 Ordering
The CoS will be responsible for ordering the smartpole componentry to be supplied to EA. From the time the orders are placed it is expected that Goldspar will require 12 weeks to manufacture enough components to commence installing poles. It is expected that EA will, use this time to commence below ground works. [emphasis added]
A copy of the ordering schedules will be passed to EA, for use in verifying Goldspar’s inventory sheets when picking up componentry. It is critical that all changes in schedules necessitated by latent conditions be passed onto CoS so that the appropriate ordering schedules can be modified. The ordering schedules are attached a s Appendix C.
OR
EA are responsible for ordering the necessary componentry.
[katy – should we make EA a Superintendent’s Rep for the purposes of ordering poles]’
[emphasis as in original]
The Introduction under the heading ‘Installation’ was as follows:
‘It is the CoS’s intention [t]hat the majority of Sydney be serviced by smartpoles in the long term. A copy of the long term masterplan is attached as Appendix E.
In the interim, The CoS has prioritised a number of areas to be included in the Stage 1 rollout to be undertaken by EA. This Stage 1 masterplan is attached as Appendix F. The areas included in the Stage 1 masterplan have been chosen for a combination of functional, safety and aesthetic considerations.’
A meeting on 23 February 1999, including Kheich, Burns and Newman, confirmed that the current projects totalled 520 which should have been completed by Goldspar by mid-March. The notes of the meeting included the following:
‘TENDER SPECIFICATION TO BE ISSUED DRAFT ASAP
KWA TO COMPLETE DWGS
ADDITIONAL DWGS. i.e. COMPLETE COLUMN etc.’
There was also a note that Capral Aluminium Limited (Capral) had delivered 159 lengths to Goldspar, and another note which said:
‘TENDER PRE ORDER 100 LENGTHS: ADEL & WAYNE.’
This meeting, no doubt, related to the Request for Tender 9912 ultimately issued on 12 May 1999. That Request had an Introduction which included the following:
‘1.Council has undertaken an extensive capital works program to enhance the public domain, including the streets and parks within the City of Sydney.
2.The objectives of the program include to provide improved lighting in public places, and to rationalise pole furniture.
3.To meet these objectives, Council has developed the Smartpole system. Smartpole accommodates a range of functions, servicing both the requirements of Council, the RTA, and energy Australia.
4.Smart-poles are considered to be-an important component of the upgrade of the public domain. The reliable supply of the Smartpole is an important factor in achieving this objective.
5.Council seeks to complete the work under the Contract before the start of the Sydney 2000 Olympic Games.
6.Smartpoles have been installed in prominent locations throughout the City. An number of parties (other than Council) have participated in the process of the development, documentation, supply, and installation of Smartpoles The third parties previously involves in the documentation, supply, or installation of Smartppoles will not be involved in the tender evaluation process.’
This Request for Tender had been preceded by a letter of 10 May 1999 from Tsakalos to Rawson-Harris which was as follows:
‘This is to confirm my verbal advice of 10 May 1999 with regards to the above projects, as advised:
1.City of Sydney is calling tenders for fabrication, assembly and supply of 300 Smartpoles™
2.This tender is in addition to the City’s current contract with Goldspar.
3.The tender is to be advertised in Sydney Morning Herald on 11 May 1999.
4.Council has instituted a probity process with Rory O’Connor as the independent audition.
5.Tender assessment will be by Council Staff and outsiders who have not had day-to day involvement in the current Goldspar contract.
Goldspar will have the opportunity to tender.’
In the meantime, Khreich forwarded detailed requirements to Goldspar for a further seven poles on, or about, 15 March 1999 in the following form:
The reference at the meeting of 23 February 1999 to ‘tender pre order 100 lengths’ is of some significance. One of the constraints to the production of Smartpoles was the availability of column extrusions. The only practical source of those extrusions was Capral. It had provided the extrusions for the Smartpoles manufactured by Goldspar up to that time. There was contention over the ownership of the die used to manufacture the extrusions. If the Council were contemplating entering into a contract with an alternative supplier of Smartpoles there would be a practical problem in that supplier obtaining extrusions. Hence, the reference to a tender pre-order. In the course of a meeting on 28 May 1999, after the Request for Tender 9912 had issued, Council officers made the interesting discovery that Capral had 70 extrusions on hand. It was at this same meeting that Khreich and Newman were endeavouring to secure the pre-order of supply of extrusions for the successful tenderer in relation to Tender 9912. The relevant officer of Capral described the extrusions as a quantity left over from previous runs which were in stock. Khreich and Newman decided to endeavour to acquire those extrusions for the purposes of Contract No 9912.
This led to a series of dealings between the Council and Capral which were complicated by the potential claims of Goldspar to be entitled to the extrusions which had been fabricated pursuant to the earlier arrangements between Goldspar and Capral. The dealings were also complicated by Goldspar’s claims to intellectual property in relation to the die which had been utilised. It is unnecessary for the purposes of this judgment to trace those dealings in detail. Suffice it to say that Capral ultimately chose to sell the extrusions to the Council on the basis that it received an indemnity from the Council against claims from Goldspar.
On 9 July 1999, the Council issued Addendum No 6 to Tender 9912, one aspect of which related to these extrusions:
‘1. NOMINATED SUPPLY
Replace
The City of Sydney has ordered three (3) tonne of upper pole extrusions for the work under the Contract from Capral Aluminium. This material will be supplied to the Supplier to fulfil part of the work under the Contract. The Supplier is responsible for taking delivery of the aluminium prior to anodising; and cut, drill, tap and anodise the material as required to complete the work under the Contract. The Supplier will be responsible for checking the quality and quantity of the material.
The cost of, and delivery dates for, the material will be advised to the tenderers prior to the close of tenders. The cost of the material will be deducted from the Suppliers progress claims.
with
The City of Sydney will supply free to the Supplier, three (3) tonne of upper pole extrusions for the work under the Contract from Capral Aluminium. The extrusions to be supplied consist of the following:
No. of Lengths
Length
12
2270
23
4670
35
9470
The Supplier will be responsible for the transportation of the material from Capral’s Lidcombe store, where it will be loaded onto the Supplier’s truck. The Supplier will be responsible for checking the quantity and quality of the extrusion at prior to removal from Capral’s yard. The extrusions will remain the property of the City of Sydney.’
The extrusions were actually delivered to the Council on 10 August 1999. Whatever the legal rights and wrongs of that result may have been, it demonstrated a determination by the Council to facilitate the task of the successful tenderer for Tender 9912 at the direct expense of performance of the balance of the contract with Goldspar. Goldspar was free to respond to Tender 9912 and did so. However, the reality was that a successful tenderer was required to acknowledge intellectual property in the Council in a way which was unacceptable to Rawson-Harris, as must have been predicted by the responsible officers of the Council. No conforming tender was lodged by Goldspar, again predictably. No evidence was led from the decision makers at the Council as to the rationale for calling Tender 9912 in the face of the existing contract with Goldspar, nor to explain the obvious overlap in numbers of poles required, nor how it was regarded as practical that the two contracts might be fulfilled concurrently, each in a timely manner.
A Smartpole Location Plan had been prepared by 11 June 1999 and a Smartpole Priority Zones Plan by 28 June 1999. The agreement between the Council and Energy Australia was entered into on 23 June 1999. There were 1131 Smartpoles on the Smartpole Location Plan.
The agreement with Energy Australia was described as an agreement by Energy Australia to install and maintain certain Smartpoles and a Fibre Optic Cable network for 47 close circuit television security cameras and certain other items of telecommunications equipment. The detail of the agreement involved Energy Australia purchasing from the Council ‘Existing Smartpoles’ which meant:
‘approximately 521 smartpoles supplied and installed as at the date of this document or contracted to be supplied and installed by a third party as at the date of this document and the electrical network to support the supply of electricity to those smartpoles from the point of contact with the relevant Energy Australia substation to the Smartpole, as identified in schedule 1.’
It is apparent that those are the Smartpoles supplied by Goldspar. The Council agreed to sell and Energy Australia agreed to purchase the uninstalled ‘New Smartpoles’ which were defined to mean:
‘approximately 610 Smartpoles to be supplied by COS and installed by EnergyAustralia generally in the areas identified in the Rollout Plan (as amended from time to time) in accordance with this document.’
The obligation was that:
‘Each of the New Smartpoles shall be delivered to EnergyAustralia by COS making them available for collection by EnergyAustralia at EnergyAustralia’s premises at Mowbray Road, Chatswood, or such other premises as the parties may agree.’
There was a different price for each of pole types A, B, C and D. It was then the obligation of Energy Australia to install the new Smartpoles in accordance with the Rollout Plan and to supply and install other necessary equipment and accessories. Energy Australia was also to operate and manage the Smartpoles and lighting infrastructure in accordance with the agreement.
It is to be noted that Tender 9912 dovetailed into this agreement as the obligation was to supply assembled poles including delivery but with no installation. It is quite apparent that the Energy Australia contract and the matching Tender 9912 reflect the substance of what had been discussed between officers of the Council and Energy Australia in December 1998. Contract 9912 did not include all of the accessories provided for by the Goldspar contract. Streetscape was to play a role in relation to that.
On 12 August 1999 Goldspar wrote to Burns claiming that there had been a short order of poles for the year commencing 1 July 1998. There was no substantive reply.
On 29 September 1999 a meeting of some significance took place between Barnes, Khreich and one Martin Greenhill, a consultant quantity surveyor retained by Goldspar. Before examining the detail of that meeting, I accept the substance of the evidence of Barnes that, in late November 1998 and January 1999, he requested from Burns advance notice concerning the orders to be placed for the 12 months’ supply to commence in July 1999.
I reject Burns’ denials of that evidence. The evidence of Burns was generally unimpressive. His claimed recollection of events was very poor – much worse than might have been expected, even if (as I find) his true role was more limited than his title of Council’s representative might have implied. My impression when he gave his evidence was that he was not genuinely giving the best of his recollection. His express denials of the evidence in question of Barnes were in marked contrast to most of his evidence and did not ring true at the time. On the other hand, generally speaking, Barnes impressed as an honest witness, although particular aspects of his recollection may not have been reliable. His evidence in question here was given in a convincing manner. Counsel for the Council was able to point to differences in the precise wording of the various accounts given by Barnes in evidence – in particular, the difference between schedule and orders. Nonetheless, these differences did not detract from the overall effect of the evidence. I am satisfied that the entry in the minutes of 2 December 1998 related to the 1999–2000 year. The substance of the contention of Barnes was repeated in correspondence over many months and the response was evasive at best.
Furthermore, Barnes’ version accords with the surrounding circumstances and the commercial probabilities. Forward planning was essential for a project of this kind. An orderly delivery of poles in the correct sequence was desirable for all parties. The type of poles which were to be required was essential knowledge for the planning and commencement of manufacture. Continuity of work was important. There was an issue as to whether the dedicated factory organised by Goldspar should be maintained. What is more, the Council’s forward planning beyond the 1998–1999 year, recommended by Khreich as early as 20 May 1998, was at an advanced stage by November/December 1998. It had plainly progressed further when the draft schedule to the Energy Australia agreement was prepared in February 1999. There was no reason why an interim schedule should not have been provided to Goldspar by that time. Furthermore, the schedules were effectively complete by June 1999 and had still not been provided to Goldspar by the meeting of 29 September, notwithstanding continued requests.
The only sensible conclusion from the overall circumstances is that in late 1998 Burns had assumed that, in accordance with past practice, Goldspar would be given the schedule that he and Tsakalos were preparing and were expected to complete shortly. However, there was a change of heart in the Council camp, presumably after it was decided to pursue the Energy Australia arrangements and the alternative tender.
The meeting on 29 September 1999 was relatively well documented. There were handwritten and typewritten notes and an email from Khreich to Henn which purported to summarise the outcome of that meeting. Oral evidence was given by Barnes and Khreich. The typewritten minutes prepared by Greenhill were agreed by Khreich to be a correct record although they are, to an extent, cryptic and leave some room for debate. Barnes had a point of disagreement which is not of great significance in the case. The minutes were as follows:
‘MINUTES OF MEETING HELD AT THE OFFICE OF T.B.H.
at 10.10am on Wednesday 29th September 1999
PRESENT: Adel Khreich [Tracey Brunstrom & Hammond]
Tony Barnes [Goldspar Australia Pty Ltd]
Martin Greenhill [Greenhill Consulting Services Pty Ltd]
1.T.B. stated that M.G. would become the new Contractor's representative – to be advised in writing when it occurs.
2.A.K. talked about the Smartpole rollout program required for year 2000. Goldspar to supply poles under existing contract but installation would be carried out by Energy Australia, including footings.
Note:The Contract with Goldspar is a Supply and Installation Contract
3.A.K. stated that Steve Newman was presently preparing the schedule for the first 100 poles, and that A.K. required this schedule by Thursday Night [30-9-99]. This schedule would be given to Goldspar early the following week [commencing Tuesday 5th October -Monday 4th being a Public Holiday]
4.These 100 poles would be assembled by Goldspar [without outreach arms]. T.B. to talk to Capral and Hayman re earliest program times especially delivery rates and effect of Xmas shutdowns.
5.A.K. stated that they require 3 poles before Xmas – 2 x "A" poles, 1 x "AB" pole with RTA outreach. TBH would supply exact specification [this was presented to T.B. and M.G. after the meeting]
Note:No order or agreed price has been forthcoming.
6.A.K. stated that the balance of the poles [655] would comprise approx. 15% [100] Type "A" with the balance mostly type "B" and "C" and very few Type "D". These would be for Broadway and Haymarket with probable delivery to Rozelle. The first 100 poles would be mostly type "A". These poles would be generic rather than site specific.
7.A.K. stated that Canon Industries told him that they had lots of parts. A.K. requires Goldspar to supply delivery schedule.
8.A.K. asked T.B. to check availability of Ragbolts and Pushbuttons.
9.A.K. stated that TBH would authorise payment of 600mm outreach arms.
10.A.K. stated that all future correspondence on the contract is to be addressed to him at TBH.
11.A.K. asked if T.B. could get back to him by 5pm Friday 1st October with reference to items 3 and 6 above. T.B. advised that he would try to comply with this request.
The meeting closed at about 11am’
The point of disagreement by Barnes was as to any commitment by him to investigate supply times and come back to Khreich. I am inclined to think that he probably did make a statement along those lines, not in order to fulfil any contractual commitment but rather to endeavour to progress the matter.
Newman provided Khreich with a schedule on Friday 1 October 1999. Khreich then forwarded it to quantity surveyors on behalf of the Council late on Tuesday 5 October 1999, the next working day. That schedule was not provided to Goldspar at any time prior to 19 October 1999. Khreich’s evidence on this point was most unsatisfactory. In the first instance, he denied having received the schedule from Newman prior to 19 October 1999. He corrected this statement when he observed that he had expressly said to the contrary in an email to Henn. His attention was then drawn to other documents during the course of his cross-examination. His initial explanation for not forwarding the schedule promptly was that he had been relieved of that responsibility because of the conversation he had with Rawson-Harris on 5 October 1999. His contemporaneous version was that Rawson-Harris said to him (he having unsuccessfully attempted to reach Barnes):
‘Adel, listen to me very carefully. We have had enough of Council, we believe that they are not acting properly, and that they are being dishonest. We don’t want anything to do with them any more. Now I have to go, Goodbye.’
A fax to that effect was received by Goldspar at 4.25 pm on 5 October 1999.
Rawson-Harris replied on 6 October 1999, and his contemporaneous account of the conversation was as follows:
‘Adel, listen to me very carefully. Goldspar has had enough of Council. We don’t believe you have behaved with integrity. We are not prepared to discuss anything with you. Good-bye.’
Rawson-Harris went on:
‘It would be in the interests of both parties and would avoid ambiguity in the future to have meetings between us recorded and have any matters which you wish to put to us, apart from at those meetings, put in writing’
Regardless of what was actually said on 5 October 1999 between Rawson-Harris and Khreich, the Council did not then and there allege that there had been a repudiation of contract and claim to bring the contract to an end. It acted thereafter as if the contract was still on foot. This was not surprising, as Rawson-Harris’ communication of 6 October 1999 made it clear that Goldspar’s position was not that it would not deal with the Council or carry out the contract, but, rather, that it would require dealings between them to be properly recorded. This would have made it entirely appropriate for the schedule to have been provided under cover of a written explanation forthwith. Khreich did not suggest that any failure by Barnes to provide information had any impact upon his failure to supply the schedule.
A matter of importance, disclosed at the meeting of 29 September 1999, was that the Council were proposing that the poles should be delivered already assembled by Goldspar, but that installation would be carried out by Energy Australia. This carried the seeds of controversy as it did not appear to comply with either contractual form of supply. Greenhill noted that the contract was to supply and install. Goldspar’s communication of 6 October 1999, apart from confirming that Goldspar had met and would continue to meet its contractual obligations, raised a number of issues which, in turn, provoked a reply from the solicitor for the Council which was met by a further reply from Goldspar. It is not necessary to pursue those matters of detail.
On 5 October 1999, the Council had asked whether Goldspar would enter into a contract for Tender 9912 ‘in the form tendered’. Goldspar responded negatively on 12 October 1999 (explaining why), which led to advice on 13 October 1999 that Goldspar would not be considered for that tender.
On 19 October 1999, Khreich, as ‘Superintendent’s Representative’, purported to give an instruction to supply product in accordance with the following requirements:
‘1.The description of the Product to be supplied is shown in the attached four (4) page spreadsheet, entitled “ORDER PLACED WITH GOLDSPAR ON 19/10/99”, referring to 147 poles of types A, AB, B and D. The pole numbers range from 2/001 to 2/147 inclusive. This spreadsheet also describes various variations required in addition to the Product.
2.The Product is to be manufactured and supplied at the unit rates listed in the Schedule of Prices Part 2(D), which forms part of the Contract.
3.The Contract Price for the 147 poles referenced above shall be $408,879.00, as shown on the attached spreadsheet.
4.The total valuation of the Variation to the Contract Price (shown in item 3 above) shall be $382,708.52. Details of the valuation of This Variation are shown in the attached five pages.
5.Time is of the essence with respect to delivery of the 147 poles. The time for delivery shall be in accordance with Part 10 – Production Program of your Tender, which forms part of the Contract. Delivery of the 147 poles shall be eight (8) weeks from the date of this letter, i.e. Close of Business on 15th December 1999. You are referred to Clause 17 of the Contract, which requires certain notices from the Supplier to Council prior to delivery.
6.Goldspar are to submit a program conforming to Clause 13.2 of the Contract setting out the various activities involved in the manufacture and supply process including production rates for all components, leading to final delivery of the 147 poles. CoS wishes to review progress against such a program on a regular basis.
7.Goldspar is to provide evidence to CoS of current insurance policies as required by the Contract within seven (7) days of the date of this letter.
8.Goldspar is to submit its Quality Assurance System in accordance with Clause 28 of the Contract. Cos requires to review the QA system within 14 days of the date of this letter. CoS wishes to monitor the quality of the product at various stages of the manufacture and supply processes and will advise hold points once the Goldspar QA system is tabled.’
The response from Goldspar dated 26 October 1999 was as follows:
‘RE: CONTRACT NO. 9733 – MULTIFUNCTIONAL STREET POLES – SUPPLY OF PRODUCT
Thank you for your letter dated 19 October 1999.
Unfortunately, it does not constitute an order under the contract and. given the problems we have had with Council, it should be a proper order under the contract. There are some fundamental difficulties which should have been obvious to you, but apparently were not.
Our initial evaluation of the points made in your letter are as follows:-
1.Point 1 of Your Letter
The description is inadequate and is in fact erroneous in that it refers to pole components that have not yet been designed. It also refers to pole components that have never been referred to before or supplied by Goldspar. These should not have been included in the order. Why have they been included? Further the descriptions are inadequate and incomplete.
2.Point 2 of Your Letter
This point refers to a schedule of prices as Part 2D. Part 2D of the Goldspar tender response sets for the price for poles in an unassembled state. As you know, Council issued a supply and install contract. Therefore, the correct schedule that you should have referred to was the supply and install schedule. This is the schedule of rates in Section E (before any variations or CPI). The prices that you include should reflect variations to Schedule. E and CPI as per the contract.
3.Point 3 of Your Letter
The contract price has been incorrectly calculated. You should recalculate the price by reference to Schedule E and as per the variations as put by Goldspar and accepted by Mr Morrissey in his independent determination dated 3 May 1999.
4.Point 4 of Your Letter
We do not understand how you have calculated the amount of $382,708.52. Until we know the content required for the extra items in the Schedule (and some of which have not yet been designed), we cannot otherwise comment. Obviously, we cannot agree to your calculation.
5.Point 5 of Your Letter
We cannot understand how you can assert to be entitled to "make time of the essence" for delivery. Firstly, where do you claim to have this contractual right in the contract. Secondly, it has come to our attention that recently Council without our knowledge and without any consultation went to an aluminium supplier, Capral, and purchased the aluminium and upper extrusions for the mast poles which Goldspar had previously ordered and had been made for Goldspar so that Goldspar could meet its obligations to Council. Thirdly, the eight week order deadline as you know is totally unreasonable and in fact an impossibility.
In our letter to Council dated 12 August 1999, we advised that a minimum of twelve weeks would be required for extrusion of the aluminium sections alone. In addition, there is now the intervention of Christmas when Capral (our supplier) is closed for approximately four weeks. There is also the further period of four weeks required for the anodising process. All of this has been known to you and Council since 12 August 1999 and we specifically advised Council that their next schedule for pole deliveries had to be received by 25 August 1999. The earliest delivery date (assuming a correct order was received by 29 October 1999) would be 13 March 2000. Please therefore as a matter of the utmost urgency give this matter your attention and place a proper order with us for the poles, properly itemised and costed and in accordance with the contract.
To assist you in your scheduling, we draw to your attention that your present letter of 19 October 1999 only refers to 147 poles when in fact this year's schedule should be for 355 poles. This scheduling and orders should have been provided to us by 25 August 1999. This has been entirely in the hands and responsibility of the Council to provide this schedule and place this order. It is now 24 October 1999 and we still do not have a schedule or proper order. You will appreciate that substantial additional costs will be incurred to now fulfill this remainder of the orders in the short period still available.
We place on record that a full schedule was promised by Council in December 1998 and has never been received by us. We are concerned at the extent of the errors and omission in your letter of 19 October 1999. Given that Council has now had nearly 11 months to prepare and check the documentation, it causes us to seriously consider the motives of your letter.
We note your comments on the provision of notices.
6.Point 6 of Your Letter
We agree that a program needs to be urgently prepared and we will use all our endeavours to do this in accordance with Clause 13.2 of the contract immediately you have:-
(a)placed a proper order clarifying what is to be supplied with a correct schedule of prices;
(b)provided a further schedule for the remaining 208 poles that should have been ordered in August 1999; and
(c)advised who will be designing the undesigned components and when this design will be completed and approved by Council and all appropriate authorities;
(d)provided us with appropriate assurances that we will be paid for these poles. Please note that there is nearly $2 million owed to us by Council in previous orders as found by Mr Morrissey. We are aware Council disputes part of this, but there are obvious double dips and even on Council's own figures, they owe us substantial moneys.
You will appreciate as a matter of simple logic that in a practical sense, no program can be produced until you have done all of these things. Please give these matters your urgent attention so that a proper program can be sensibly structured minimizing each delay.
We note your comments on progress reports to enable you to review progress against the. agreed program once put into place.
7.Point 7 of Your Letter
Our understanding of the contract document is that it requires 14 days for the provision of the insurance policies from the date of receipt by us of a proper order. We will ensure that when we receive a proper order, we will comply. You will appreciate that until we have clarification on exactly what Council are ordering, we do not have the information to take out any such policies.
8.Point 8 of Your Letter
This has already been done. We cannot see where in Clause 28 the Council has any right to review or monitor the quality of the product. We refer you to Clause 28. Clause 28.1 has been complied with. We are unaware of any circumstance which would give rise to the other provisions of Clause 28 applying.
It is inappropriate to arrange any meetings at this stage until you have complied with the above and in particular provided us with a proper order.
We are concerned to meet our obligations under the contract and we expect that you will give the above points we have raised your most urgent attention. You will see that the position is essentially that Council is not providing to us orders in proper form.
In addition, as mentioned above there are substantial amounts of money owed by Council to us which are not in issue and Council has not made payment to us. These amounts are immediately due and payable and we demand that payment be made forthwith. Council is in a continuing state of breach of contract by not making these payments to us.’
On 4 November 1999, Rawson-Harris wrote to the General Manager of the Council setting out a comprehensive complaint about the manner in which the Council had dealt with the contract. A response was received dated 8 November 1999.
Khreich then forwarded a letter of 8 November 1999 (Order No 1) to Goldspar in the following terms:
‘RE: Contract Number 9733 – Multi-Functional Street Poles
Supply of Product – Replacement Order
Reference is made to the Contract between the Council of the City of Sydney ("Cos") and Goldspar Australia Pty Ltd ("Goldspar") for the Supply of Multi-Functional Street Poles, and our instruction to Goldspar to Supply Product dated 19th October 1999.
The following instruction to Supply Product supercedes our referenced instruction of the 19th October which you have disputed
Goldspar is instructed by CoS to Supply the Product in the attached schedule, in accordance with the Contract.
Please note the following items relevant to This instruction to Supply Product:
1. The description of the Product to be supplied is shown in the attached three (3) page schedule, entitled "ORDER PLACED WITH GOLDSPAR 08/11/99", referring to 146 poles of types A, AB, B and D. The pole numbers range from 2/001 to 2/146 inclusive.
2.The Product is to be manufactured and supplied at the unit rates listed in the Schedule of Prices Part 2 (D), which forms part of the Contract.
3.The Contract Price for the 146 poles referenced above shall be $408,879.00, as shown in the attached schedule. The attached schedule also describes various variations required to the Product.
4.The total valuation of the Product and the required variations, including adjustments for CPI shall be $792,918.39, as shown in the attached schedule.
5.Time is of the essence with respect to delivery of the Product. CoS has assessed the Time for Delivery of the poles. In accordance with Clause 17.3 of the Contract, CoS nominates a 12 week delivery for the Product. Additionally CoS wishes to grant an additional two (2) weeks extension to this delivery date to allow for a reasonable shutdown over the end of year holiday period. As such delivery must be completed by Close of Business on 21st February 2000. You are referred to Clause 17 of the Contract, which requires certain notices from the Supplier to Council prior to delivery.
6.Goldspar are to submit a program conforming to Clause 13.2 of the Contract setting out the various activities involved in the manufacture and supply process including production rates for all components, leading to final delivery of the Product. CoS wishes to review progress against such a program on a regular basis.
7.Goldspar is to provide evidence to CoS of current insurance policies as required by the Contract.
8.Goldspar is to submit its Quality Assurance System in accordance with Clause 28 of the Contract. Cos requires to review the QA system within 14 days of the date of this letter. CoS wishes to monitor the quality of the Product at various stages of the manufacture and supply processes and will advise hold points once the Goldspar QA system is tabled.
Please contact the undersigned to agree a time to resume the Co-ordination Meetings so that any issues that require clarification can be discussed and clarified.’
On that day, the Council resolved to award Tender 9912 to Streetscape and another company. Khreich also separately replied to the facsimile from Goldspar of 26 October 1999.
‘RE:Contract Number 9733 – Multi-Functional Street Poles
Supply of ProductReference is made to your correspondence of the 26th October 1999, in reply to our request to Goldspar to supply Product.
CoS is disappointed that you feel it inappropriate to attend a co-ordination meeting intended to progress the supply of Product.
CoS insists that Goldspar attend a co-ordination meeting and requests your presence at 2:00 PM Thursday, 11th November 1999, at TBH's North Sydney office.
CoS notes your various concerns and your request for a “proper order”. We do not understand your reference to “proper order”, our view is that the Contract represents the Order from CoS to Goldspar.
CoS notes your concerns regarding pole components that may not have been previously supplied by Goldspar. While Goldspar has not been specific as to which components this concern is related to, you are advised that the Contract provides mechanisms for Goldspar to request a variation for such components, as well as extensions of time for the affected poles. Goldspar's statement that such components should not have been ordered is without basis. The effect of this concern on the supply of the poles can not be assessed from your reply. Our Replacement Order removes the requirement to supply various components that we assume caused you this concern.
With respect to Schedule of Prices, our instruction to supply product is clear in that such supply is requested in accordance with Schedule of Prices Part 2 (D). Any requested variations to this Schedule of Prices will be dealt with in accordance with the Contract.
Our calculation of the Total Price is clearly shown on the attached schedules and will be further explained to you at our scheduled co-ordination meeting.
CoS refutes the various allegations made in your correspondence referenced above. A number of these allegations are subject to current legal proceedings. The intention of this correspondence is to progress the supply and delivery of product, it is not appropriate for us to address your various allegations in this document.’
The substantive reply by Goldspar to the letters of 8 November 1999 was dated 17 November 1999 and was in the following terms:
‘We refer to and reply to your two letters dated 8 November in relation to your purported instruction to Goldspar to supply poles to Sydney Council.
(i) The pole description schedules provided by you are still in error.
(ii)The Contract Price you have nominated for the poles, variations and CPI adjustment, is incorrect.
(iii)The Schedule of Prices Part 2 (D) you have nominated (albeit with incorrect figures) refers to the supply of pole components, not assembled poles.
The correct schedule for assembled poles is the Schedule of Prices Part 2 (E) for which the correct Contract Price is $1,711,438.58, not including CPI adjustment which is based on pole delivery.
Please note that the above price includes the supply and assembly of the RTA Termination panels, EA Termination Panels and RTA cable entry covers which have been supplied by Goldspar in the 500+ poles delivered so far; non-supply of these items will negate Goldspar's warranty on the poles. In the event that Council does not require Goldspar's warranty, these items can be removed and the Contract price adjusted accordingly. Please advise when placing a proper order with correct prices.
When we receive a correct pole schedule, a correct Contract price, and a more appropriate allowance for the Xmas holiday period, together representing a proper order, we will be pleased to provide the requested Program. Until that time we see no need for any meetings with you.
We reject your claim that time is of the essence with respect to delivery. It is a recorded fact that you promised to provide Goldspar a requirements schedule by November 1998, Failing the long awaited receipt of the promised schedule, on 12th of August 1999 we wrote and advised the urgent need for you to place Council's pole requirement no later than 25th August 1999. This also was not done. We place on record that now, 3 months later, we still have not received that schedule of requirements.
In the event, you are attempting to place the responsibility for late delivery on Goldspar. We place on record that in a responsible and competent project management function structure you and Council would have provided Goldspar with the schedule of requirements, and a proper order many months ago that would have allowed for an orderly and timely delivery of poles.
We note and place on record that Council was clearly able to prepare and issue a tender for an alternate source of supply of poles by 12 May 1999, and yet was unable or unwilling to spell out its delivery requirements to Goldspar with whom it has an existing supply contract.
In the meantime we note that the Proper Order when received by Goldspar should relate to pole numbers 2/001 to 2/146 inclusive.’
A period of intense inter parties communication then ensued at two levels – the first was at the contractual level between Goldspar and Khreich; the second was at what might be called the commercial level involving the Lord Mayor of the Council and others. Whilst the latter is illuminating it ultimately went nowhere and the details need not burden what will, in any event, be a long judgment. Goldspar fully exposed its concerns about the events to that time with no satisfactory substantive explanations by the Council. It is necessary, however, to trace the contractual dealings in some detail.
On 26 November 1999 Barnes sent a facsimile to Khreich, the substance of which was as follows:
‘SUBJECT: Independent assessment of your request for 146 poles.
We note that we have not received a response to our letter dated November 17 1999.
In view of the present issues we felt it was appropriate to retain an independent Quantity Surveyor to analyse the proper charges for the 146 poles referred to in your letter of November 8 1999.
We enclose this calculation of the purported amended order of November 8 1999. (we do not recognise this as a proper order). We hope the enclosed calculations will facilitate the placement by you of a proper order. Upon receipt of that order we will take all necessary steps to manufacture the poles as quickly as possible, given the difficulties as to timing and the availability of raw materials.
(N.B. We no longer have the 70 upper extrusion sections stored at Capral’s yard for us and improperly sold to Council. This will cause delays).
Obviously there is a dispute between us as to many issues concerning your purported order, including:
1.The form of the order itself
2.The prices noted
3.The quantities
4.Delivery times
The enclosed calculation of price will hopefully eliminate one of these issues. You are aware of our position on the other matters. In the event we do not receive a proper order from you by Wednesday December 15 1999 we propose to refer the dispute to arbitration.’
I will not set out the enclosed calculations.
By facsimile of 30 November 1999 Khreich forwarded three documents to Barnes. The first was described as ‘Order No 2 for 1999/2000 year for 154 poles’. It was in the following terms:
‘RE: SUPPLY OF PRODUCT: ORDER UNDER CONTRACT No 9733
ORDER No 2 OF 1999/2000 YEAR
Goldspar is directed to supply the following products in addition to the Order dated 8th November 1999.
1.Supply only of 154 type B poles in accordance with the Contract.
2.The product shall be delivered to Energy Australia Depot in Sydney, address to be advised in accordance with the Contract.
3.Time for delivery shall be in accordance with the Contract, the period commencing from the date of this Order.
4.The poles are to be numbered sequentially from 2/147 to 2/300.’
The second was a response to Goldspar’s letter of 17 November 1999 and was in the following terms:
‘We refer to your correspondence dated 17 November 1999 (signed by Mr Douglas Rowson-Harris), and comment as follows:
·The pole description schedule as shown in our letter dated 8th November 1999 describes the Pproduct required to be supplied. You are instructed again to supply as per our referenced order.
·While we do not admit to any ambiguities or errors in the Order, we had organised a co-ordination meeting to clarify items in the schedule for your benefit, however you did not attend. We would be pleased if you could attend such a meeting.
·We confirm the order is based on Schedule of Prices Part 2(D), Supply only in accordance with the Contract.
·Warranty of any product supplied by Goldspar is to be in accordance with the Contract. Council is entitled to order product in accordance with the contract.
·We deny your allegation that the schedule contains errors.
·Council is of the view that the price shown in the order has been calculated in accordance with the Contract.
·The Contract does not allow any entitlement for a Christmas shutdown, and it is inappropriate to make any further allowance.
·Council rejects your various statements regarding orders that have allegedly been previously promised and comments made in your second last paragraph.
Goldspar are directed to supply in accordance with the Contract.’
The third was a response to the letter from Goldspar of 26 November 1999 and was in the following terms:
‘We refer to your letter dated 26/11/99, entitled “Independent Assessment of your request for 146 poles”, and respond as follows.
·You refer to Greenhill Consulting Services as “independent”, however at our last meeting you informed us that Mr Greenhill will be Goldspars future “Supplier’s Representative”. We are still awaiting written confirmation of that advice.
·The form and content of the order dated 8/11/99 are clear. Goldspar is directed to supply the 146 poles in accordance with the Contract.
·We are examining the Cost Summary attached to your letter and will respond to that shortly. However, in the meantime we wish to note that Council’s order has been in place for some time, and we intend to status progress during December 1999.’
On 2 December 1999 Goldspar, by facsimile addressed to Khreich as the ‘Superintendent’s Representative’, sought an extension of time for the date for delivery because of delays caused by acts omissions on the part of the Council, pursuant to cl 18 of the contract. The terms of that facsimile were as follows:
‘RE: EXTENSION OF TIME
Under Clause 18 of the Contract, we hereby notify you that Goldspar's requires an extension of the date for delivery because of delays caused by acts or omissions on the part of the Council.
Under Clause 18 of the Contract, Goldspar has taken all reasonable steps to prevent and minimise delays. These steps have included:-
1.the pre-ordering of 70 pole extrusions from Capral Aluminium; and
2.the pre-ordering of other known components necessary to meet anticipated orders.
The delays have been caused as a consequence of:-
1.Goldspar becoming aware that Council has without Goldspar's permission or knowledge purchased from Capral 70 pole extrusions, which extrusions were made from dies held by Capral exclusively to meet orders placed by Goldspar. These extrusions are therefore now not available and Capral advise that the earliest delivery date for further extrusions is 20th, February 2000.
2.Council's failure to provide us with a schedule as promised in November 1998. This omission on the part of Council is a continuing omission and may be the basis for further applications for extension of time. On 12 August 1999, Goldspar wrote to Council (copy of this letter is enclosed) requesting the promised schedule by no later than 25 August 1999. We have not received any reply to that letter.
3.Council's failure to give Goldspar proper order. Until we receive a proper order, we are not in a position to put into place a manufacturing regime for these poles. In particular:-
(a)you have still not adequately described the poles and components;
(b)you have not given us adequate instructions in respect to the RTA panels and Energy Australia panels;
(c)you have deducted incorrect amounts;
(d)you have referred to the wrong Schedule. You have referred to Schedule 2D which is for the supply of the poles in pieces. Your contractual obligation is to order poles on a supply and assemble basis. The correct Schedule therefore is Schedule 2E (without erection).
Goldspar is very concerned to obtain a proper order for the 146 poles and the 154B Poles. We would therefore ask you to give this your urgent attention so that further delays can be minimised. We note that whilst we are promptly responding to your correspondence, you are taking weeks to reply to ours. We need your immediate attention to the above so that we can pursue the fulfillment of our contractual obligations without delay.
We place on record that once we have received a proper order from you, and assuming that Capral deliver to us extrusions by 20th February 2000, there will then be a further minimum period of four weeks required for anodising and a further 11 weeks for drilling and assembly as required by Schedule 2E. The extension of time we therefore seek for the delivery of the 146 poles is 9 June 2000. We reserve our right to seek further extensions of time if Council continues to fail to provide us with proper orders.
We look forward to hearing from you.’
On the same day Goldspar sent three other communications to Khreich responding to the three communications from Khreich of 30 November 1999. The first related to the letter headed ‘Supply of Product’ and was in the following terms:
‘RE: YOUR LETTER HEADED “SUPPLY OF PRODUCT”
This letter is in response to our letter to you of 17 November 1999 and deals with your purported order of 146 poles. Responding to each of the points made by you:-
·Your pole description does not adequately describe the product and the inadequacies in your description are such that we are unable to order the required components to manufacture these poles.
·In respect to ambiguities and errors, it is not Goldspar's contractual obligation to point these matters out to you, we did so as a matter of courtesy to enable you to consider them. If you choose not to correct these ambiguities and errors, that is a matter for you, but we will rely upon your failures in this regard. Goldspar has no contractual obligation to attend any meeting with you or with Council in order to fix up inefficiencies on the part of the Council in its ordering process.
·We have pointed out to you on several occasions that Schedule 2D is a Schedule that relates purely to the supply of poles in an unassembled state. Our understanding of Council's requirements is that you require the poles in a supply and assembled basis. Are you saying to us that you now do not require us to assemble the poles prior to delivery? Please advise us by return as to what Council's requirements are in this regard. If you require them on an assembled basis, then we draw to your attention that the correct Schedule is Schedule 2E (excluding erection). We also point out that as Council is contractually obligated to order on an assembled, supply and erection basis, Goldspar will be claiming all profit that it would achieve on such a basis irrespective of whether or not Council orders on that basis.
·In respect to warranty, Goldspar understands its contractual obligations. We agree with you that Council is entitled to order product in accordance with the contract and we ask that Council do so without further delay.
·In respect to your denial of allegations of Schedule errors, we point out that the Schedule provided by you is totally inadequate. Some examples of the many errors and inadequacies in the Schedule are as follows:-
(a)Council has in the past ordered up to four different types of lights. The Schedule does not identify what type of lights Council now requires. How can we order this component?
(b)The Schedule refers to holes in the upper extrusions. It does not identify where those holes are to placed nor the size of the hole or the shape of the hole. Are we meant to guess this?
It is not up to us to point out to you the inadequacies of your Schedule. It is for you to provide us with a Schedule that properly identifies what you want done. The above are simply two examples of vagueness in your Schedule. There are, of course, many others and we ask you to provide us with a proper Schedule, and until you do so, your purported order is a contradiction in term because it cannot be the basis of any contractual obligation on our part that requires fulfillment.
·The calculation of the pricing is not in accordance with the contract and again this is not a matter of mathematical error, it is a matter of Council deliberately using the wrong Schedules. It therefore goes to the very heart of the purported order.
·We note that the contract does not allow any entitlement for Christmas shutdown. However, in your letter or 8 November 1999 (paragraph 5), you allowed a two week extension for the Christmas period. It is not, therefore, within your perogative to revoke that extension.
Goldspar is ready, willing and committed to perform its contractual obligations and upon receiving a proper order from Council for 146 poles, it will use all reasonable endeavours to produce those poles as soon as is practically possible. To date all delays have been a direct consequence of Councils acts or omissions. In this regard, please see our extension of time already requested.’
The second related to Order No 2 and was in the following terms:
‘RE: YOUR LETTER DATED 30 NOVEMBER 1999 – SUPPLY OF PRODUCT: ORDER UNDER CONTRACT NO. 9733 ORDER NO. 2 OF 1999/2000 YEAR
Thank you for your letter dated 30 November 1999.
We are perplexed by the content of your letter.
We have received no specification for the 154 B poles you have requested us to supply. Until we receive a proper specification with details of pricing and components, we are unable to take this further.
Goldspar is anxious to commence work on the production of these 154 B poles and therefore would be grateful if you would give this matter your urgent attention.’
The third related to the assessment of prices and was in the following terms:
‘RE:RESUPPLY OF PRODUCT – YOUR ASSESSMENT OF PRICES – GREENHILL CONSULTING SERVICES
Please note Greenhill Consulting Services are an independent consulting group. At this point of time, they are not the supplier's representative. We will advise you if and when they are so appointed.
We provided you with the independent assessment of Greenhill Consulting simply as an assistance to you so that you could provide us with a proper and correct order.
We are endeavouring to act reasonably by providing you with their summary of pricing so that possibly this could expedite the provision to us of a proper order from Council.
Whether you choose to use Greenhill Consulting Group's summary of pricing to assist you in preparing a proper order for the 146 poles is obviously a matter for you. Note however, that until we receive a proper order from you with proper pricing, it is not an order made in accordance with the contract.
We look forward to receiving a proper order from you.’
Khreich replied by letter dated 15 December 1999 to Goldspar’s letter of 2 December 1999 relating to the supply of product. The substance of the reply was as follows (omitting some of the detail):
‘RE: SUPPLY OP PRODUCT
We refer to your correspondence dated 3rd December 1999 regarding supply of product in which you allege ambiguities in the recent order placed by Council for 146 poles, and respond as follows:
Council strongly denies your assertions that ambiguities exist in the Order, nonetheless we note that Council has been pro-active in its attempts over the last two months to clarify any alleged ambiguities in the Order, and will continue in its attempts.
We regret that Goldspar has to date declined several invitations to attend project meetings intended to clarify and progress issues on the project. It is common practice for parties involved in managing projects to meet and co-ordinate the various issues on the project.
Below is our response to the specific issues raised in your referenced correspondence:
…
3.PRICE: CoS has on a number of occasions since placing the Order confirmed to Goldspar that the Order is required to be fu1filled in accordance with Schedule of Prices Part 2 (D). This is also the case for Council’s Order dated 30th November 1999.
4.COLUMN ARRANGEMENT: While the Product has been ordered in accordance with the Contract schedule of Prices Part 2(D), the state of the Product to be supplied was clarified verbally to your Mr Rawson-Harris on the 14th December 1999 as “similar to the poles supplied for George Street North (stage 4)”.
In summary, Council’s understanding of the state of the Product at time of Supply is broadly outlined as follows without limiting any party’s obligations under the Contract:
· Complete column arrangement, meaning the extrusion fixed onto the spigor including rims, caps etc and any bracketing, mounting kits and holes where pedestrian push buttons, audio tactile, outreaches and the like have been specified in the Order.
· Outreaches assembled but detached from the poles.
· Luminaries supplied detached from the outreaches and in their boxes.
· Universal brackets supplied in a box.
· Rag bolts supplied detached from the poles.
Council does not require the following from Goldspar at this stage:
· EA panels – neither supply nor installation.
· RTA panels – neither supply nor installation.
· Installation of the poles.
We note Mr Rawson-Harris comments of yesterday that Goldspar will not accept responsibility for the affixing of the RTA and EA panels to the pole, including the removal of the cladding for such work by others. Council agrees with these comments for Product where these panels had not been Ordered or Supplied.
The column arrangement as outlined above is also required for our second Order dated 30th November 1999.
5.CHRISTMAS SHUTDOWN: Goldspar appear to have misunderstood Council’s comments in our letter of the 30th November 1999. We repeat that “… it is inappropriate to make any further allowance”.. By this we are not revoking any extension of time we have previously given for the 8th November 1999 Order. There is no change to the delivery date.
We hope the above clarifies any misunderstanding that Goldspar may have had to date, and note that items 1 and 2 above do not affect the critical path for delivery of the Product, and that we regard our orders to be effective from 8th November 1999 and 30th November 1999 respectively.’
In my opinion, Orders No 1 and No 2 were given when they were and in the form they were not for the purpose of securing the performance of the contract on the part of Goldspar so as to give the Council the benefit of that contract but, rather, to set up a position whereby the Council could argue that Goldspar’s services had been validly dispensed. This would then meet the objective of preventing it from doing any further work, which rather would be done by others, without the necessity of paying damages for breach of contract. In my opinion, that is contrary to the manner in which the contract could be administered according to the High Court authorities that I have discussed. Those authorities warrant the implication that cl 17 would be administered in good faith in the sense of honestly for the purposes of enabling the Council to obtain the benefit of the contract. Although it is less clear, those authorities also warrant the implication that cl 17 would be administered reasonably for the same purpose. The conduct of the Council in relation to Orders No 1 and No 2 can be described as neither in good faith nor reasonable in that sense. It follows that neither Order No 1 nor Order No 2 were valid or effective.
The net result of all of this is that, in my opinion, Goldspar was not in substantial breach of either contract by virtue of failure to comply with either Order No 1 or Order No 2 as at 23 February 2000. Furthermore, in my opinion, alleged repudiation of contract is not ‘a substantial breach of contract’ within the meaning of cl 25.2. Indeed, cl 25.1 draws a distinction between breach and repudiation. I should add for the sake of completeness that the reference to progress pursuant to cl 13 adds nothing to the Council’s case. It assumes that Goldspar was bound to deliver any number of poles requested on 12 weeks’ notice. Thus, neither show cause notice was valid.
Showing cause
Clause 25.2 gives the Council a discretion to give a written notice to show cause. It is further argued for Goldspar that this discretion is also conditioned upon the implied term of reasonableness and good faith. That is a difficult argument because it must assume a substantial breach of contract and the clause only relates to a notice to show cause – the substantive discretion to terminate comes into play at a later point of time, although Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 provides support at least for reasonableness as a criterion to be satisfied. If so, the term would be breached as I regard the whole exercise as designed to effect the anterior purpose of preventing Goldspar from completing the contract.
The next thing to note about cl 25 is that, pursuant to cl 25.4, the Council may, by notice in writing, terminate the contract if ‘the Supplier fails to show reasonable cause why the Council should not exercise that right’ (emphasis added). In other words, there must be an objective failure by the supplier to show reasonable cause. The clause is not conditioned upon the satisfaction of the Council or any other party (cf Renard Constructions (ME) Pty Ltd v Minister for Public Works; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91). Even if both orders were valid and effective so that there was a substantial breach of contract to support each show cause notice, Goldspar did not fail to show reasonable cause when called upon to do so. In my opinion, the response to the notices showed reasonable cause why the Council should not terminate the contract by reason of failure to comply with each order on the terms ordered. Bearing in mind the time of year and the availability of components, compliance with the orders was quite impractical.
Extension of time
An important aspect to be considered on the question of the showing of reasonable cause is the application made by Goldspar for an extension of time pursuant to cl 18 of the General Conditions of Contract. I need not set out the relevant correspondence again. There are difficulties of construction of cl 18. It seems that the first two paragraphs apply across the board. The third, fourth and fifth paragraphs relate to what is described as an ‘entitlement’ to an extension. The sixth paragraph, including the handwritten amendment, relates to an overriding general discretion to grant an extension coupled with an obligation to not unreasonably deny a claim where the event causing the delay is beyond the control of Goldspar. The remainder of the paragraph is general. Leaving aside all other difficulties, I cannot see how Goldspar could have established an ‘entitlement’ to an extension in the face of the terms of paragraph (v) of the third paragraph. However, the general discretion to extend is a horse of a different colour. The second paragraph describes a wide set of circumstances which would justify notification, which must then be considered with a view to exercising the general discretion coupled with the obligation. In considering that issue Khreich was obliged to do more than merely pursue the interests of the Council – he was required to give genuine and bona fide consideration to the factors advanced by Goldspar. (Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 per Davies J at 532; Sheppard J at 542–4, see also Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 per Mason CJ and Dawson J at 96 and Gaudron J at 150; and Jenkins v NZI Securities Australia Ltd (1994) 124 ALR 605 discussed below).
In my opinion, there were causes of delay beyond the control of Goldspar and, in the circumstances, it was unreasonable to deny a claim for a reasonable extension of time for those causes. Rather than give bona fide consideration to that issue, the approach by Khreich was to take issue with every contention on the part of Goldspar in an adversary and argumentative fashion having regard only to the interests of the Council. It is not necessary to come to a view as to what particular extension of time should have been permitted, assuming that the orders bound Goldspar according to their terms. That question was never properly addressed.
It was disingenuous of Khreich to regard the lack of advance notice from the Council as to its intentions as irrelevant to the question of time when he had hitherto administered the contract on the basis that advance notice of requirements was required: witness the seven poles in March 1999; his request of Daly in July or August to supply him with an order; the fact that the discussion of 29 September 1999 presupposed that there would be an order forthcoming; and the fact that orders indeed were forthcoming. It was also disingenuous to regard the appropriation of the existing Capral extrusions by the Council as irrelevant. He could not have doubted the bona fides of the order which had been placed by Goldspar to hold them in June 1999 or underestimated the significance of having that number of poles on hand. It was certainly seen as very important for the successful tenderer for 9912. Indeed, the constraints of supply by Capral, particularly at the time of year and with a competing contract on foot, were obviously known to Khreich and Council officers in that connection. It was also disingenuous to contend that more should have been done by Goldspar with Capral prior to 8 November 1999. Why would Goldspar place a firm order with Capral when all it had was the derisory ‘order’ of 19 October 1999 in relation to which time was said to be of the essence. That was obviously issued in order to trap Goldspar into a situation of default with termination to follow. The proof provided to Khreich of the order placed with Capral in December and, in particular, the payment of the deposit and the updates from Capral as to delivery provided an answer to criticism on this issue.
It will be apparent that I was not impressed by Khreich’s attempts in evidence to justify the various positions taken by him, particularly after 29 September 1999. He was most unconvincing.
Termination
Clause 25.4 gave to the Council a discretion to terminate. It follows from the findings that have been made that the necessary preconditions to exercise that discretion did not occur. It is also argued that the exercise of that discretion is subject to an implied term as to reasonableness and good faith. This arises in a different context to the similar questions discussed earlier. In Jenkins v NZI Securities Australia Ltd the Full Court considered the following clause:
‘5.08 On the third anniversary of the first Drawdown Date, the Financier will review the Facility with a view to extending the Repayment Date by a further period of 12 months. If the Financier is prepared to so extend the Repayment Date, it will notify the Company accordingly and request the Company to advise whether it so wishes the Repayment Date to be so extended. Upon receipt of such notice from the Financier, the Company shall advise the Company [sic] within seven (7) days as to whether it wishes the Repayment Date to be extended. If the Company so advises the Financier, the Repayment Date will be extended for a further period of 12 months and otherwise the Repayment Date will remain unaltered.’
Beaumont, Gummow and Carr JJ said (at 619):
‘We would add that the law would oblige the financier to conduct the review in good faith and, perhaps, also reasonably, in the sense of paying regard to the interests of both parties: Amann Aviation Pty Ltd v Commonwealth (1990) 92 ALR 601; 22 FCR 527 at 532, 542–4, affd (1991) 174 CLR 64 at 96, 150; 104 ALR 1; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 280; cf Hughes Bros Pty Ltd v Trustees of Roman Catholic Church for Archdiocese of Sydney (1993) 31 NSWLR 91.’
I should follow that guidance and imply a term accordingly. There is an air of unreality in considering breach of that term because, for it to arise, the show cause notice must be taken to have been valid and Goldspar would not have shown reasonable cause. However, I have no doubt that in purporting to rescind the contract the Council was acting pursuant to the determination which had been formed to remove the work from Goldspar and give it to others and so was in breach of the implied term, no matter how it is precisely framed.
Repudiation of contract by Goldspar?
It is argued for Goldspar that cl 25 constitutes an exclusive method of terminating the contract. Whatever may be the position in relation to breach as such, I am not persuaded that cl 25 would exclude termination at common law by acceptance of repudiation. In my opinion, however, the facts fall well short of establishing repudiation on the part of Goldspar at the time of termination. The principles concerning repudiation have recently been restated by Finn and Sundberg JJ in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 as follows (at [102]):
‘The principles governing repudiation of a contract are, as we understand it, not in issue and for present purposes can be stated shortly.
(i)A party will have repudiated a contract if, by words or conduct, it evinces an intention no longer to be bound by it or if that party shows it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and not in any other way: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623.
(ii)The party’s conduct is to be judged objectively by reference to the effect it would be reasonably calculated to have upon a reasonable person: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd, above, at 658; Satellite Estate Pty Ltd v Jacquet (1968) 71 SR (NSW) 126 at 150.
(iii)A party that acts on a genuine but erroneous view of its obligations under the contract will not for that reason alone have repudiated it. That party may still be willing to perform the contract according to its tenor: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431-432; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277. But persistence in an untenable construction will ordinarily be regarded as repudiatory: Summers v Commonwealth (1918) 25 CLR 144 at 152; and see Chitty on Contracts, above, par 25-018.’
It is interesting that their Honours added immediately thereafter the following paragraph which has resonance in the present case (at 103):
‘We would note, additionally, that in the case of contracts of significant duration in which interaction and some level of cooperation is required, it is common for parties without formally varying their contract to conduct their dealings inter se in ways that they find acceptable and convenient, fair and reasonable, or commercially necessary “rather than by reference to a priori rights and duties”: cf Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11, 110 at 11,117.’
If it were not for the letter of 14 February 2000 from Rawson-Harris to McDowall of Tracey Brunstrom & Hammond Pty Ltd, I would regard the Council’s argument as having very little merit. The correspondence on all sides was contentious. Positions were being taken on various matters which would be difficult to sustain if pressed. Rawson-Harris was in a position of great difficulty. He was faced with conduct on the part of the Council which exhibited lack of bona fides and he could not but have been conscious of the probability that the Council was setting Goldspar up for termination of contract, which would mean that he would not be paid short of litigation. On the other hand, if he did not take appropriate steps to perform the contract, then the Council might be able to terminate the contract without incurring a liability to pay damages. Save for the letter in question, I would not conclude that Goldspar unequivocally indicated that it would not, under any circumstances, supply 300 poles within a reasonable time – perhaps even by the end of the relevant financial year.
It needs to be appreciated that the letter in question was part of a course of correspondence relating to the request for an extension of time. An extension of time, if granted, would have the effect of altering the contractual obligation. It should have been granted. The response from Khreich of 19 February 2000 was to insist that the obligation was to deliver the full number of poles specified in the order of 8 November 1999 by 21 February 2000. It is to be noted that the letter in question from Goldspar supplied accurate information as to the expected delivery of extrusions and performance of anodising and accurate information as to when it was anticipated that deliveries would commence. Furthermore, the statement concerning delivery of extrusions indicated to the reasonable reader that there was a contractual arrangement to that effect. Such a contract with Capral would be inconsistent with an intention not to carry out the contract. Seen in this context, in my opinion, the letter was not such as to evince an intention not to be bound by the contract in the relevant sense. It is to be seen as an exaggerated statement of position in a continuing debate and as ‘part of the posturing that often accompanies negotiation’ (per Ipp AJA in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [156]).
I thus conclude that, by its notice of termination, the Council repudiated the contract and Goldspar was entitled to and did accept the repudiation and bring the contract to an end.
Was Goldspar ready and willing to carry out the contract?
The Council’s defence sets out a number of particulars in support of its contention that Goldspar was not ready willing and able to carry out the contract. Rawson-Harris and Barnes were each subjected to a searching cross-examination on the issue. I am satisfied that Goldspar was ready, willing and able to carry out the contract as at March 2000, notwithstanding the criticisms advanced on the part of the Council.
The requirements to be proved by a party, which has properly brought a contract to an end by accepting a wrongful repudiation by the other party to an executory contract and seeks damages, was considered in Foran v Wight (1989) 168 CLR 385, although that was not the precise point of the case. Such a party must establish that it was ready and willing to carry out the contract on its part at the time of acceptance of the repudiation and readiness and willingness includes capacity. However, in a situation in which the wrongdoer relieves the other party from actual performance in the future, that task is not particularly demanding. In Psaltis v Schultz (1948) 76 CLR 547 Dixon J said (at 560):
‘It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when the time comes, what the contract requires.’
In Rawson v Hobbs (1961) 107 CLR 466 Dixon CJ said (at 481):
‘One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness.’
In Foran v Wight Mason CJ said (at 408–409):
‘… in the case of termination for anticipatory breach the plaintiff will generally be able to show at the time of termination that he would have been able to perform at the time for performance by demonstrating that he was not then disabled or incapacitated from such performance.’ [emphasis added]
Brennan J said (at 425):
‘To speak of an incapacity which is “substantial” and of a resolve or decision which is “definitive” is to import a test of degree. A test of degree inevitably gives rise to differences in the evaluation of facts and produces some uncertainty in the resolution of concrete cases. Yet, in the great variety of circumstances to which the test might be applied, it is impossible to posit terms of greater precision. Lord Sumner’s phrase – “wholly and finally disabled” – is too demanding a test of incapacity to accord with reasonable commercial practice but it is indicative of the range which the test of substantiality connotes. The test of incapacity, … as an element in readiness and willingness, is an exacting test though it must be expressed as a matter of degree.’
Deane J said (at 437):
‘ … I do not accept the proposition that a party must incur the expense necessary to put himself in a position where he can positively demonstrate actual or potential readiness and willingness to perform a contract before he can accept the repudiation of the other party and thereby rescind. In my view, that proposition is unjustified by either principle or common sense. Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the other party for specific enforcement of the contract or for the recovery of damages for its breach. It does not, of itself, preclude rescission of the contract by acceptance of the other party’s repudiation. Were it otherwise, the law would require the useless and futile expenditure by an innocent party of whatever time, effort or money was necessary to place himself in a position where he could positively demonstrate actual or potential ability to perform a contract in order to be able to bring it to an end on the ground that it had already been repudiated by the other party.’
Dawson J said (at 452–453):
‘Even where a party has been absolved by the repudiating party from performing his future obligations under the contract he must show that at the time of the repudiation he was ready and willing to complete the contract had it not been repudiated. But in proving his readiness and willingness where he has been absolved from tendering performance he may not have to prove a great deal. For example, in Cort v. Ambergate Rly Co. ((1851) 17 Q.B. 127 [117 E.R. 1229]) the plaintiffs could and did prove that they were ready and willing to manufacture railway chairs in accordance with their contract at the time it was repudiated by the defendants. But they were not required to prove that they had taken steps to manufacture the chairs in order to be able to tender them.’
Later his Honour said (in the context of the conveyancing case) (at 454):
‘All that the purchasers were required to show was that at the time of the repudiation, that is, at the time they were absolved from future performance, there was not a “substantial incapacity” on their part or a “definitive resolve or decision” against the performance of their obligations.
… They merely had to prove that, at the time of the defendants’ repudiation, two days before the settlement date, they were not incapacitated from raising that amount and had not resolved or decided against doing so. That was a relatively light burden to discharge and, upon the evidence, I think that the plaintiffs did discharge it. There is nothing in the trial judge’s findings which requires a contrary conclusion.’
Both Deane J and Dawson J point out that, in establishing the quantum of damages, the innocent party may have to go further.
I am satisfied that Goldspar had the ability to carry out the contract properly construed. There is no reason of substance to doubt the technical competence of Goldspar. It had already delivered hundreds of poles and those concerned, particularly Rawson-Harris, had a considerable amount of expertise in the field. An attack was made upon the financial ability of Goldspar to carry out the contract. It can be concluded that the company was in a somewhat precarious financial position. However, a proprietary company of this kind, in essence, depends upon the situation of those backing it. The critical point is that Goldspar had met all reasonable requirements up to the time of termination, including the payment of the deposit to Capral. Furthermore, the position of Goldspar would have been quite different if the Council had scheduled for deliveries in a proper sequence from the commencement of the year 1999–2000 with the consequent cash flow. Goldspar had a backer, apart from Rawson-Harris, who had assisted as required and who had taken a role in the commercial negotiations with the Council.
There was also a substantial attack upon the readiness and willingness of Rawson-Harris to carry out the contract as properly construed. The cross-examination of Rawson-Harris provides support for the view that he was fed up with, and highly suspicious of, Khreich and the relevant Council officers, at least by 5 October 1999 and did not change his attitude thereafter. He was also reluctant to accept the results of the Expert Determination as far as the amounts due to Goldspar were concerned and held a view about intellectual property which was inconsistent with that of the Council and with the finding ultimately made in this case. Those views influenced the positions he took as events developed following the first ‘order’ of 19 October 1999. The cross-examination also gave support to the conclusion that Rawson-Harris was inclined to hold firm to his own position and not lightly give ground. I should say that I regard Rawson-Harris as essentially an honest witness although tending to be unnecessarily argumentative.
A good deal of the impact of the cross-examination is removed, however, when the context is understood. As I have already said, by October 1999 Rawson-Harris had every reason to be deeply suspicious of Council officers and Khreich, who had been the mouthpiece of the Council in relation to this contract. I am not concerned about the fact that Rawson-Harris was not convinced by the Expert Determination, notwithstanding that it was subsequently upheld in the Supreme Court of New South Wales. It is not unreasonable that a losing party might not be convinced by the result of a lay determination. I would say the same concerning the question of intellectual property. Although I found that issue substantially against the interests of Rawson-Harris, I can understand that his position was honestly and firmly held. In my opinion, the critical matter to understand is that Goldspar was on sound ground both legally and, more particularly, commercially in having sought advance notice of firm requirements prior to or within a reasonable period after the commencement of the relevant period on 1 July 1999 but which still had not been provided by 5 October 1999. Furthermore, the requirements, when given on 19 October 1999, were both legally and commercially, indefensible. As I have already said, Orders No 1 and No 2 did nothing to alleviate the substance of the problem. Thus, Rawson-Harris was faced with the position that was quite unreasonable from a legal and commercial viewpoint, tenaciously defended by Khreich on behalf of the Council.
It was, no doubt, possible that, faced with this situation, Rawson-Harris might have been tempted to play a cat and mouse game and simply await the inevitable termination of contract which was so clearly flagged. He did not take that course. Goldspar undertook a substantial contractual commitment to Capral backed by payment of a substantial sum of cash and made arrangements with anodisers and others in order to actually commence the delivery of poles in early April. That is not consistent with Goldspar not being ready and willing to carry out the contract. I am unimpressed by arguments concerning the position that Rawson-Harris was taking as to the terms upon which delivery would take place. At the time of termination the Council was persisting in conduct which, in my opinion, was in breach of its contractual obligations and in bad faith. It does not lie in its mouth to complain about steps Rawson-Harris took to seek to protect Goldspar’s financial position which could not help but have been badly affected by the manner in which the Council had conducted itself in relation to this contract. I have already referred to the tendency of parties to take negotiating positions. The premature repudiation by the Council meant that Rawson-Harris was never called upon to take a final position on any debatable issue.
There was every reason why Rawson-Harris would want Goldspar to carry out the contract. It was committed to take extrusions from Capral and had paid it a substantial deposit. It had no other use for the extrusions. Fulfilling the contract would entitle Goldspar to considerable cash flow, and if it was correct that the contract was supply and install (as in my opinion it was) then, according to Khreich’s assessment, it should have been profitable.
Conclusion
It follows that Goldspar is entitled to damages for the repudiation by the Council of its obligations under the contract. During the course of submissions, it was agreed that the quantum of damages would not be dealt with before I had decided issues of liability. I have now done so and the matter will stand over to enable the hearing on damages to be scheduled and for the parties to raise any other issues arising out of these reasons.
I certify that the preceding two hundred and eight (208) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.
Associate:
Dated: 3 May 2006
Counsel for the Cross-claimant:
JV Nicholas SC; DAC Robertson
Solicitor for the Cross-claimant:
Osbornes Lawyers
Counsel for the Cross-respondent:
RJ Ellicott QC; M Condon
Solicitor for the Cross-respondent:
PricewaterhouseCoopers Legal
Dates of Hearing:
26, 27, 28, 29, 30 September 2005, 4, 5, 6, 7, 10, 11, 12 and 14 October 2005
Date of Judgment:
3 May 2006
15
18
0