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Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd

Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd

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NEW SOUTH WALES SUPREME COURT

CITATION: Aiton v Transfield [1999] NSWSC 996

CURRENT JURISDICTION: Equity Division, Construction List

FILE NUMBER(S): 55020/99

HEARING DATE{S): 26.7.99

JUDGMENT DATE: 01/10/1999
PARTIES:

Aiton Australia Pty Limited (Plaintiff)
Transfield Pty Limited (Defendant)

JUDGMENT OF: Einstein J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
R.W. Hunt (Plaintiff)
M.G. Rudge (Defendant)

SOLICITORS:
Corrs Chambers Westgarth (Plaintiff)
Minter Ellison (Defendant)

CATCHWORDS:
Contract - Construction contracts - Settlement of disputes - Dispute resolution procedures a condition precedent to commencing expert resolution or judicial proceedings - Requirement that the parties utilise dispute resolution procedures in "good faith" - Meaning of "good faith" - Whether provision sufficiently certain to be enforced - Whether proceedings ought be adjourned or stayed
Procedure - Stay - Dispute resolution procedure a term of the contract - Stay order where abuse of process to sue - Exercise of court’s discretion.

ACTS CITED:
Commercial Arbitration Act 1984 (NSW)
Farm Debt Mediation Act 1994 (NSW)
Industrial Relations Act 1988 (Cth)
Native Title Act 1993 (Cth)

DECISION:
Application for stay of proceedings dismissed.

JUDGMENT:

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION - COMMERCIAL LIST
EINSTEIN J
1 October 1999
55020 of 1999 AITON AUSTRALIA PTY LTD v TRANSFIELD PTY LTD
JUDGMENT

The Motion

The motion before the court is for a stay of proceedings.
The defendant seeks the stay on the basis that the contracts pleaded by the plaintiff, forming the basis of the plaintiff’s claim, contain express procedures for dispute resolution to be followed prior to either party commencing proceedings. [The precise words used in the relevant clause are set out below.] The defendant asserts that such procedures have not been carried out, and therefore, the court ought stay the proceedings until the procedures have been followed. If successful, this application would amount to an indirect enforcement of those express procedures.
The Proceedings
The proceedings were commenced by the plaintiff, Aiton Australia Pty Ltd, by summons dated 21 May 1999. They concern the Osborne Co-Generation Project, a turn-key construction project for Osborne Co. Pty Ltd, an independent power producer situated in Adelaide, South Australia. In May and June of 1997 the plaintiff and the defendant, Transfield Pty Ltd, entered into three contracts in relation to the construction of the project. It is these contracts, and the tender negotiations leading up to the execution of the contracts, from which the dispute between the parties arises.
The plaintiff asserts inter alia that the defendant made representations to the plaintiff during the tender negotiations which were misleading and deceptive. In consequence, the plaintiff claims to have been unable to execute the works in the manner, sequence, and within the duration and for the tender price provided for by the contracts. Further, the plaintiff asserts that the defendant made representations to the plaintiff during the performance of the works which were misleading and deceptive. In consequence, the plaintiff claims to have performed additional work and worked according to a…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1999] NSWSC 996
Decision Date: 28/03/1995

CaseChat Overview and Summary

In the case of Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd, the dispute centred on the interpretation and enforceability of a dispute resolution clause within a construction contract. The primary issue before the court was whether the requirement for parties to engage in dispute resolution procedures in "good faith" was sufficiently certain to be enforceable, and whether the proceedings should be stayed or adjourned due to an alleged abuse of the court process. The case involved a complex history of claims and counterclaims between the parties, including disputes over contract terms, performance, and specific incidents of non-compliance.

The court was required to determine the precise meaning of "good faith" in the context of the contractual dispute resolution process. It needed to assess whether the term was sufficiently certain to be enforced and whether it constituted a condition precedent to initiating expert determination or judicial proceedings. Additionally, the court had to consider whether there was an abuse of process that warranted staying the proceedings. The court's analysis involved reviewing the conduct of the parties throughout the dispute resolution process, examining whether the actions taken by the parties were consistent with the principles of good faith bargaining.

The court found that the term "good faith" was not unacceptably uncertain and was capable of being enforced. It determined that the parties were required to actively participate in the dispute resolution process with an open mind and a sincere intention to reach an agreement. The court emphasised that good faith did not necessitate that either party must ultimately enter into an agreement. The decision highlighted that unilateral actions taken by one party at the expense of the bargaining process could indicate bad faith. Furthermore, the court concluded that there was no abuse of process that warranted staying the proceedings, and the matter should proceed to resolution according to the contractual dispute resolution procedures.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

The definition of ‘Dispute’ is provided in clause 1.1 of the Contracts, being ‘any claim, dispute, disagreement or other matter in question between Purchaser and Supplier that arises with respect to the terms and conditions of this Contract or with respect to the performance, non-performance or breach by the Purchaser or Supplier of their respective obligations under this Contract.’The Facts The history of the various claims made by Aiton to Transfield prior to service of the summons, is set out in the affidavits of Mr Neil Price, sworn 2 July 1999 and Mr Keith Walker-Smith, sworn 6 July 1999. Mr Price has been involved with the Osborne Co-Generation Project since 21 July 1997 and has been Project Manager for Aiton since November 1997. Mr Walker Smith was the General Manager of Aiton from October 1991 to February 1999 and Managing Director from February 1999 to 1 May 1999. On the evidence of Mr Price, the following can be seen as heads of claim pursued by Aiton against Transfield during the period from 1997 to 1999: (1) extension of time and costs due to inadequate isometric drawings being provided by Transfield; (2) wage rates variations associated with an additional over-award weekly payment to the labour force; (3) work involved with the installation of cooling water piping, being work outside the contract price; (4) hourly rates site variations for work performed outside the contracts; and (5) work involved with the installation of trimmer steel, being work outside the contract price. On 30 March 1999 Aiton made a consolidated claim which is later reflected in the summons. Presumably, the pleaded consolidated claim, totalling $11,897,529 once broken down, may be directly correlated with the separate heads of claim detailed in Mr Price’s affidavit. It is convenient, therefore, that the heads of claim, having separate claim histories be dealt with separately. As to the isometric drawings claims, Aiton gave Transfield a notice of dispute pursuant to cl 28.1 on 20 March 1998 (NEP4). Following requests for further information from Transfield, Aiton submitted its quantified claim, incorporating previous interim claims, and supporting documentation to Transfield on 1 December 1998. On the evidence of Aiton, Aiton’s subsequent attempts to discuss the claim were frustrated by the conduct of Transfield: communication by Transfield to the effect that Transfield did not intend to make further payments to Aiton; cancellation of the 20 January 1999 variation claims meeting at which the claims were proposed to be discussed; failure to prepare for the 28 January 1999 meeting; failure to respond. It appears that Aiton did not submit a second notice of dispute in relation to these claims as per the procedure stipulated in cl 28.1. As to the wage rates variations, Aiton notified Transfield on 12 November 1997 at a variation claims meeting that such variations were in dispute, this notification being confirmed by facsimile dated 29 November 1997 (NEP9). On the evidence of Aiton, no further steps were taken pursuant to cl 28 in view of Transfield’s apparent acceptance of the claim, subject to documentary substantiation, by facsimile dated 11 February 1998 (NEP12). On 19 August 1998 Aiton submitted its particularised claim with supporting documentation to Transfield. Thereafter, Transfield advised Aiton that the claim was under review, until on 28 January 1999 Transfield advised Aiton that it had difficulties with the claim and was reviewing the earlier correspondence.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

From the academic writings cited by his Honour, it would appear that the ABC case is in line with United States cases and commentary on the National Labour Relations Act 1935 (US). For instance, in NLRB v Reed & Prince Manufacturing 118 F.2d. 874,885 (1st Cir), cert. denied, 313 US 595 (1941) at 885. It was held that the employer was required by statute to ‘negotiate sincerely …with an open mind and a sincere desire to reach an agreement in a spirit of amity and co-operation’. Further, in NLRB v Boss Mfg Co 7 Cir., 118 F.2d. 187,189 it was stated that ‘mere pretended bargaining will not suffice.’ Such conduct renders the requirement futile. ‘The concept of “good faith” was brought into the law of collective bargaining as a solution to this problem. One who merely went through the motions knowing that they were a sham could be said to lack good faith’. Sumner CJ cited Jeff Shaw QC MLC reproduced in 1996 ALLR (CCH) at 50, who sets out as follows, the principles discernible in the US cases on ‘negotiation in good faith’ in the labour relations context:‘1. Good faith is an obligation of the parties to participate actively in the deliberations so as to indicate a present intention to find a basis for agreement. A party will be bargaining in good faith if it has an open mind and a sincere desire to reach an agreement.2. The duty to bargain in good faith does not require that either party must enter an agreement.3. One test as to whether a party is acting in good faith depends upon how a reasonable person might be expected to react to the bargaining attitude shown by those participating.’ Sumner CJ relevantly summarised points 4-6 as follows:‘4. While point 3 is an objective test the American courts have placed some emphasis upon the ‘state of mind of the parties’ relying upon inferences drawn from the conduct of the parties as a whole.5. The taking of unilateral actions by one party at the expense of the bargaining process may be seen as an indicator of that party’s bad faith.6. The failure to answer a reasonable request for relevant information from another party may be seen as an indicator of bad faith on the part of the party failing to supply the information.’ Similarly, s 11 of the Farm Debt Mediation Act 1994 (NSW) requires that for a period after a creditor has given notice of enforcement action to a mortgagor, the creditor attempt to mediate in good faith. That section was considered by Badgery-Parker J in State Bank of NSW v Freeman (unreported, Supreme Court of NSW, 31 January 1996) who at 7, made plain that the Farm Mediation Act does not deal with the substantive rights of the parties. Rather, “what it does is to interpose, between default of a mortgagor and enforcement action by a mortgagee, a barrier which is, however, limited in duration”. To my mind, the following observations of Badgery-Parker J are particularly pertinent to the matter before me:‘An undertaking to mediate in good faith no doubt connotes a willingness on the part of a party to consider such options for resolution of a dispute as are propounded by the mediator or the opposing party; but it does not appear to me than an inference of lack of good faith can be drawn from the adoption of a strong position at the outset and a reluctance to move very far in the direction of compromise, without more’ [at 11].[emphasis added]