Eden Construction Pty Ltd v New South Wales (No 2)
[2007] FCA 689
•9 May 2007
FEDERAL COURT OF AUSTRALIA
Eden Construction Pty Ltd v State of New South Wales (No 2) [2007] FCA 689
CONTRACT – principles of construction applicable to a written contract – duties owed by a Superintendent’s Representative to the contractor under a civil engineering contract
TORT OF MISFEASANCE IN PUBLIC OFFICE – necessary elements
TORT OF INDUCING BREACH OF CONTRACT OR OTHERWISE INTERFERING WITH CONTRACTUAL RELATIONS – elements of the cause of action – justification
TRADE PRACTICES – application of Part IV of the Act to the respondent – misuse of market power
NEGLIGENCE – misrepresentation causing economic loss – whether a duty of care should be found
Held: conduct of the respondent in placing the applicant’s name on Departmental Contractor Review Lists, which led to adverse advice about the applicant being provided to potential customers of the applicant, did not involve breaches of contract or breach of any tortious or statutory duty for which the applicant contended
Trade Practices Act 1974 (Cth) ss 2B, 2C, 4 and 46(1)(c)
Federal Court Rules Order 29 rule 2
Crown Proceedings Act 1988 (NSW)Eden Construction Pty Ltd v State of New South Wales [2003] NSWSC 1098
Wigan v Edwards (1973) 47 ALJR 586
Locke v Dunlop ((1888) 39 Ch D 387
Bottomley’s Case ((1880) 16 Ch D 681
Hillas and Co. Limited. v Arcos Limited. ((1932) 147 LT 503
Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd. (1968) 118 CLR 429
Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165
Equuscorp Pty Ltd v HGT Investments Pty Ltd (2005) 218 CLR 471
Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337
Timber Shipping Co. S.A. v London & Overseas Freighters Ltd [1972] AC 1
NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481
Elliott v Reading [1999] WASCA 11
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Carlton & United Breweries Ltd v Tooth & Co Ltd (unreported, Supreme Court of New South Wales, Hodgson J, 11 June 1985)
B.P. Refinery (Westernport) Pty. Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266
Butt v M’Donald (1896) 7 QLJ 68
Secured Income Real Estate (Australia) Limited v St. Martins Investments Proprietary Limited (1979) 144 CLR 596
Fitzgerald v F J Leonhardt Pty Limited (1997) 189 CLR 215
Martin-Baker Aircraft Co. Ld. v Canadian Flight Equipment Ld. [1955] 2 QB 556
Wintergarden Theatre (London) Limited v Millennium Productions Limited [1948] AC 173
Llanelly Railway and Dock Company v London and North-Western Railway Company (1873) VIII LR Ch App 942
Prints for Pleasure Ltd. v Oswald-Sealy (Overseas) Ltd. (1968) 88 WN (Pt 1) (NSW) 375
Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322
Northern Territory of Australia v Mengel (1995) 185 CLR 307
Beaudesert Shire Council v Smith (1966) 120 CLR 145
Sanders v Snell (No 2) (2003) 130 FCR 149
Three Rivers District Council v Governor and Company of the Bank of England [2000] 2 WLR 1220
Rush v Commissioner of Police (2006) 150 FCR 165
Lumley v Gye (1853) 2 E&B 216; 118 ER 749
James v The Commonwealth (1939) 62 CLR 339
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530
NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90
Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2006] FCAFC 128
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
Perre v Apand Pty Limited (1999) 198 CLR 180
Sullivan v Moody (2001) 207 CLR 562
Tepko Pty Limited v Water Board (2001) 206 CLR 1EDEN CONSTRUCTION PTY LTD v STATE OF NEW SOUTH WALES
NSD 833 OF 2004GRAHAM J
9 MAY 2007
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 833 OF 2004
BETWEEN:
EDEN CONSTRUCTION PTY LTD
ApplicantAND:
STATE OF NEW SOUTH WALES
Respondent
JUDGE:
GRAHAM J
DATE OF ORDER:
9 MAY 2007
WHERE MADE:
SYDNEY
THE COURT:
1.Answers the Questions for Determination separately and before any other questions in the proceedings as follows:
As alleged in the Amended Points of Claim dated 5 May 2006, in respect of or in consequence of the Kremur Street Pumping Station project and the Moruya Heads Sewerage project:
Q.1Did the Respondent make a negligent misrepresentation at common law by the conduct which is complained of by the Applicant?
A.No.
Q.2Did the conduct which is complained of by the Applicant, constitute conduct by the Crown in the course of carrying on a business, within the meaning of section 2B of the Trade Practices Act 1974 (Cth)?
A.No.
Q.3(a)Was the relevant ‘other market’ for the purposes of the Applicant’s claims under s 46 of the Trade Practices Act 1974 (Cth) as alleged in paragraph 14 of the Amended Points of Claim?
A.No.
Q.3(b)By the conduct which is complained of by the Applicant, did the Respondent take advantage of its power in the market in which it was engaged for the purpose of deterring or preventing the Applicant from engaging in competitive conduct in the market for tendering for and provision of services in respect of New South Wales Government civil works for sewerage treatment, stormwater drainage and related works in contravention of section 46 of the Trade Practices Act 1974 of the Commonwealth?
A.No.
Q.4(a) Did the Respondent owe any duty of care to the Applicant in respect of carrying out its duties as Superintendent’s Representative under the Kremur Street Contract with the Albury City Council;
A.Does not arise.
Q.and if so
4(b)Did it breach any such duty, by the conduct which is complained of by the Applicant?
A.Does not arise.
Q.5Did the Respondent engage in deliberate use of unlawful means to wrongfully interfere with the Applicant’s trade or business, by the conduct which is complained of by the Applicant?
A.No.
Q.6Did the Respondent breach the terms of a written agreement dated 7 January 1994 entered into by ‘Eden Constructions’ and the Respondent, by the conduct which is complained of by the Applicant.
A.No.
Q.7 Was the conduct of the Respondent, in placing the Applicant on:
(a) the provisional Contractors Review List in 1998; or
(b) the Contractors Review List in 2001,
wrongful, within the terms of 1, 3, 4, 5 and/or 6 above.
A. No.
2.Orders that costs of the determination of the separate questions be reserved.
3.Orders that the proceedings stand over for directions on Friday 8 June 2007 at 9.30 am.
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 833 OF 2004
BETWEEN:
EDEN CONSTRUCTION PTY LTD
ApplicantAND:
STATE OF NEW SOUTH WALES
Respondent
JUDGE:
GRAHAM J
DATE:
9 MAY 2007
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The Issues
The primary concern of the parties in this matter is to have the Court determine whether the non-award of a civil engineering subcontract to the applicant, for the construction of gravity and rising mains and pipework at Moruya Heads, can be attributed to wrongful bad-mouthing of the applicant by the respondent’s Department of Public Works or one of its successor Departments (‘the Department’) in respect of the applicant’s performance of a contract with the Albury City Council for the Kremur Street Pumping Station (part of the Council’s Sewerage Works), to a wrongful placement of the applicant on the Department’s Provisional Contractors’ Review List, to a wrongful description by the Department of the applicant as a litigious contractor and as an unsuitable contractor and/or to a breach by the respondent of an agreement made 7 January 1994 said to have arisen from the settlement of a dispute between one of the applicant’s related companies and the Department in respect of a Norah Head civil engineering contract.
The applicant’s principal argument is that the respondent breached clause 4 of the 7 January 1994 agreement on or about 2 May 1994 and again on or about 6 May 1994. Thereafter, it is contended that by a number of actions, viewed on their own or taken together, the respondent constructively breached clause 4 of the agreement. These actions are said to have occurred on or about 24 June 1998, 7 August 1998, 11 August 1998, 12 – 13 August 1998, 19 August 1998, 21 August 1998, 23 October 1998, 19 November 1998, 24 November 1998, 18 December 1998, 17 February 1999, 24 May 1999, 28 July 1999, 20 August 1999, 15 August 2000 and 25 January 2001. The last two actions complained of can have no bearing on the non-award of the Moruya Heads subcontract.
By using the expression ‘constructively breached clause 4 of the Agreement’ I understood the applicant to be submitting that the respondent impliedly repudiated the 7 January 1994 agreement by rendering further commercial performance of clause 4 thereof impossible, even though it may not have, by word or conduct, renounced its intention to fulfil its obligations under that clause.
The secondary arguments advanced are that the Superintendent’s Representative under the Kremur Street Pumping Station contract breached a duty of care owed to the applicant, that the respondent committed the tort of unlawful interference with the applicant’s trade or business, that the respondent contravened s 46(1)(c) of the Trade Practices Act 1974 (Cth) and that the respondent was guilty of negligent misrepresentation.
The 7 January 1994 Agreement
The agreement of 7 January 1994 is recorded in the handwriting of Stephen Hibbert, who was then a partner in the firm of solicitors known as Allen Allen and Hemsley.
Mr Hibbert’s evidence is that on or about 7 January 1994 he attended a meeting with Mr Cesare Filardo (‘Mr Filardo’), Ms Karen Harrison, who was from the New South Wales State Crown Solicitor’s Office, and Mr Anthony Barry (‘Mr Barry’), who was then Manager Contracts for the Department. Mr Filardo was, nominally at least, a Director of Eden Constructions (NSW) Pty Limited which had been a party to the Norah Head contract. That company had been registered on 26 June 1984 and was deregistered on 7 July 1995. Between 2 July 1984 and 7 July 1995 its directors had been Mr Filardo and his wife, Immacolata Filardo.
The applicant was registered on 28 October 1991. Between 1991 and 30 January 1996, Mr Filardo, who was during that period an undischarged bankrupt, served as the applicant’s ‘project manager’. On 30 January 1996 he became a director of the applicant. Members of his family who formerly owned shares in the applicant were bought out, the former directors resigned and Mr Filardo became the sole director and also the managing-director.
At the time of the meeting on 7 January 1994 Mr Hibbert says that ‘Eden’ and Mr Filardo felt that it was very unlikely that they would ever get a contract with the Department again.
It would appear that on 30 June 1987 Mr Filardo had written a letter to a Mr Akister at the Department complaining about ‘collusion’ between the Department and the Eurobodalla Shire Council and about ‘bias, inconsistency and improper motivation’ on the Department’s behalf to the disadvantage of Eden Constructions Pty Limited, another company associated with Mr Filardo. This letter had been the subject of some discussion between the Department’s solicitor, Mr Philip Davenport, and Mr Hibbert. Following this discussion Mr Hibbert wrote a letter to Mr Filardo on 9 July 1987 proposing certain alternative courses of action which Mr Filardo could follow. It would appear that, at least so far as Mr Hibbert was concerned, the matter then became dormant.
Mr Hibbert says that at the meeting on 7 January 1994 conversation took place to the following effect:
Mr Filardo:‘As you are aware Tony [referring to Mr Barry] we have a tender in for the Wingecarribee Waste Water Treatment Plant. We are the lowest. Are you going to give me the job?’
Mr Barry:‘Leave it with me. If the job has not gone too far into its assessment, I will give it to you.’
[In cross-examination Mr Hibbert says that Mr Barry said ‘I’ll have a look at it. If it hasn’t gone too far, then we should be able to give it to you’. In that context there was no addition of any qualifications about process or further analysis. See also Mr Filardo’s letter to the Department of 23 September 1994 referred to below and the Department’s reply of 13 October 1994.]
Mr Filardo:‘Tony, I’m prepared to pay you the money, provided that I am treated equally and fairly and I am fully reinstated as a major contractor.’
Mr Barry:‘Yes, once we settle this. Yes we will.’
Mr Hibbert says that he then said words to the effect:
‘Ok, I’ll draft something along those lines so that both parties can sign it.’
It is common ground that the manuscript agreement which was prepared by Mr Hibbert and which was signed for ‘Eden’ by Mr Filardo on 7 January 1994 and by Mr Barry ‘for the PWD’ on the same day, included the following:
‘[page 1]
Between 7. Jan. ‘94
Eden Construction S (sic)
&
PWDre Nora (sic) Head Contract.
The parties agree to resolve all outstanding differences on the following principal terms:
[clause 1 which contemplated a deed of settlement or confirmatory letter was struck out and appears to have no present relevance]
2.Eden shall pay the PWD $50,000.00 in full & final settlement of both its & the PWD’s claims & rights under the contract or arising out of the Nora (sic) Head project.
3. Payment shall be made by:
a)releasing to the PWD the security money in court & interest (estimated at $13500 plus interest) forthwith
b)The PWD will investigate whether progress payment No 6 ($11980) has been received by Eden. If it has not it, plus interest, will be credited against the $50,000. Interest shall be calculated as simple interest, at Supreme Court Rates.
[page 2]
#2
7. Jan ‘94
c)the full $50,000 shall be received by the PWD on or before 31. August 1995
4.Subject to normal prudential requirements by the PWD, the PWD will permit
restoreEden tothetenderlistandto the PWD, & permit Eden to do work for the PWD, provided always all other normal Dept. requirements are satisfied.
5.Each party bears its own costs of all matters to date regarding the disputes & in finalizing this agreement
6.The PWD will release Eden’s Bank Guarantee following receipt of
the money from Courtthe full $50,000.’
In an interlocutory hearing in the Supreme Court of New South Wales in these proceedings it was held that the references to ‘Eden Constructions’ and ‘Eden’ were intended as references to Eden Constructions (NSW) Pty Limited (see Eden Construction Pty Ltd v State of New South Wales [2003] NSWSC 1098 at [16]). For reasons which will shortly emerge, it is unnecessary for me to consider whether this construction of the agreement should be adopted by me. This is because on the pleadings, at least so far as the matter presently before the Court is concerned, the respondent has conceded that the applicant is entitled to the benefit of clause 4 of the agreement as if it were a party to it. However, I should say that the reasoning of Einstein J is highly persuasive.
On 7 January 1994 Mr Hibbert wrote a letter to the Crown Solicitor’s Office which had been acting for the Department in relation to the resolution of the Norah Head contract issues. That letter provided as follows:
‘EDEN CONSTRUCTIONS AND PUBLIC WORKS DEPARTMENT
Following our meeting today with our respective clients, I confirm that all matters in issue arising out of the Nora (sic) Head Contract performed by Eden Constructions have been resolved.
More particularly:
1.authorised representatives of the each of the parties (sic) executed the attached (copy) handwritten agreement;
2.we shall prepare the necessary orders to have the security monies in Court released to your client, together with any interest, as soon as possible;
3.your client will investigate whether progress payment No. 6 was in fact made (settlement agreement, para 3(b));
4.you might consider whether there are any other procedural steps that need to be taken;
5.it was agreed that a formal Deed of Settlement would not be necessary, but that there would be an exchange of confirmatory letters between solicitors. Accordingly, you might confirm on a copy of this letter, or separately, that the matters have been settled as noted above.’
There would appear to be no doubt that at the time when ‘Eden’ and the Department entered into the 7 January 1994 agreement, Eden Constructions (NSW) Pty Limited was indebted to the respondent for an amount well in excess of $130,000 under judgments of the Supreme Court of New South Wales. However, according to Mr Filardo, Giles J’s findings made in 1989 in the Supreme Court of New South Wales provided a foundation for later claims by Eden Constructions (NSW) Pty Limited for an amount of $55,475.26 (an amount that Mr Filardo contended had been certified but remained unpaid) plus interest and a further amount of $110,500 referable to quantities of rock said to have been encountered in executing the Norah Head works. Hence, as at 7 January 1994, there would appear to have been claims both ways. The respondent’s submission that ‘there was no consideration for the contractual promise in clause 4 of the Settlement Agreement’ should be rejected (see Wigan v Edwards (1973) 47 ALJR 586 especially at 594-5).
Construction of clause 4 of the 7 January 1994 agreement
This brings me to a consideration of the construction to be placed upon clause 4 of the 7 January 1994 agreement.
The primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’, to use the words from earlier authority cited in Locke v Dunlop ((1888) 39 Ch D 387 at 393), which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley’s Case ((1880) 16 Ch D 681 at 686). Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas and Co. Limited. v Arcos Limited. ((1932) 147 LT 503 at 514) that the court should construe commercial contracts ‘fairly and broadly, without being too astute or subtle in finding defects’, should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v Australian Chilling and Freezing Co. Ltd. (1968) 118 CLR 429 at 437) (per Gibbs J, as his Honour then was, in Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109-110).
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (per Gleeson CJ, Gummow, Hayne, Callinan and Heydon in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179 [40]).
Actual beliefs and intentions are, generally speaking, irrelevant in the determination of the legal rights and obligations flowing from a written agreement (see per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ in Equuscorp Pty Ltd v HGT Investments Pty Ltd (‘Equuscorp’) (2005) 218 CLR 471 at 483 [34]).
Where the language of a contract has a plain meaning evidence of surrounding circumstances is not admissible to assist in the interpretation of the contract (per Mason J in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (‘Codelfa’) (1982) 149 CLR 337 at 352).
There is no definitive statement in the Australian authorities concerning the regard, if any, that should be given to deletions such as those appearing in clause 4 of the 7 January 1994 agreement.
In Timber Shipping Co. S.A. v London & Overseas Freighters Ltd [1972] AC 1 at 15 Lord Reid said:
‘If the words were first inserted by the draftsman of the agreement and then deleted before signature then I have no doubt that they must not be considered in construing the agreement.’
In NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481 at 491, Rogers CJ Comm D said:
‘More recently in Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Lloyd’s Rep 197, Lord Cross, with whom Lords Hodson and Wilberforce agreed, clearly endorsed the use of deletions as an aid to the construction of contracts.’
After reviewing the authorities his Honour proceeded to take into account the omission of a specific provision from a precedent, to which regard had been had in drafting a loan document, in order to reach the conclusion that the loan document should be construed as creating a non-recourse loan. His Honour found the inference to be drawn from the omission to be clear.
In Elliott v Reading [1999] WASCA 11 Ipp J, with whom Malcolm CJ and Pidgeon J agreed, applied the judgment of Rogers CJ Comm D. At [43] his Honour said:
‘… account has to be taken of the fact that, in entering into the Final Deed, the parties deliberately omitted the subject to finance condition contained in the First Deed. In NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481 Rogers CJ Comm D, held that a deliberate deletion of a clause in a loan agreement expressly providing for repayment by a borrower ousted an obligation, said to be implied, to the effect that the borrower repay the loan. His Honour relied in coming to this conclusion on the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW at 352-353. In my opinion the same reasoning is applicable here. Once the parties agreed to exclude from the Final Deed the subject to finance condition that was contained in the First Deed, it is not open to imply a condition in the Final Deed to substantially the same effect as the one deliberately excluded.’
In the applicant’s Amended Points of Claim filed 8 May 2006 it asserted that an express and/or implied term of the 7 January 1994 agreement was that the respondent would permit the applicant ‘to do work …, provided always all other normal Prudential requirements were satisfied.’
In addition an implied term was alleged that the respondent ‘would act in good faith and/or in accordance with its established guidelines in its involvement with the Plaintiff’s [applicant’s] tenders and its involvement in the Plaintiff’s [applicant’s] carrying out of work’.
A further implied term was alleged that ‘the status of the Plaintiff [applicant] and/or its Directors as a suitable contractor would be restored’.
Terms may be implied in one of four ways (per Heydon JA, as his Honour then was, in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 164 [28]). These were summarised by Hodgson J in Carlton & United Breweries Ltd v Tooth & Co Ltd (unreported, Supreme Court of New South Wales, 11 June 1985) as follows:
‘(i)Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown (1928) 40 CLR 540 at 553-4.
(ii)Implications from the “nature of the contract itself” as expressed in the words of the contract: see Liverpool City Council v Irwin [1977] AC 239.
(iii)Implications from usage (for example, mercantile contracts).
(iv)Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.’
In relation to the fourth mentioned type of implied term the classic test is identified in the advice of Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel in B.P. Refinery (Westernport) Pty. Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 at 283 as follows:
‘… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’
The test promulgated by the Privy Council was approved by Mason J in Codelfa.
The general rule applicable to every contract, that each party agrees to do all such things as are necessary on its part to enable the other party to have the benefit of performance of the contract, is one which arises by implication and is of the second type mentioned above (see Butt v M’Donald (1896) 7 QLJ 68 at 70-71; Secured Income Real Estate (Australia) Limited v St. Martins Investments Proprietary Limited (1979) 144 CLR 596 at 607 and Fitzgerald v F J Leonhardt Pty Limited (1997) 189 CLR 215 at 219 and 226).
One issue that has not been specifically addressed by the parties is the duration of the rights and obligations conferred by clause 4 of the 7 January 1994 agreement. As a commercial agreement of indeterminate duration it seems to me that there would be a presumption against permanence. As McNair J said in Martin-Baker Aircraft Co. Ld. v Canadian Flight Equipment Ld. (‘Martin-Baker’) [1955] 2 QB 556 at 577:
‘The common law, in applying the law merchant to commercial transactions, has always proceeded more on the basis of reasonableness in filling up the gaps in a contract which the parties have made on the basis of what is reasonable, so far as that does not conflict with the express terms of the contract, rather than on the basis of rigidity.’
Commercial contracts of indeterminate duration would normally be determinable upon reasonable notice (see Martin-Baker at 577 and Wintergarden Theatre (London) Limited v Millennium Productions Limited [1948] AC 173 at 191).
It lies upon a person who says that a contract is revocable or determinable to show either some expression in the contract itself, or something in the nature of the contract, from which it is reasonably to be implied that it was not intended to be permanent and perpetual, but was to be in some way or other subject to determination. Contracts which involve more or less of trust and confidence, more or less of delegation of authority, more or less of the necessity of being mutually satisfied with each other’s conduct, more or less of personal relations between the parties will fall into the last mentioned category (per Sir W M James LJ in Llanelly Railway and Dock Company v London and North-Western Railway Company (1873) VIII LR Ch App 942 at 950).
In Prints for Pleasure Ltd. v Oswald-Sealy (Overseas) Ltd. (1968) 88 WN (Pt 1) (NSW) 375 at 383 Macfarlan J concluded that the agreement there under consideration was not one where the parties had said that it was to continue for an indefinite period of time which was not determinable except by breach. His Honour construed it as an agreement that would continue until and when Australian orders for fine art prints under the contract were less than 10,000 per annum. His Honour considered that the provisions of the agreement demonstrated that at the time when the agreement was made the parties had considered the period of time during which it was to continue.
The applicant eschewed any notion that clause 4 of the 7 January 1994 agreement gave the applicant any special right to be on a pre-tender or pre-qualification list. Furthermore, it does not contend that clause 4 obliged the respondent, through the Department, to award contracts to the applicant. Rather, it was submitted that it required the respondent to permit the applicant to submit tenders to the Department which would be assessed bona fide by the Department without any closed mind being brought to bear requiring any tender so submitted to be rejected.
It could hardly be said that the agreement was expressed in felicitous terms.
It uses the word ‘prudential’ in the phrase ‘Subject to normal prudential requirements by (sic) the PWD’. It also uses the phrase ‘provided always all other normal Dept. requirements are satisfied’.
In the Oxford English Dictionary (2nd Ed, 1989) Vol XII the word ‘prudential’ is defined, relevantly, as follows:
‘Of, belonging to, or of the nature of prudence; involving prudence; characterised or prescribed by forethought and careful deliberation.’
In the Macquarie Dictionary (4th Ed, 2005) ‘prudential’ is defined relevantly as:
‘of, relating to, or characterised by prudence.’
‘Prudence’ is itself defined relevantly as:
‘1. cautious practical wisdom; good judgement; discretion
2. the quality or fact of being prudent
3. regard for one’s own interests
4. provident care in management; economy or frugality.’
In my opinion the phrase ‘Subject to normal prudential requirements by the PWD’ should be construed as:
‘Subject to the normal requirements of the Department, which call for forethought and careful deliberation in protecting the respondent’s interests.’
The 7 January 1994 agreement was plainly directed at resolving all outstanding differences between Eden Constructions (NSW) Pty Limited and the Department in relation to the Norah Head contract.
It brought about a ‘full & final settlement’ of all claims and rights that the Department had against Eden Constructions (NSW) Pty Limited under or arising out of the Norah Head contract and all claims and rights that Eden Constructions (NSW) Pty Limited had against the Department under or arising out of that contract.
It secured the release of Eden Constructions (NSW) Pty Limited’s bank guarantee in relation to the Norah Head contract.
It also secured an agreement in relation to the burden of costs with respect to the several claims and counterclaims under the Norah Head contract.
It may be said that the agreement had the effect of ‘wiping the slate clean’.
In my opinion it could not be contended that clause 4 of the agreement conferred any rights in perpetuity on Eden Constructions (NSW) Pty Limited or, given the respondent’s concession referred to above, on the applicant.
I accept the applicant’s submission that clause 4 relevantly required the respondent to permit the applicant to submit tenders to the Department which would be assessed bona fide by the Department without any closed mind being brought to bear requiring that the tender or tenders be rejected. But the arrangement had no permanence. It simply provided a starting point and an opportunity for a new relationship to be established. Dissatisfaction with any work undertaken by the applicant after 7 January 1994 could properly be taken into account by the Department in relation to any future opportunities for work for which the applicant might see fit to tender thereafter.
Plainly, normal prudential requirements and other normal Departmental requirements entitled the respondent to limit the scope of the work for which the applicant, as a company with which it had not had any prior dealings, could tender. The respondent was not obliged by its settlement with Eden Constructions (NSW) Pty Limited to put to one side its normal prudential and other requirements in allowing a new working relationship with the applicant to be established.
No question of implication of terms from usage or so as to give the relevant contract business efficacy arise in the circumstances of this case. The only relevant implications are those which arise from the nature of the contract and/or are contained in the express words of the contract itself. These have been addressed in the above observations on the true construction of the 7 January 1994 agreement.
The applicant acknowledged that, following the 7 January 1994 agreement, it secured the contract with the Albury City Council for the Kremur Street Pumping Station. It accepted that there were ‘some issues’ in relation to the performance of that contract but submitted that it performed it ‘fairly well’.
No evidence of any breaches by the respondent of clause 4
The applicant’s case was that as soon as the hierarchy within the Department found out that the applicant had been awarded the Kremur Street Pumping Station contract it ‘came down on’ the applicant.
For reasons that will appear later, I am not prepared to find that any tenders submitted by the applicant subsequent to the award of the Kremur Street Pumping Station contract were evaluated by the Department with a closed mindset, adverse to the applicant, because of events that may have occurred prior to 7 January 1994 i.e. because the Department did not treat the slate as having been wiped clean by the 7 January 1994 agreement. Clause 4 of the agreement was not directed at depriving the Department of the opportunity to exercise its business judgment, against the wishes of the applicant, in circumstances where it considered that performance by the applicant of contractual obligations subsequent to 7 January 1994 had been unsatisfactory.
On 14 March 1994 a Consultant/Contractor Manager within the Department, who coincidentally had the name John Eden, prepared a ‘Technical Report on Eden Construction P/L’ for the Asset Management & Construction Policy Division of the Department. The report provided:
‘The above firm has approached Tony Barry to determine the likelihood of a tender from that firm being accepted should they win an open tender for civil works. This approach was made in view of protracted discussions between Public Works and the firm over various past contracts.
I contacted Mr Les Crossman of Kinhill Engineers P/L to obtain comments on the firm’s performance on a $700,000 job. I obtained the following comments.
This first large job undertaken by firm since its reestablishment
Basically job pipelaying, workmanship OK.
Delays at beginning of job with contractor learning processes of ACT Public Works. NO problems with cooperation, just with understanding.
No problems with variations, these negotiated reasonably, job on budget.
Les felt principal of firm was overenthusiastic, did all work himself, including operation of dozer, backhoe etc. Tried to do too much himself. Reluctant to engage other manpower, subcontractors.
Comment made by Les Crossman that firm had some difficulty with cash flow. My thoughts on paragraph above may be because of lack of cash in firm at this early stage of reestablishment.
Problems with separate pipe supply contract, defects in pipe, inspections, as pipe supplier (CSR Humes) had difficulty with plastilined pipes, supply of pipes was separate contract.
18 week contract took 42 weeks, largely due to separate pipe supply contract, though some delay by Eden Constructions as mentioned above due to lack of understanding of ACT PW procedures.
Firm has done other work for ACT Public Works since this contract. Les Crossman would recommend firm for other work.
My conclusion is that the firm has performed satisfactorily and could be given work up to value of turnover ($700,000?) subject to satisfactory financial assessment and subject to one job at a time till firm’s performance proven with Public Works.’
The report continued with a notation for Lyn Worsley to ‘arrange financial report’ and a reference to the ‘Manager Contracts’.
On 2 May 1994 Mr Barry as the Manager Contracts endorsed the following handwritten note on the bottom of Mr Eden’s report of 14 March 1994, namely:
‘I don’t agree- This assessment is made Presumably on the basis that one successfull (sic) job (a simple pipelaying job) has been completed – all other jobs are less than $.25m’
On 6 April 1994 the Department wrote to the applicant inviting the applicant’s bank to submit information in respect of the applicant’s financial standing. Such information was provided by Advance Bank Australia Limited to the Department on 15 April 1994. In addition, on 19 April 1994 the applicant’s accountants submitted a set of financial statements to the Department. These disclosed net assets of $34,248.37 as at 31 December 1993 and an operating profit for the period 1 July – 31 December 1993 of $36,314.98 on a turnover of $504,155.23.
On 3 and 4 May 1994 a number of officers within the Department signed off on a Panel of Assessors’ Agenda item in relation to two Eden companies, namely the present applicant, Eden Construction Pty Limited ACN 054 090 372, and Eden Constructions Pty Limited ACN 008 508 129. No reference was made in that Agenda item to Eden Constructions (NSW) Pty Limited ACN 002 800 544.
The agenda item document was headed:
‘CONTRACTOR: EDEN CONSTRUCTIONS PTY LTD (ACN008 508 129)
CONTRACT: NORAH HEAD OUTFALL ROCK EXCAVATION CONTRACT’
It comprised one section headed ‘BACKGROUND’ and another headed ‘RECOMMENDATION’. It provided:
‘BACKGROUND
1/ Eden Constructions P/L (ACN 008 508 129) of 14 Murray Street Queanbeyan, had as directors, Cesare and Immacolata Filardo.
2/ A liquidator was appointed to Eden Constructions P/L on 18/9/92.
3/ The Contractor was listed on 3/9/93 on the Contractors & Consultant’s Review List because of a debt owed to Public Works following litigation.
4/ Eden Construction P/l (ACN 054 090 372), with registered address 4/4 Gladstone Street Castle Hill NSW, with directors Antonio Grazetto Filardo and Antonio Guiseppe Pisano had not previously done business with Public Works.
5/ Eden Construction P/L has now moved to the address previously occupied by Eden Constructions P/L at Queanbeyan and the directors are now Antonio Filardo and Ralph Filardo. Cesario Filardo is employed as the project manager.
6/ On 7/1/94 one of Eden Constructions P/L two ex-directors, Ces Filardo, reached agreement with the Manager Contracts to facilitate the application of Eden Construction P/L as a registered tenderer with Public Works. (Letter of agreement between Eden Construction P/L (ACN 054 090 372) is attached.
7/ Manager Corporate Finance on 21/4/94 assessed the financial capacity of Eden Construction P/L as sufficient for one contract at a time valued up to $250,000.
8/ To ensure that Eden Construction P/L comply with their part of the agreement of 7/1/94:
* The Eden Constructions Pty Ltd ACN 008 508 129 listing should be retained on the Review List but changed from a business to a financial category; and
* Eden Construction Pty Ltd ACN 054 090 372 should be added to the Review List because of business reasons, until Eden Construction P/L has satisfied all of their obligations under the agreement due on or before 31 August 1995.
RECOMMENDATION
1/ The Eden Constructions Pty Ltd (ACN 008 508 129) listing on the Contractors & Consultants Review List category be changed from business to financial and the company listing be retained until deregistered.
2/ Eden Construction Pty Ltd (ACN 054 090 372) be permitted to tender for work valued below $250,000 and be included on the Contractors & Consultants Review List under a business category until the company has met all of the company’s obligations under the agreement with Public Works of 7/1/94.’
It would appear that the agenda item was duly considered at a meeting of the ‘Selective Tendering Panel of Assessors’ within the Department held on 4 May 1994.
The Panel of Assessors would appear to have comprised Mr E Shestovsky as Chairman, Mr Barry as Manager Contracts, Mr H Ruckert as Inspecting Engineer and Mr C Crundwell as Inspecting Architect. The meeting appears to have reviewed the performance of five companies including Eden Constructions Pty Limited ACN 008 508 129 and also the applicant. The recommendation of the Panel of Assessors in respect of Eden Constructions Pty Limited ACN 008 508 129 was ‘Retain on the Review List, change from business to financial category’. In respect of the applicant the recommendation was ‘Add to Review List under business category, letter to be sent’.
The recommendations of the Panel of Assessors would appear to have been submitted to Mr M J Hannon, the Director Asset Management & Construction Policy within the Department who, by his signature on 6 May 1994, appears to have accepted the Panel of Assessors’ recommendations.
In accordance with the Panel of Assessors’ recommendation in respect of the applicant a letter was sent by Mr Shestovsky as the Acting Manager Construction, Asset Management & Construction Policy Division of the Department to the applicant on 9 May 1994. That letter provided as follows:
‘ Re: Norah Head Contract
I refer to the agreement reached between Eden Construction Pty. Ltd. and Public Works on 7 January, 1994 and your letter of 4 March, 1994 seeking registration as a Public Works Contractor.
Based on the technical and financial information provided by Eden Construction Pty. Ltd. indicating its capacity to successfully complete contracts, Public Works is prepared to accept tenders from this Company to a limit of $250,000.
Once Eden Construction Pty. Ltd. has demonstrated its capacity to carry out works under contract at this level then consideration will be given to a reassessment of this limit, based on the company’s performance record and financial position at that time.’
The 2 May 1994 observation of Mr Barry as the Manager, Contracts within the Department needs to be viewed in the light of Mr John Eden’s Technical Report for the Asset Management & Construction Policy Division of the Department. The reported comment of Mr Les Crossman that ‘firm [referring to the applicant – a company which had only been registered on 28 October 1991] had some difficulty with cash flow’, coupled with the financial position of the applicant as at 31 December 1993, as disclosed to the Department by the applicant, clearly entitled the Department to take a cautious and conservative approach towards the ability of the applicant to undertake major contracts at that stage.
The Department’s decision of 6 May 1994 to permit the applicant to tender for work valued below $250,000 in the first instance and to place the applicant on the Department’s ‘Contractors & Consultants Review List’ under a ‘business’ category until all of ‘Eden’s’ obligations under the 7 January 1994 agreement had been met, was fully justified and consistent with prudential management of the Department’s affairs. The observation in the last paragraph of the Department’s letter to the applicant of 9 May 1994 was, in my opinion, fair and reasonable.
Neither Mr Barry’s note of 2 May 1994 nor Mr Hannon’s acceptance on 6 May 1994 of the Panel of Assessors’ recommendations constituted a breach by the respondent of clause 4 of the agreement of 7 January 1994.
Mr Shestovsky’s letter to the applicant of 9 May 1994 is reflective of a fulfilment by the respondent of its obligations under clause 4 of the 7 January 1994 agreement. It is hardly consistent with the applicant’s allegation that the respondent breached the 7 January 1994 agreement on or about 2 May 1994 and again on or about 6 May 1994.
On 17 May 1994 the applicant forwarded a cheque for $4,783.61 to the Crown Solicitor for the respondent. The cheque, drawn on an account of the applicant at the 60 Marcus Clarke Street, Canberra City branch of Advance Bank Australia Limited, was accompanied by a note from Mr Filardo reading:
‘This is the balance of payment of $50,000.00 owed to the P.W.D. as result of our meeting on 7/1/94 in Stephen Hibbert’s office at Allen’s.
I would be very greatful (sic) if you could ring Tony Barry by phone to acknowledge the cheque so that the bank guarantee can be released’
For present purposes it is unnecessary to trace the history of the applicant and the Department over the ensuing four years. It is, however, appropriate to note the terms of a memorandum issued by the then Premier of New South Wales on 13 November 1991 to all of the respondent’s Ministers in relation to the letting of government contracts. The memorandum (TM91/7) was headed ‘Reform of the Capital Works Planning and Implementation Process in NSW’. The revised procedure for capital works planning and implementation was recorded in an attached paper. All Ministers were requested to ‘ensure that all agencies under their administration are informed of the new arrangements’.
The Premier’s memorandum continued:
‘The requirement to use Public Works Department for the private sector interface role will apply to all agencies (expect (sic) those exempted in the attachment [Local Government Councils were not the subject of an exemption]).’
The private sector interface role of the Department was to take effect from 1 January 1992. All Ministers were requested to require ‘all agencies under your responsibility to review their Capital Works Strategic Plan and planning processes to ensure conformity with the approach set out in the attached paper’.
Under the heading ‘KEY ISSUES’ the attached paper provided:
‘There are a number of issues that flow from the review of the Public Works Department and the forthcoming Royal Commission report that need to be addressed.
…·the role of Public Works Department:
Public Works Department clearly has the expertise and experience to handle the interface with the Property/Building and Construction Industry, although it will need to train additional personnel in issues such as risk allocation to handle an increased emphasis in this area. From the point of the State’s overall interests, it makes sense for this to occur. However, it is necessary to provide agencies with the choice in those parts of the contracting and project management process that are open to competition, in addition to ensuring that there is a benchmark for PWD’s performance. It is also essential that the role of Public Works be defined as serving the needs of the client and in this regard acting as an extension of agencies’ corporate support function.
…’The attached paper also included a ‘SUMMARY OF REFORMS’ which contained the following:
‘The reforms to the capital works, planning and management process cover the following:-
Budget Sector and Nominated Non Budget Sector Agencies
…2. Appointment of Public Works Department to undertake in conjunction with client agencies the private sector interface role for all Budget sector and nominated non Budget sector Agencies (including PSG), for capital works over $500,000, (including those funded by the private sector and those associated with property development) on a fee-for-service basis.
In this interface role, Public Works will act as an arm of its client, directly advising CEO’s and their Ministers on capital works procurement issues.
…’On 23 September 1994 Mr Filardo, as the applicant’s ‘Project Manager’, wrote a letter to the Department under the heading ‘Pre-Qualification Criteria for Civil Contracts’. In the letter he wrote:
‘Our understanding of the agreement on 7th January 1994 was that we would pay the Department the sum of $50,000.00 for an end to our differences and that the Department in return would allow us to tender for work. We thought and reasonably expected that projects within $1.0M to $2.0M would be within our grasp.
Mr Barry during negotiations and prior to agreeing to our payment pf (sic) $50,000.00 undertook to investigate and consider our tender for Moss Vale Sewerage Augmentation [a Wingecarribee contract], worth under $3.0M. This was a personal undertaking by Mr Barry to the effect, “Leave it with me Ces. If things have not progressed too far with Moss Vale, I’ll see what I can do for you”. This was in the context of our mutual understanding that Eden Construction was the lowest tenderer for the Moss Vale project.
…We point out, with the greatest respect, that if we knew that we are not to be allowed to tender for projects of similar size such as the Ginninderra Trunk sewer, i.e. around the $1.0M, we would have never agreed to pay $50,000.00 to the Department. It was the premise (sic) of continuing meaningful work that would enable us to recover the $50,000.00 settlement monies, all we wanted was a fair opportunity to restore our financial position through a mutually beneficial work relationship (all other things being equal).
Briefly, recapping Norah Head, we were correct in asserting that we had not been paid our June 87 payment. As a result we were wrongfully drawn into dispute. We were also correct about the amount of work being more than double that documented. As we were wrongly punished by the events as they unfolded, it is distressing that for the third time around, we are now discriminated against and denied the opportunity to offer our services in a meaningful way to the community.
A resume of the Company’s performances was provided, which included projects ranging from $716,000.00 to $265,000.00, plus a number of other minor projects carried out concurrently. We also made the Department and Mr Barry aware that the company is pre-qualified with the A.C.T. Local Government Department namely Electricity & Water for projects up to $1.0M. We provided a copy of Eden’s Quality Assurance Manual.
The Department’s letter dated 9th May 1994 is in stark contrast to the spirit and basis of the agreement of 7th January 1994. It is also worth noting that such assessment came into being apparently to deny us the job at Dora Creek, and to justify once again the Department’s rejection of our just entitlement to tender for such projects.
It appears from discussions with Mr Barry that the Department is excerting (sic) the same routine discrimination as levelled against us in the Tomago Sewerage Dispute. We believe based upon recent past events, that our effort to carry on a normal contracting business are still frustrated despite the January 7th agreement and payment in full of $50,000.00 to the Department.
Should that be the case, as it clearly appears from an independent observer’s point of view, then, the Department is in breach of an undertaking for which consideration was received from Eden. We wish to have this rectified in a manner to reflect and enable us to tender for projects similar at least to the ones we carried out in 1992, for the A.C.T. Public Works & Services.
Furthermore the C.I.D.A. criteria adopted nation wide was used to pre-qualify us for projects up to $1.0M with the A.C.T. Electricity & Water. We are led to believe that similar criteria are going to be accepted and used by other Government Departments for which we have registered an interest in pre-qualification.
As we remain determined to survive as a contractual organisation and perform creditably we ask for your early response.
Alternatively we would be happy to meet with you to discuss the overall issue of our eligibility for equal treatment by N.S.W. working Authorities.’
This letter from the applicant to the Department elicited a response from the Department in the form of a letter from Mr Alan Griffin, the Director of the Department’s Policy Division, of 13 October 1994. In that letter Mr Griffin wrote under the heading ‘Re: Prequalification Criteria for Civil Contracts’:
‘…
The quotation ascribed in your letter to Mr Barry in relation to your company’s tender for the Moss Vale Treatment works is not precisely correct. Mr Barry did undertake to ensure that your company’s tender for the Moss Vale Treatment Works would, provided a decision had not been reached, be considered in light of the 7 January 1994 agreement i.e. it would be considered subject to normal NSW Public Works requirements for the review of tenders. These requirements include an examination of the tenderers financial and technical capacity to carry out the works. In the case of Moss Vale your tender was 33% less than the estimate for the work and some 27% below the accepted tender. Your tender showed a serious misunderstanding of the requirements and scope of the specification.
…NSW Public Works have no pre-registration requirement for civil works other than for Water & Sewerage Treatment Plants. However to prevent your company needlessly preparing tenders which could be unacceptable in terms of NSW Public Works tender assessment criteria, you were invited to submit financial and technical information in relation to your company for review.
Your company’s financial and technical capacity to contract with NSW Public Works has been reviewed on the information supplied by you as agreed in point 4 of the 7 January, 1994 agreement, in accordance with NSW Public Works usual tender assessment criteria.
The results of this review were communicated to you by letter of 9 May, 1994 which determined that your company was acceptable to undertake Public Works contracts up to $250,000.
Your allegation in relation to the generation of this letter of 9 May, 1994 to deny your company “the job at Dora Creek” is spurious and denied. I am satisfied there is no evidence of any discrimination being applied to your company by Mr Barry or any other officer in NSW Public Works.
Should the information provided by your company on which the 9 May, 1994 determination was made be significantly different at this point in time, then a reassessment of your company’s capacity to contract with NSW Public Works may be requested.’
Whilst Mr Barry swore an affidavit, it was not, in the end result, read by the respondent on the present hearing.
It is appropriate to note that no collateral contract has been pleaded by the applicant in respect of the award of a contract for the Moss Vale sewerage augmentation works, a breach of which by the respondent is said to have occurred. Clause 4 of the 7 January 1994 agreement provided no basis for the thoughts and expectations of the applicant referred to in its letter of 23 September 1994, namely
‘We thought and reasonably expected that projects within $1.0M to $2.0M would be within our grasp.’
and
‘We point out … that if we knew that we are not to be allowed to tender for projects of similar size such as the Ginninderra Trunk sewer, i.e. around the $1.0M, we would have never agreed to pay $50,000.00 to the Department. It was the premise (sic) of continuing meaningful work that would enable us to recover the $50,000.00 settlement monies, all we wanted was a fair opportunity to restore our financial position through a mutually beneficial work relationship (all other things being equal).’
Plainly, Mr Filardo proceeded under the misconception that the applicant was synonymous with every Eden organisation that had ever had any dealings with the Department and that its financial standing could be ignored.
On 6 July 1995 the ACT government issued a pre-qualification certification to the applicant which was valid until 30 September 1995 relating to the following fields of work:
‘Contractor – Civil
to ACT Department of Urban Services
Suppliers Code CC – 1.0’On 4 December 1996 the ACT government issued a further pre-qualification certificate to the applicant which was valid until 30 November 1997 relating to the same fields of work.
On 17 February 1998 the Australian Capital Territory Department of Urban Services wrote to the applicant under the heading ‘PRE-QUALIFICATION FOR CAPITAL WORKS WITH THE ACT GOVERNMENT’ as follows:
‘You will be aware that pre-qualification is required for contractors engaged in work whose project value exceeds prescribed monetary thresholds.
Please be advised that pre-qualification certification for contracting services is being renewed in respect of your firm’s Queanbeyan street address. A certificate to this effect is enclosed, which qualifies you to tender for any value of work “up to $1,000,000” in the prescribed work type category CC to 31 May 1998.’
The letter was accompanied by a ‘pre-qualification certificate’ in similar terms to that originally issued on 6 July 1995.
The Kremur Street Pumping Station contract
On 28 January 1998 the applicant, therein referred to as ‘Eden Constructions (sic) Pty Ltd’ entered into an agreement with Albury City Council for the construction of a Kremur Street Pumping Station and all associated mechanical and electrical work for a lump sum price of $2,214,718.46. The contract was signed on behalf of the applicant by Mr Filardo. It is voluminous, to say the least, the Specification (Volume 1) comprising almost 300 pages. The Standard Technical Specifications and Electrical Installations Minimum Requirements (Volume 2), Drawings (Volume 3) and the Geotechnical Report (Volume 4) have not been included in the material which is before the Court.
Sections 3 to 23 of the Specification were referred to in the Table of Contents as the ‘TECHNICAL SPECIFICATION’. Section 3 entitled ‘GENERAL’ included a short summary of the ‘SCOPE OF WORKS’ as follows:
‘3.1 SCOPE OF WORKS
The works under this Contract include the supply and delivery of all materials, plant, equipment and labour required for the construction, testing and commissioning of the works in accordance with the requirements of this Specification and as shown on the Drawings.
The main items of the work include, but are not limited to the following:
Kremur St. Pumping Station
·site clearing and earthworks;
·structure housing the pump station and electrical switchroom;
·pits and pipework;
·design, supply and install all mechanical and electrical equipment;
·testing of structures and equipment;
·provision of operation and maintenance manuals for equipment;
·training of personnel;
·commissioning of works.’
Clause 3.6 of Section 3 dealt with ‘WITNESS AND HOLD POINTS’. It nominated hold points and witness points for concrete construction, earthworks, pipeline construction, clearing of work area, metalwork, joint sealant, electrical, mechanical, building work and commissioning. Relevantly in relation to concrete construction it provided as follows:
‘3.6 WITNESS AND HOLD POINTS
A “witness point” shall mean a point in the construction or verification process at which an activity is to be observed by the Superintendent. Twenty four (24) hours notice is required to be given by the Contractor for a witness point.
A “hold point” shall mean a point in the construction or verification process beyond which the work may not proceed without the authorisation of the Superintendent.
The Superintendent may, without penalty, convert hold points to witness points on a temporary or permanent basis.
The hold points and witness points shall include the following:-
(a) CONCRETE CONSTRUCTION
Inspection of concrete batching - witness point
Trial concrete mix - witness point
Inspection of reinforcement and formwork - hold point
Placing of concrete - hold point
Inspection of Contractor’s concrete tolerances and
irregularities measurement record after stripping of
formwork - witness pointWater tightness testing - hold point’
In section 4.10.3 of Australian Standard AS 3905.2: 1997 reference is made to the significance of witness and hold points. Inter alia, the standard provided:
‘Witness points provide the customer or nominated authority with the opportunity to watch or inspect a stage of the work for which it may be difficult to obtain timely conclusive quality evidence.
Where a hold point has been identified, consideration should be given to also identifying in the ITP the procedures to be adopted if release of a product under positive recall is to be allowed.’
In my opinion, question 3(b) should be answered in the negative.
I turn now to the applicant’s claim that the respondent was guilty of negligent misrepresentation.
The first issue to consider is whether the relationship between the applicant and the respondent at the relevant time in or about 1999 was such that a duty owed by the respondent to the applicant should be found to exist which required the respondent to exercise reasonable skill and care in providing advice as to the applicant’s past performance and suitability for appointment as a contractor to provide civil engineering design and construction services in respect of sewerage treatment, storm water drainage and related works to third parties who may be contemplating using the services of the applicant.
Claims for damages for pure economic loss present peculiar difficulty (per Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (‘Woolcock’) (2004) 216 CLR 515 at 529 [21]).
Damages for pure economic loss are not recoverable if all that is shown is that the respondent’s negligence was a cause of the loss and the loss was reasonably foreseeable (per Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock at 530 [21]).
In Woolcock the High Court found that no duty of care was owed by an engineering company or its employee project manager to a purchaser to avoid damage in the form of economic loss said to have been sustained as a result of the settlement of the footings of a warehouse and office complex, for the design of which they had been responsible, or the foundation material beneath them or both. At 533 [31] Gleeson CJ, Gummow, Hayne and Heydon JJ said:
‘Neither the facts alleged in the statement of claim nor those set out in the Case Stated show that the appellant was, in any relevant sense, vulnerable to the economic consequences of any negligence of the respondents in their design of the foundations for the building. Those facts do not show that the appellant could not have protected itself against the economic loss it alleges it has suffered.’
In many cases, there will be no sound reason for imposing a duty on a respondent to protect an applicant from economic loss where it was reasonably open to the applicant to take steps to protect itself (see per McHugh J in Perre v Apand Pty Limited (‘Perre’) (1999) 198 CLR 180 at 225 [118]).
In Perre McHugh J said at 220 [104]-[105]:
‘104 What is likely to be decisive, and always of relevance, in determining whether a duty of care is owed is the answer to the question, “How vulnerable was the plaintiff to incurring loss by reason of the defendant’s conduct?” So also is the actual knowledge of the defendant concerning that risk and its magnitude. If no question of indeterminate liability is present and the defendant, having no legitimate interest to pursue, is aware that his or her conduct will cause economic loss to persons who are not easily able to protect themselves against that loss, it seems to accord with current community standards in most, if not all, cases to require the defendant to have the interests of those persons in mind before he or she embarks on that conduct.
105 The principles concerned with reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant’s knowledge of the risk and its magnitude are, I think, relevant in determining whether a duty exists in all cases of liability for pure economic loss. In particular cases, other policies and principles may guide and even determine the outcome. But I do not think that a duty can be held to exist in any case of pure economic loss without considering the effect of the application of these general principles.’
A not dissimilar issue to that presently under consideration arose in Sullivan v Moody (2001) 207 CLR 562. Sullivan was the father of a girl who was taken by her mother to a sexual assault referral centre. The opinion was formed that the child had been sexually abused whereupon the South Australian Department of Community Welfare and the child’s mother took steps to ensure that Sullivan did not have access to the child. Allegations against him were pursued in Family Court proceedings brought by the mother which were ultimately resolved in Sullivan’s favour. Thereupon he commenced proceedings in the Supreme Court of South Australia claiming that those who had conducted the examinations and assessments owed him a duty of care and that the State and its instrumentalities were vicariously liable for their negligence. The Court, comprising Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ found that the duty of care for which Sullivan contended did not exist. At 580-581 [53]-[54] their Honours said:
‘53 Developments in the law of negligence over the last thirty or more years reveal the difficulty of identifying unifying principles that would allow ready solution of novel problems. Nonetheless, that does not mean that novel cases are to be decided by reference only to some intuitive sense of what is “fair” or “unfair”. There are cases, and this is one, where to find a duty of care would so cut across other legal principles as to impair their proper application and thus lead to the conclusion that there is no duty of care of the kind asserted.
54 The present cases [Sullivan’s was one of two that the Court was considering together] can be seen as focusing as much upon the communication of information by the respondents to the appellants and to third parties as upon the competence with which examinations or other procedures were conducted. The core of the complaint by each appellant is that he was injured as a result of what he, and others, were told. At once, then, it can be seen that there is an intersection with the law of defamation which resolves the competing interests of the parties through well-developed principles about privilege and the like. To apply the law of negligence in the present case would resolve that competition on an altogether different basis. It would allow recovery of damages for publishing statements to the discredit of a person where the law of defamation would not.’
(footnotes omitted; emphasis added)
The Departmental procedures in the present case allowed for exception to be taken to Contractor Performance Reports and the listing of contractors on the Department’s Contractor Review Lists. The applicant was not vulnerable in the sense that it was unable to seek redress for what it considered to be inappropriate assessments, which may have founded later adverse comments concerning the applicant, imparted by Departmental officers to others.
Furthermore, the applicant did not itself rely upon any representations, which were made concerning it, to its detriment (see Tepko Pty Limited v Water Board (2001) 206 CLR 1 at 16-18 [46]-[51]).
In my opinion the respondent was not under a duty of care to the applicant as alleged. Accordingly, question 1 should be answered in the negative.
Given the answers to questions 1 to 6 and the facts and matters referred to above, question 7 should also be answered in the negative.
The costs of the determination of the separate questions should be reserved.
I certify that the preceding four hundred and seventy-seven (477) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham. Associate:
Dated: 9 May 2007
Solicitor for the Applicant: J A Cameron of Johninfo Lawyers Pty Limited Counsel for the Respondent: R W Hunt Solicitor for the Respondent: Bartier Perry Solicitors Dates of Hearing: 1, 2, 3, 4, 7, 8, 9, 14, 15, 16, 17, 18, 21, 22, 23, 24, 28 and 29 August 2006 Date of Judgment: 9 May 2007
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