FPM Constructions Pty Ltd v Council of the City of Blue Mountains - [2005] NSWCA 340

No judgment structure available for this case.

CITATION:
FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340

HEARING DATE(S):
1-2 June 2005

JUDGMENT DATE:

10 October 2005

JUDGMENT OF:
Beazley JA at 1; Giles JA at 2; Basten JA at 85

DECISION:
(1) Allow the appeal by the First Appellant in relation to the costs order made against him personally and vary the orders made by the District Court on 24 August 2004 with respect to costs so as to read; 1. in matter no. 1731/03, order that the plaintiff pay the defendant's costs of the proceedings, on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis; 2. in matter no. 2130/03, order that the plaintiff pay the defendant's costs of the proceedings, on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis; 3. in matter no. 3916/03, order that the defendant pay the plaintiff's costs on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis; (2) Order that the Council of the City of Blue Mountains pay Mr Yazbek's costs of the application made by it against him personally for its costs in the District Court; (3) Order that the appeal be otherwise dismissed; (4) Order that the First Appellant pay 90% of the Respondent's costs of the appeal.

CATCHWORDS:
CONTRACT - interpretation of building and construction contract AS4300-1995 - whether statutory declaration produced by builder in support of progress claim was false - effect of falsity of statutory declaration - whether power of superintendent to certify progress claim extends beyond termination of contract - whether builder had accrued right to progress payment - whether termination was lawful - whether show cause notice adequate - whether there was a substantial breach - COSTS - personal costs order against company director and shareholder under s148B of the District Court Act 1973 (NSW) - factors relevant to discretion to make costs order against a non-party

LEGISLATION CITED:
Building and Construction Industry Security of Payment Act 1999
Contractors Debts Act 1997
District Court Act 1973Local Government Act 1993

CASES CITED:
Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16
Arundel Chiropractic Centre Pty Ltd v Deputy Commission of Taxation (2001) 179 ALR 406
Brewarrina Shire Council v Beckhaus Civil Pty Ltd (2003) 56 NSWLR 576
Burns Philp & Co Ltd v Bhagat [1993] 1 VR 203
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Commonwealth Bank v Mehta (1991) 23 NSWLR 84
Diamond v Baulkham Hills Shire Council [1999] NSWCA 277
Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135
Eriksson v Whalley [1971] 1 NSWLR 397
Evans v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 135 FCR 306
FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2003] NSWSC 201
Fraser v NRMA Holdings Ltd (1994) 52 FCR 1 and (1995) 55 FCR 452
Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429
Hounslow London Borough Council v Twickenham Garden Developments Ltd (1970) 1 Ch 233
Hyundai Heavy Industries Co Ltd v Papadopoulos (1980) 1 WLR 1129
Knight v FP Special Assets Ltd (1992) 174 CLR 178
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Minson Nacap Pty Ltd v Aquatec-Maxcon Pty Ltd [2000] VSC 402
New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8
Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404
Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211; (2002) BCL 322
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 357
Photo Production Ltd v Securicor Transport Ltd (1980) AC 827
Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (1980) 144 CLR 300
Re JJT; Ex parte Victoria Legal Aid (1998) 195 CLR 184
Re Stewardson Stubbs and Collett Pty Ltd v Bankstown Municipal Council (1965) NSWLR 1671
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
Stocznia Gdanska SA v Latvian Shipping Co (1998) 2 WLR 574
Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liquidation) (1936) 54 CLR 361
Yendex Pty Ltd v Prince Constructions Pty Ltd [1989] 5 BCLR 74

PARTIES:
FPM Constructions Pty Ltd (First Appellant)
Anwar Yazbek (Second Appellant)
The Council of the City of Blue Mountains (Respondent)

FILE NUMBER(S):
CA 40791/04

COUNSEL:
G. McVay (Appellants)
S. Donaldson SC/M. Lee/A. Crossland (Respondent)

SOLICITORS:
McLachlan Chilton (Appellants)
Marsdens (Respondent)

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
DC 1731/03; DC 2130/03; DC 3916/03

LOWER COURT JUDICIAL OFFICER:
Robison DCJ

CA 40791/04
DC 1731/03; DC 2130/03 and
DC 3916/03

BEAZLEY JA
GILES JA
BASTEN JA
10 October 2005

FPM CONSTRUCTIONS PTY LTD AND ANWAR YAZBEK v THE COUNCIL OF THE CITY OF BLUE MOUNTAINS

FPM Constructions Pty Ltd (FPM), a company controlled by Mr Yazbek, contracted to design and construct an Aquatic Centre for the Blue Mountains City Council (the Council).

Under the terms of the standard form contract (known as AS4300-1995) FPM was only entitled to payment of a progress claim if, inter alia, a statutory declaration was provided to the Council to the effect that no outstanding debts were due and payable to subcontractors and the Superintendent certified the amount properly payable for that progress claim.

The statutory declaration in support of progress claim no.8 was found by the trial judge to be false. The trial judge rejected FPM’s claim to be entitled to the unpaid amount of progress claim no. 8 on the basis that the falsity of the statutory declaration rendered the contractual precondition to entitlement unfulfilled. In relation to progress claim no 9, the trial judge found that at the date of termination of the contract, the Superintendent had not certified the claim in accordance with the contract. The trial judge rejected FPM’s argument that the obligation of the Superintendent to certify survived termination of the contract.

The Council terminated the Contract on the basis of FPM’s default and claimed against FPM for loss and damage arising from the Council having to obtain an alternative contract to complete the job. The trial judge awarded damages of $750,000, being the jurisdictional limit of the District Court. In addition, the trial judge made a personal costs order against Mr Yazbek in favour of the Council.

FPM claimed the termination was unlawful on grounds including that the show cause notice was issued without the Council’s authority, that the notice failed to identify with sufficient particularity the alleged breaches, that the contractual requirement that the Council ‘consider that damages may not be an adequate remedy’ was unfulfilled and that there had not been a breach of contract justifying termination by the Council.

Held in relation to progress claim no. 8:

By Basten JA (Beazley JA agreeing) at [102] – [121]:

1. A statutory declaration will not satisfy clause 43.2 unless it is true, and it is not sufficient that it is believed to be true by the person making it. A declaration, which is in fact untrue, will justify the withholding of a payment, but not the termination of a contract: at [120].

2. The statutory declaration should not be treated as a fair and accurate statement of the true position known to Mr Yazbek and so FPM was not entitled to progress claim no. 8: at [112] and [120] – [121].

By Giles JA:

1. Clause 43.2 stated a pre-condition to entitlement to payment, not an obligation. It was a non-promissory condition and the Contractor would not be in breach of the Contract if it failed to provide a statutory declaration: at [7].

Brewarrina Shire Council v Beckhaus Civil Pty Ltd (2003) 56 NSWLR 576 and Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 357 referred to.

2. If a statutory declaration was not provided, or was ineffective because false, the Council was entitled to withhold payment and in its discretion could make direct payment pursuant to clause 43.4: at [14].

3. The withdrawal of approval in relation to the invoices of the subcontractors had no effect on whether the amount of the invoices was due and payable. A debtor cannot make an amount undue or unpayable by declining to approve its payment: at [16].

4. If FPM genuinely disputed the invoices, the statutory declaration was nonetheless false. At the least, moneys might have been due and payable, and it was false to declare as an absolute that all moneys due and payable had been paid: at [17].

Held in relation to termination:

By Basten JA (Beazley JA agreeing) [125] – [176]:

1. The show cause notice was issued on the authority of the Council and so the question of formal delegation of power under the Local Government Act 1993 did not arise: at [134].

2. The Council was a public authority seeking to make available a large recreational centre for use by ratepayers. The public interest involved in that exercise may have been adversely affected, in the view of the Council, by delay, which prevented the construction being completed before the change of seasons thereby constituting a detriment to ratepayers, which would not be adequately remedied by damages recoverable by the Council: at [139].

3. The show cause notice should be read with the understanding, which will be brought to the exercise by the recipient, including his or her knowledge of the circumstances in which it is given. If the recipient is a builder, it should not be assumed that the reader will understand technical legal terms, but it may be assumed that expressions commonly adopted in that industry will be understood: at [151].

4. While the notice contained infelicities of expression, references to contractual conditions which were not set out, a contractor’s program identified but not produced and a history which was not spelled out in detail, the correspondence between the parties and the response of Mr Yazbek demonstrated that the particulars in the notice were reasonably comprehensible to Mr Yazbek: at [141] – [160].

Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135, Re Stewardson Stubbs and Collet Pty v Bankstown Municipal Council (1965) NSWLR 1671, Yendex Pty Ltd v Prince Constructions Pty Ltd [1989] 5 BCLR 74 and Eriksson v Whalley [1971] 1 NSWLR 397 considered.

5. There being no challenge to the factual finding that delay had occurred and that the delay constituted a ‘substantial breach’, it was not established that the trial judge erred in concluding the contract had been validly terminated: at [176].

By Giles JA (otherwise agreeing with Basten JA):

Clause 44.2 defined what were substantial breaches for the purposes of the Contract. One was failure to proceed with due expedition and without delay. If there was the failure, by force of the Contract there was substantial breach within clause 44.2. There plainly was the failure, going beyond the de minimis, and the precondition was satisfied: at [58].

Held in relation to progress claim no 9:

By Basten JA (Beazley JA agreeing) [177] – [193]:

1. The limits on the power of the superintendent under clause 42.1 are expressly identified in terms, which assume the continuation of the contract. Absent some clear expression of intention that the superintendent is to have powers, which survive termination, an inference to that effect should not be drawn: at [185].

2. The obligation of the superintendent to certify a progress claim does not survive the termination of the contract: at [179] – [191].

Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211 distinguished.

3. Upon termination of the contract, FPM did not have an unconditional right to payment. Such a right will only crystallize where the principal continues to ensure that the superintendent exercises its power. Not only does that power not outlive termination, but even if it did, it would require continued performance by the principal: at [192].

McDonald v Denny Lascelles Ltd (1933) 48 CLR 457 and Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1935) 54 CLR 69 applied.

By Giles JA:

1. Despite the termination of the contract the Superintendent could issue a payment certificate on progress claim 9: at [9].

Penisula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) BCL 322 considered.

2. There was provision in the contract for FPM to receive periodical payment for work it had carried out, with a mechanism for arriving at an amount payable. The mechanism of progress claim followed by certification and payment or default payment recognised that FPM should be paid for work it had carried out, the payment being on account only and subject to the final working out of the position between the parties. There was obvious good sense in the superintendent dealing with a progress claim outstanding at the time of termination, in order to give effect to the mechanism for payment of work carried out in the past, and a Principal which terminated the Contract (or accepted a repudiation) could scarcely complain if it nonetheless had to pay for the past work in accordance with the contractual mechanism earlier set in motion: at [33].

3. FPM had a right which would result in one of two amounts, in the manner the mechanism worked a right to the amount of the progress claim after the lapse of 28 days defeasible to a certified amount if the Superintendent issued a payment certificate. That was within the accrued right principle of McDonald v Dennys Lascelles Ltd.

McDonald v Denny Lascelles Ltd (1933) 48 CLR 457 and Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1935) 54 CLR 69 applied.

4. The statutory declaration declared on 16 June 2003 with respect to progress claim no. 9, was also false, thereby providing a defence to FPM’s claim of entitlement to that progress claim. While the Council’s defence was not amended formally, its written submissions at trial indicated that it relied on the falsity of the declaration as a defence: at [45] – [54]. The Council should be permitted to formalise the defence by a notice of contention: at [54].

Held in relation to damages:

By Basten JA (otherwise agreeing with Giles JA) [194] – [197]:

Mr Yazbek conceded the range was between $600,000 and $900,000. In the absence of more precise evidence, the trial judge was entitled to form the view that the cost of completion was “at the very least” in excess of the jurisdictional limit of the District Court: at [196].

By Giles JA (Beazley JA agreeing):

Quite apart from the evidence of Mr Yazbek, the judge’s satisfaction that damages of at least $750,000 had been proved was well-founded; and it can be concluded that damages of a greater amount, in round figures of the order of $2,000,000 were proved: at [67] – [79].

Held in relation to the personal costs order against Mr Yazbek:

By Basten JA (Beazley JA and Giles JA agreeing) [198] – [219]:

1. The District Court, pursuant to section 148B of the District Court Act 1973 (NSW), has the power to make a costs order against a non-party: at [200] – [203].

2. It could not be said that FPM was merely a nominal party or that Mr Yazbek was the “real party” to the proceedings. The fact that Mr Yazbek was the driving force behind FPM does not mean that the benefit of the proceedings brought by FPM for progress payments, in law, flowed to anyone other than FPM, nor that FPM was other than the proper defendant in proceedings brought by the Council. The fact that Mr Yazbek was the sole director and secretary of the company is not inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against person liability for the shareholders and directors: at [206].

Knight v FP Special Assets Ltd (1992) 174 CLR 178 applied.

New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8 followed.

Burns Philp & Co Ltd v Bhagat [1993] 1 VR 203 referred to.

3. FPM was not expressly identified to be an insolvent party or a person of straw: at [209] and [211].

Diamond v Baulkam Hills Shire Council [1999] NSWCA 277 distinguished.

4. While Mr Yazbek did play an active part in proceedings, in a proper exercise of discretion, something more should generally be found: at [212].

Knight v FP Special Assets Ltd (1992) 174 CLR 178, Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429 and Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 referred to.

5. The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors, which will clearly tend to interact: at [214].

6. The exercise of the discretion miscarried. The trial judge gave significant weight to factors, which were, taken in isolation, neutral, such as Mr Yazbek instructing counsel and swearing affidavits (at [207]). The trial judge also treated the proceedings as having been run for the benefit of Mr Yazbek without identifying clearly what that benefit was. If it were simply the benefit of a shareholder of a company, that would not by itself be sufficient: at [215].

CA 40791/04
DC 1731/03; DC 2130/03 and
DC 3916/03

BEAZLEY JA
GILES JA
BASTEN JA
10 October 2005

FPM CONSTRUCTIONS PTY LTD AND ANWAR YAZBEK v THE COUNCIL OF THE CITY OF BLUE MOUNTAINS

Judgment

1 BEAZLEY JA: I have had the advantage of reading in draft the reasons of Giles JA and Basten JA. I agree with the reasons of Basten JA. I also agree with the reasons of Giles JA in respect of damages, which state in more detail the issues which arose in this case in relation to damages.

2 GILES JA: The circumstances in which the questions in the appeal arose are described in the reasons of Basten JA, which I have had the advantage of reading in draft. I draw upon his Honour’s reasons and avoid undue repetition.

Progress claim 8

3 FPM Constructions claimed to be entitled to payment of $122,921.54 certified by the Superintendent on 28 March 2003. The Council contended that it was entitled to withhold payment pursuant to cl 43.3 of the Contract, on the ground that the statutory declaration provided to the Superintendent as required by cl 43.2 was false.

4 A statutory declaration declared by Mr Anwar Yazbek as representative of FPM Constructions was provided on 2 April 2003. It said that all subcontractors had been paid, which in terms satisfied cl 43.3. The Council contended that it was false, and therefore of no effect as a statutory declaration satisfying cl 43.2, because money was due and payable to at least three subcontractors: Allen Jack + Cottier (“AJC”), architects; Barry C Smith & Associates Pty Ltd (“Smith”), mechanical and electrical engineers; and Acor Consultants Pty Ltd (“Acor”), structural, civil and hydraulic engineers.

5 FPM Constructions accepted that, if the unpaid subcontractor fell within cl 43.2 and its claim to payment was not disputed, a statutory declaration in which it was falsely stated that all subcontractors had been paid all moneys due and payable to them would be ineffective for the purposes of cl 43.2. It did not say that cl 43.2 was satisfied by a statutory declaration which, although in the right terms, was false. It contended, however, that -

(a) AJC and Smith were not subcontractors falling within cl 43.2 because, either pursuant to cl 43.4 of the Contract or under an arrangement with the Council, they were to be paid directly by the Council;

(b) no moneys were due and payable to AJC or Smith because on 1 April 2003 Mr Yazbek withdrew his approval of payment to them; and

6 It is necessary first to consider the operation and purpose of the requirement in cl 43.2 for a statutory declaration.

7 Clause 43.2 stated a pre-condition to entitlement to payment, not an obligation. I consider it is better seen as a non-promissory condition (see Brewarrina Shire Council v Beckhaus Civil Pty Ltd (2003) 56 NSWLR 576 at [22]; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 357 at 551-2, 565), and the Contractor would not be in breach of the Contract if it failed to provide a statutory declaration. If a statutory declaration was not provided the Principal could, but did not have to, withhold payment.

8 If the Contractor could not provide the statutory declaration, for example if it did not have funds enabling payment or if there was a genuine dispute with a subcontractor, the Contractor was not without remedy. The last paragraph of cl 43.3 allowed the Contractor to provide to the Superintendent “satisfactory proof of the maximum amount due and payable to … subcontractors”, and entitled it to payment the amount of the certified payment in excess of that maximum amount. If the Contractor was without funds it could also invite the Principal to act, or the Principal could itself decide to act, by making direct payment out of money payable to the Contractor, pursuant to cl 43.4, whereupon the statutory declaration could be provided and the Contractor would be entitled to payment of the balance of the certified amount.

9 Clause 43.2 benefited the Principal, by motivating the Contractor to make timely payment to subcontractors; so also did cl 43.4 benefit the Principal, by enabling it to ensure subcontractors were paid. The risk to progress of the works because of a dissatisfied subcontractor was reduced, and the Principal retained control of money in the event of a claim under legislation such as the Contractors Debts Act 1997.

10 This operation and purpose gives little encouragement to a confined construction or application of the reference in cl 43.2 to moneys due and payable to subcontractors.

(a) Direct payment

11 The Contract provided in cl 43.4 for deduction by the Principal from the amount otherwise payable under a payment certificate in respect of work performed or material supplied by a subcontractor, and payment of that amount on behalf of the Contractor directly to the subcontractor. Any direct payment was “at the Principal’s sole discretion”.

12 The arrangement with the Council appears to have been something other than giving effect to this provision, and was obscure, described by the judge only as an arrangement whereby there would be payment directly by the Council. According to Mr Yazbek, he was asked by Council officers if he had any problem with payment of AJC, Smith and Acor directly subject to approval of their invoices, and he said that he did not. Mr Yazbek told the subcontractors to send their invoices to the Council, with copies to him for approval. A necessary relationship with an amount payable to FPM Constructions in respect of the work the subject of the invoices was not demonstrated, nor was it purely discretionary. Whatever the arrangement, it was accepted that it left FPM Constructions with a liability to the subcontractors.

13 FPM Constructions submitted that where the Council knew whether or not AJC and Smith had been paid, from acting or not acting pursuant to cl 43.4 or from giving effect to the arrangement, there was no point in a statutory declaration which extended to telling it that they had been paid, or in the Council withholding payment to it when they had been paid. Since the Council would already know whether or not they had been paid, cl 43.2 should be construed to exclude from the subcontractors falling within it those subcontractors dealt with pursuant to cl 43.4 or pursuant to the arrangement.

14 I do not think the arrangement was a giving effect to cl 43.4, but if it was I do not agree that cl 43.4 called for a construction of cl 43.2 such that the subcontractors to which cl 43.4 referred did not fall within it. Clause 43.4 did not modify the content of the statutory declaration. It applied where the Contractor was unable to provide the statutory declaration as well as where the Contractor could and did provide it. Failure to provide a statutory declaration could well be the occasion for the Principal to make direct payment in the exercise of its discretion. If a statutory declaration was not provided, or the statutory declaration which was provided was ineffective because false, the Principal was entitled to withhold payment and in its discretion could make direct payment pursuant to cl 43.4. The two provisions were complementary, and cl 43.4 did not qualify cl 43.2.

15 On the alternative basis of an arrangement outside cl 43.4, the submission fares no better. A side arrangement could scarcely alter the proper construction of cl 43.2. Whatever arrangement there may have been for direct payment of some subcontractors, outside cl 43.4, FPM Constructions knew or could find out whether the subcontractors had been paid, and if they had been paid could provide the requisite statutory declaration. Clause 43.2 meant what it said, and the subcontractors the subject of the arrangement were subcontractors falling within it.

(b) Withdrawal of approval

16 This is linked with the contention that payment to the subcontractors was disputed, but is a separate matter. The approval was Mr Yazbek’s approval of invoices involved in the arrangement for direct payment. Its withdrawal had no effect on whether the amount of the invoices was due and payable. A debtor cannot make an amount undue or unpayable by declining to approve its payment.

(c) Dispute

17 If FPM Constructions genuinely disputed the subcontractors’ invoices, the statutory declaration was nonetheless false. At the least, moneys might have been due and payable, and it was false to declare as an absolute that all moneys due and payable had been paid. In my opinion, on the operation of cl 43.2 earlier described it required the statutory declaration as an absolute, and a Contractor in genuine dispute with a subcontractor could not provide the statutory declaration. The Contractor had to fall back on providing satisfactory proof as allowed by the last paragraph of cl 43.3, and thereby obtaining the balance of the certified amount. The disputed amount would be held, if the Principal so chose, until the dispute was resolved.

18 If that be incorrect, I am not satisfied that there was a genuine dispute as to at least the AJC and Smith invoices; the statutory declaration was false for that reason.

19 The work the subject of AJC’s invoices was carried out in or prior to June 2002: it stopped work at that time because earlier invoices had not been paid. $78,285.60 remained unpaid as at 2 April 2003, representing part of an amount invoiced on 16 July 2002 and the whole of the amounts invoiced on 10 October 2002 and 5 December 2002. All three invoices had been sent to the Council. On 18 January 2003 Mr Yazbek endorsed the last as approved for payment; presumably the others had also been approved. Smith’s two invoices were dated 2 December 2002. Both were sent to the Council. It had also earlier stopped work because it was not being paid. On 18 January 2003 Mr Yazbek endorsed them as approved for payment. Why the invoices were not promptly paid did not appear; in mid February 2003 Mr Yazbek was complaining that the Council had not paid AJC. Mr Yazbek withdrew approval on 1 April 2003, saying he did so “[d]ue to the number of issues raised and comments made by [the Council’s] consultant Paul Stevenson on the design documentation currently provided”. This was not elucidated in the evidence.

20 In his affidavit Mr Yazbek said that he withdrew approval “because I was of the view that the design work which they had provided was unsatisfactory and was not suitable for use as a design for construction by the Plaintiff”. But in his response on 2 April 2003 to the show cause notice Mr Yazbek rejected what he described as the Council’s “accusation of providing a false statutory declaration”, being an earlier statutory declaration of 30 January 2003, on the ground that there was no money then due and payable because the invoices did not become payable until 15 February 2003. Although Mr Yazbek was directing himself to the end of January 2003, in April 2003 reference to later dispute could be expected.

21 The judge was critical of Mr Yazbek’s credibility, although not specifically as to the statutory declaration of 2 April 2003 because he focused on the earlier statutory declaration. The assertion of a dispute on 1 April 2003 appears to have been a device intended to remove the amounts of the invoices from the category of moneys due and payable.

22 In my opinion, FPM Constructions was not entitled to be paid the amount certified on progress claim 8.

Progress claim 9

23 FPM Constructions claimed to be entitled to payment of $285,580.90 the subject of progress claim 9 delivered on 9 April 2003. The Council contended that it was not obliged to pay because the Contract was terminated on 10 April 2004, before FPM Constructions became entitled to payment. For present purposes I assume that the Contract was validly terminated, see later in these reasons. The Superintendent did not issue a payment certificate on the progress claim, prior to termination or at all.

24 I will return to the question of a false statutory declaration in relation to progress claim 9.

25 FPM Constructions contended that the termination of the Contract discharged the parties from further performance, but did not divest “rights which have already been unconditionally acquired” (McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477 per Dixon J); it said that it had an accrued right to payment. If it did, it could recover the payment notwithstanding termination (see Hyundai Heavy Industries Co Ltd v Papadopoulos (1980) 1 WLR 1129; Stocznia Gdanska SA v Latvian Shipping Co (1998) 2 WLR 574). The argument came down to the submission that, by force of cl 42.1, having delivered the progress claim it had an accrued right to recover either the amount certified by the Superintendent or, if the Superintendent did not issue a payment certificate within 28 days, the amount of the progress claim; that it had the right at the time the Contract was terminated even though it was not then known which of the amounts it could recover because there had not been certification and the 28 days had not elapsed; and that, after the lapse of the 28 days without certification, the amount was known to be the amount of the progress claim.

26 We were referred to Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd [2004] VSCA 18. Implicit in the discussion of ground 7 in its [31]-[45] was that the contractor under AS4303-1999 had an accrued right to be paid its progress claims at the time the contract was terminated. From the decision at first instance, Minson Nacap Pty Ltd v Aquatec-Maxcon Pty Ltd [2000] VSC 402, the progress claims 13, 14 and 15 had been delivered and the Superintendent had not issued payment certificates within the required 35 days, all before termination. The case does not assist on the present question.

27 By cl 44.10, on termination of the Contract the rights and liabilities of the parties were “the same as they would have been at common law had [FPM Constructions] repudiated the Contract and [the Council] elected to treat the Contract at an end and recover damages”. This did not exclude the accrued right principle of McDonald v Dennys Lascelles Ltd; it made it necessary to decide whether FPM Constructions had the accrued right.

28 In asking whether FPM Constructions had the accrued right, there must be considered whether the Superintendent had power to issue a payment certificate after termination of the Contract. If termination of the Contract brought to an end his power in that respect, FPM Constructions could not have a right to the amount certified by him, because it could not call for certification. Nor do I think it could have a right to the amount of the progress claim in default of certification within 28 days, because the default provision assumed possible, indeed expected, certification by the Superintendent and operated in default of that occurring. I do not think it operated if the default was that the Superintendent’s power had come to an end.

29 It is well established that the acceptance by an innocent party of the repudiation of a contract does not bring the contract to an end for all purposes. An arbitration clause part of the contract may continue to have effect (Heyman v Darwins Ltd (1942) AC 356; Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337), as may a choice of forum, a choice of law or a limitation clause (Photo Production Ltd v Securicor Transport Ltd (1980) AC 827; Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (1980) 144 CLR 300).

30 In Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) BCL 322 this Court held that the Superintendent under AS2124-1992 could grant an extension of time after the contract had been terminated, even if the contractor had not applied for it prior to termination; see at [80]. The decision has been questioned by a learned commentator in 18 BCL 281, although with less doubt if the contractor had applied for the extension of time prior to termination, and does not directly transpose to certification of payment under the Contract. The notion of a Superintendent’s power surviving termination for some purposes was nonetheless recognised.

31 The Contract provided for appointment of a Superintendent, and provided that the Principal should ensure that there was at all times a Superintendent and that “in the exercise of the functions of a Superintendent under the Contract” the Superintendent should act honestly and fairly, in a timely manner and reasonably (cl 23). The Superintendent was given a number of “functions”. Some could only arise while work was being carried out (for example, interpreting ambiguities or discrepancies (cl 8.1), approving a proposed subcontractor (cl 9.2), providing information for setting out (cl 28.1), directing the order of works (cl 33.1), directing suspension of work (cl 32.1) and variations to the work (cl 40.1)). Others were not functions to be performed only while work was being carried out (the obvious example is issuing the Final Certificate (cl 42.6)). Granting extensions of time and issuing payment certificates were functions which could be performed after work had ceased, since they called for assessment of past carrying out of work.

32 It is another question again whether the functions could be performed after termination of the Contract. Reference to exercise of the functions of a Superintendent “under the Contract”, however, did not in my view mean that the Contract had still to subsist. It meant that the functions were found in the Contract. Nothing else confined the exercise of the function of issuing a payment certificate, at least where the exercise of the function has been initiated by delivery of a progress claim, to the subsistence of the Contract.

33 The duration of the Superintendent’s power must be found in the parties’ intention as revealed in the Contract. There was no express revelation. There was, however, provision for FPM Constructions to receive periodical payment for work it had carried out, with a mechanism for arriving at an amount payable. The mechanism of progress claim followed by certification and payment or default payment recognised that FPM Constructions should be paid for work it had carried out, the payment being on account only and subject to a final working out of the position between the parties (cl 42.1 last sentence). There was obvious good sense in the Superintendent dealing with a progress claim outstanding at the time of termination, in order to give effect to the mechanism for payment for work carried out in the past, and a Principal which terminated the Contract (or accepted a repudiation) could scarcely complain if it nonetheless had to pay for the past work in accordance with the contractual mechanism earlier set in motion.

34 In my opinion, despite the termination of the Contract the Superintendent could issue a payment certificate on progress claim 9.

35 The effect of cl 23 was that the Council had to ensure that the Superintendent dealt with the progress claim, and to that extent further performance was required of it. But the Contract made provision for failure in timely dealing with the progress claim, and so for what happened when the Council did not ensure that the Superintendent dealt with it – not by way of damages, but by the default entitlement to payment of the amount of the progress claim.

36 In Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liquidation) (1936) 54 CLR 361 a selling agent was appointed to buy tractors from the manufacturer in America for resale, and was entitled to a percentage rebate payable on arrival of the tractors in Australia. It bought some tractors. The agency agreement was thereafter terminated, but before the arrival of the tractors. It was held that the manufacturer was liable to pay the rebate.

37 The joint judgment of Dixon and Evatt JJ included (at 379-80) -

McDonald v. Dennys Lascelles Ltd

38 I do not think that provision for certification by the Superintendent involved FPM Constructions’ entitlement to payment being contingent on further performance of the Contract. If the Superintendent certified, exercising his function notwithstanding termination of the Contract, FPM Constructions was entitled to payment pursuant to the Contract and notwithstanding its termination – no question of accrued right arose. If the Superintendent did not certify, the event on which the right to payment turned was the lapse of 28 days; not performance of the Contract, but if anything its non-performance. As Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liquidation) shows, it does not matter that FPM Constructions’ inchoate right matured into an enforceable obligation only after termination. In my opinion, subject to considering its bifurcation it should be held that FPM Constructions had an accrued right as at the termination of the Contract.

39 I do not think it matters that it was not then known whether the right would be an entitlement to the amount in a payment certificate or, in default, the amount of the progress claim. A right to damages for breach of contract may be an accrued right, although the amount of the damages is not known. A right to one amount of damages plainly differs from a right to one or other of two amounts depending upon whether a payment certificate is issued, but it demonstrates that what matters is the right, not its outcome. FPM Constructions had a right which would result in one or other of the two amounts, in the manner the mechanism worked a right to the amount of the progress claim after the lapse of 28 days defeasible to a certified amount if the Superintendent issued a payment certificate. In my opinion, that was within the accrued right principle of McDonald v Dennys Lascelles Ltd.

40 I return to the question of a false statutory declaration in relation to progress claim 9.

41 The Council’s pleaded defence alleged that FPM Constructions had not given the Superintendent a statutory declaration as required by cl 43.2. The language was of no statutory declaration at all, unlike that of the defence in relation to progress claim 8 which alleged that a false statutory declaration had been provided.

42 According to an affidavit of Mr Yazbek sworn on 19 June 2003, a statutory declaration declared on 16 June 2003 and referable to progress claim 9 was sent to the Council on that date. The Council’s defence was dated 16 June 2003 and was filed on 17 June 2003. It is readily understandable that it was prepared and filed without knowledge of the statutory declaration.

43 The statutory declaration said that all subcontractors had been paid, in the same manner as the statutory declaration of 2 April 2003. The Council’s evidence included evidence from representatives of AJC and Smith that the invoices earlier mentioned were unpaid as at 16 June 2003. That was not contested in other evidence.

44 The Council’s written submissions provided to the judge identified as one of the issues -

and 9

45 Although the Council’s defence with respect to progress claim 9 was not amended, this provides strong grounds for the conclusion that the defence with respect to that progress claim became the same as the defence with respect to progress claim 8, that the statutory declaration provided to the Superintendent was false. No reason appears why the Council would not have propounded that defence, its evidence extending to the falsity of the statutory declaration of 16 June 2003, and the written submissions indicate that it relied on the defence. The body of the written submissions, however, dealt only with the false statutory declaration in relation to progress claim 8, although it did so as part of “Issue 3: the clause 42.1 obligation”, apparently referable to the issue c earlier identified. The Council accepted in the supplementary written submissions later mentioned that it “did not submit to the trial judge that Progress Claim 9 was not payable because the relevant statutory declaration was false”, which in the light of the issue c must mean did not expressly submit.

46 FPM Constructions’ written submissions before the judge did not address either the statutory declaration of 2 April 2003 or that of 16 June 2003. They addressed a different statutory declaration again, that of 30 January 2003 the subject of the notice to show cause. It was in slightly different terms, and was accompanied by a letter referring specifically to AJC and Smith. The judge spoke of “the” or “a” statutory declaration; he said that he “refer[red] to the other proceedings as well”, but that the statutory declaration was “part of the area of concern as far as the Council was concerned when it issued the Show Cause notice … “. This left uncertain whether his Honour had in mind a statutory declaration other than that of 30 January 2003, and if so which one or ones. His Honour did hold that the defence in respect of progress claim 8 had been made out, “particularly having regard to the deficits, if I could use that word, in the statutory declaration”. He did not say the same as to progress claim 9, no doubt because he upheld the defence involving termination of the Contract.

47 If the Council’s submissions dealing with the false statutory declaration in relation to progress claim 8 were accepted, the defence would seem to extend inevitably to progress claim 9. Whether the falsity of the statutory declaration of 16 June 2003 was in issue at the trial, as a defence with respect to progress claim 9, was nonetheless itself in issue on appeal. FPM Constructions maintained that it was not; the Council maintained that it was. These positions were taken, with each party stating the basis for its position, when after judgment had been reserved the Court sought clarification of the treatment of the matter in the submissions on appeal. Supplementary written submissions were received. Remarkably, the Council’s written submissions perpetuated the error that the statutory declaration material to progress claim 8 was the declaration of 28 January 2003.

48 FPM’s grounds of appeal appeared to be influenced by a misunderstanding that the only statutory declaration in question was that of 31 January 2003. They challenged that it was false. The written submissions did the same. The misunderstanding was appreciated in the course of FPM Constructions’ oral submissions, and counsel put submissions in relation to the statutory declaration of 2 April 2003 and the defence concerning its falsity with respect to progress claim 8. But in commencing his oral submissions on appeal, counsel for FPM Constructions referred to “the statutory declaration to support progress claim 9” and said, “There is no suggestion that there is any falsity about that statutory declaration”. His statement was not then controverted by counsel for the Council. He did not revisit progress claim 9 after the misunderstanding came to be appreciated.

49 The Council’s written submissions were responsive to those of FPM Constructions, and did not expressly deal with the falsity of either of the other statutory declarations. When in due course counsel for the Council put oral submissions in relation to the statutory declaration of 2 April 2003 with respect to progress claim 8, at their conclusion he said, “Progress claim No 9 raises similar issues in relation to the stat dec and I don’t need to go over them again”. He did not elaborate.

50 Counsel for FPM Constructions did not return to the matter in reply.

51 It seems to me that the likely position is that, while the falsity of the statutory declaration of 16 June 2003 was an issue at the trial, the Council did not make fully clear that it relied on that falsity as a defence with respect to progress claim 9 and, perhaps with an erroneous focus on the statutory declaration of 31 January 2003 alone, FPM Constructions did not appreciate that the Council took that defence. Unfortunately, that remained the case on appeal, until the Court was moved to enquire further by the contrasting assertions in oral submissions to which I have referred.

52 It would be unpalatable to decide the appeal in this respect on a point over which there had been a misunderstanding. The Council submitted, however, that despite the regrettable history there could be no prejudice to FPM Constructions because it had stated plainly that progress claim 9 “raised similar issues in relation to the stat dec”, FPM Constructions had not returned to the matter in reply, there was nothing FPM Constructions could say to avoid the inevitable extension of the defence to progress claim 9, and FPM Constructions had not said anything on the substance of the matter in its supplementary written submissions. It asked that, if a formal notice of contention was required, it have leave to file one.

53 The point arises only because I have held that FPM Constructions had an accrued right at the time the Contract was terminated, because its right was “[s]ubject to the provisions of the Contract”, and thus subject to the Council withholding payment if a statutory declaration had not been provided to the Superintendent as required by cl 43.2. Beazley and Basten JJA are of a different view and the appeal in this respect will therefore fail on the prior question.

54 As at present advised, I consider that the statutory declaration defence in relation to progress claim 9 was before the judge, and was raised in the appeal and should be permitted to be formalised by a notice of contention; I am unable to see how FPM Constructions could distinguish recovery of progress claim 9 from recovery of progress claim 8 in this respect. I have, however, some disquiet that, even now, FPM Constructions has not addressed the substance of the defence. Accordingly, while I agree with the orders proposed by Basten JA, I have sought fully to explain the circumstances in which I have come to the view that the defence succeeds, and hence the appeal fails, as to progress claim 9.

Termination of the Contract

55 The Council claimed to have validly terminated the Contract pursuant to cl 44 and to be entitled to damages for FPM Constructions’ breach of contract. FPM Constructions contended that, for a number of reasons, the purported termination was invalid, and that in any event the Council had failed to prove damages. It claimed to have itself terminated the Contract, by accepting a repudiation constituted by the Council’s invalid termination, and to be entitled to recover the security sum and the retention money; it did not maintain a claim to damages.

56 FPM Constructions submitted that the purported termination was invalid because -

(i) the Council had not made out, as the precondition to giving a notice to show cause in cl 44.2, that it had committed a substantial breach of contract;

(ii) the Council had not made out, as the other precondition to giving a notice to show cause in cl 44.2, that it considered that damages may not be an adequate remedy;

(iii) the notice to show cause was defective because it did not adequately specify the alleged substantial breach, as required by cl 44.3(b); and

57 The notice to show cause asserted failure to proceed with the work under the Contract with due expedition and without delay (cl 44.2(g)) and provision of a knowingly false statutory declaration in respect of cl 43 (cl 44.2(h)). The second allegation of breach fell away in the course of the appeal; the circumstances of the provision of the statutory declaration and FPM’s response to the notice to show cause may well have shown cause or made reliance on the breach unreasonable. It is sufficient to consider the first allegation of breach.

58 As to (i), FPM Constructions’ submissions were concerned to make out that its breach in failing to proceed with due expedition and without delay was not substantial; there was complaint that the judge had gone beyond the matters in the notice to show cause in finding substantial breach. This was beside the point, and the judge was led into consideration of a false issue; the false issue was perpetuated in FPM Constructions’ submissions on appeal and to some extent in the Council’s submissions. Clause 44.2 defined what were substantial breaches for the purpose of the Contract. One was failure to proceed with due expedition and without delay. If there was the failure, by force of the Contract there was substantial breach within cl 44.2. There plainly was the failure, going beyond the de minimis, and the precondition was satisfied.

59 As to (ii), as explained by Basten JA the precondition depended on an opinion held by or on behalf of the Council, and it was established that the opinion was held; the opinion could not be said to have been unreasonably held.

60 As to (iii), I respectfully agree with Basten JA’s discussion of what is sufficient to specify an alleged breach. In my opinion, the notice to show cause did specify the failure to proceed with the work under the Contract with due expedition and without delay.

61 The breach was asserted in para 7.1 of the notice to show cause and particularised in para 8.

62 FPM Constructions submitted that the specification was defective because it was not contractually obliged to do the things in paras 8.1 – 8.3. If that were a correct reading of the notice to show cause, it may be that the notice was valid but cause could readily be shown. But it is not a correct reading. The structure of the notice to show cause was to say that, if FPM Constructions was to proceed with due expedition and without delay, it was necessary for it to do the things in paras 8.1 – 8.3, and to allege in para 8.4 that it had not done so and had failed to proceed with due expedition and without delay. The obligation was practical, not contractual, and it was open to show cause that it was erroneous, but the notice to show cause was quite sufficient to tell FPM Constructions what the alleged breach was.

63 FPM Constructions also submitted that para 8.2 was defective, but to anyone with basic knowledge of critical path programming, as Mr Yazbek had and was known to have had – a basic critical path programme had been provided with the tender – its meaning would have been clear enough. The practical obligation was to work to a programme which did not suffer the vice of being not realistically achievable because most significant activities were on the critical path. The only obscurity lay in the concluding words, “as evidenced by the failure to proceed in accordance with those programs”. Implicit in para 8.2 was that FPM Constructions had worked to programmes suffering the vice, and those words unnecessarily commented on inability to achieve them. This could not mislead; the ultimate complaint in para 8.4.2 was that the January 2003 programme had not been followed or met. As Basten JA has explained, it did not mislead.

64 FPM Constructions also submitted that para 8.4 was defective because of the words “achieved or completed as the case may be”, saying that it left unclear what of the work identified in para 8.3 was not achieved and what was not completed. The submission is, with respect, without merit. It was meant that the things in para 8.3 had not been done.

65 As to (iv), for the reasons given by Basten JA the notice to show cause was given by the Principal.

66 It was accepted that, if the giving of the notice to show cause survived these challenges, cause had not been shown at least as to failure to proceed with due expedition and without delay. The termination was valid; FPM Constructions’ claim to have itself terminated the Contract fails.

Damages

67 At the trial the Council contended that its damages were $2,187,419, being the reasonable cost of the works as assessed by Mr Meredith, $8,250,000, less the contract price (excluding variations), $6,062,581. This was loss of bargain damages, implicit in which was that FPM Constructions’ price was very favourable and it was in all probability a losing job. The Council claimed $750,000, abandoning the excess as beyond the monetary jurisdiction of the District Court. FPM Constructions did not dispute the loss of bargain approach. It contended that the Council had not proved the reasonable cost of the works.

68 The judge apparently had some concerns about Mr Meredith’s assessment, at one point referring to “some degree of speculation” in the amount at which he arrived, but was satisfied that FPM Constructions had “under-quoted for the work” and that the Council’s “additional costs” would have “well exceeded” $750,000,

69 FPM Constructions maintained on appeal its contention that the Council had not proved the reasonable cost of the works. It submitted that, on a proper reading of Mr Meredith’s report and oral evidence, he had assessed the reasonable cost of the works as subsequently changed in substantial respects in their completion by subcontractors to the Council, without allowing for the changes, and that the assessment was therefore not an available comparator with the contract price.

70 We were taken in some detail to Mr Meredith’s report and oral evidence, by FPM Constructions and further by the Council. I am satisfied that FPM’s submission was incorrect.

71 Mr Meredith prepared as Appendix C to his report an “elemental measure and priced based on the rates current in mid 2003”. It was called “summary of cost to complete”, but was the cost of the whole of the works, not just the work after termination of the Contract. There were three columns, the first from FPM Constructions’ tender (total $6,127,914), the second Mr Meredith’s estimate (total $8,315,000) and the third the Council’s actual cost to complete (total $8,234,276). Mr Meredith referred to Appendix C in Part 8 of his report. In para 8.6 of the report he referred to Appendix C as a check comparison with the costs of a swimming pool complex at Emerton, and said that $8,315,000 could be compared with the Emerton costs and the actual cost and they were within a few percentage points. He said in para 8.8, “I conclude that the amount of $8,234,000 is well within reason and that the Fyntray Contract sum of $6,062,000 was unrealistic”.

72 The report also attached an Appendix D, giving a total figure of $8,250,000 as the “estimated cost of work”. The references to Appendix D in the body of the report were to a document which could not have been the attached Appendix D; it may be that the schedule in para 6.24 was a later version and embodiment of an earlier Appendix D, and the report seems to have gone awry. This does not seem to have been raised at the trial, but no doubt explained why counsel for FPM Constructions initially focussed on Appendix C. Appendix D was explained in Mr Meredith’s oral evidence, see later in these reasons.

73 In cross-examination Mr Meredith was asked about his comparison of the Emerton works with the Blue Mountains works. He said that he compared “the tender specifications” for the Blue Mountains, as at 2000-2001, with those for the Emerton works. He did not compare “what was actually built at Lower Blue Mountains” with the tender specifications, and was unaware of any substantial changes. There were put to him a number of changes; he said he was unaware of them.

74 The cross-examination then was -

“Q. The exercise that you’ve carried out in your report depended upon the tender works of FPM and the as-built being substantially the same with only minor variations, didn’t it?

…

75 It was put to Mr Meredith that he had looked at the Council’s post-termination subcontract agreements. He agreed, but said that the Council’s actual cost had not included preliminaries or “smaller trades” and “to a certain extent I don’t know about the validity of the $8 point whatever million I was given”. He was taken at some length to Part 8 of the report and was pressed to agree that, in saying that the $8,234,000 was within reason, he had assumed that the Council’s subcontract agreements were the same as “the subcontract agreements for FPM”. The furthest he went was a Delphic “within reason”.

76 Mr Meredith was taken to Appendix C. It became apparent that the $8,315,000 in Appendix C was not Mr Meredith’s estimate of the reasonable cost of the Blue Mountains works, but his estimate of the cost of the Emerton works after adjustments intended to make the works more comparable with the Blue Mountains works. It was affirmed that Appendix D was Mr Meredith’s assessment of the reasonable cost of the Blue Mountains works.

77 Mr Meredith was then asked a number of questions about the sources of components of the $8,250,000, some coming from FPM Constructions’ tender, some based on an adjusted “Emerton comparable”, and others being Mr Meredith’s estimate. The cross-examiner did not return to usage of the Council subcontract documents as distinct from the tender specifications; at one point Mr Meredith said that he obtained a component, $1,350,000 for building services, from “my own calculations based on the design brief” (emphasis added).

78 The evidence was at times confusing, in part because of the manner the report was put together and in part because, with some justification, the cross-examiner did not initially appreciate the exercise Mr Meredith had undertaken. In the end, however, it seems to me clear that -

(a) Mr Meredith’s assessment of the reasonable cost of the works was in Appendix D;

(b) the assessment was based on the tender specifications, not on a scope of works incorporating the post-termination changes reflected in the Council’s subcontract documents;

(c) the exercise in Appendix C, and what was said about it in the report, was directed to the conclusion that FPM Constructions underquoted, by rough comparison with an estimate of the cost of the adjusted Emerton works and the Council’s actual cost;

79 Mr Meredith’s figure of $8,250,000 could not properly be taken as a firm and inflexible figure. In my opinion, however, the judge could have found that the reasonable cost of the works was a figure of that order. With the benefit of the extended examination of the evidence on appeal, a luxury not enjoyed by his Honour, I consider that it would not reasonably have been open to do otherwise. Quite apart, therefore, from the evidence of Mr Yazbek to which Basten JA has referred, the judge’s satisfaction that damages of at least $750,000 had been proved was well-founded; and I consider that it can be concluded that damages of a greater amount, in round figures of the order of $2,000,000, were proved.

80 In my opinion, the Council is entitled to damages of $750,000.

Security and retention money

81 The contract provided for FPM Constructions to provide security of $30,000 by an irrevocable bank guarantee, and for deduction of retention money when certifying payment. It seems that a bank guarantee was not provided and $30,000 was instead deducted in the payment certificate on progress claim 6. The progress certificate on progress claim 8 recorded retention to that time, including the $30,000, of $161,461.40.

82 As I have indicated, FPM Constructions claimed those amounts in the event of its own termination of the Contract. That has not been made good. I apprehend that the Council must give FPM Constructions the benefit of the security and the retention money. It is entitled to have recourse thereto (cl 5.5), but it can not make a profit. However, that is a matter outside the proceedings; and where the Council has incurred a loss of the order I have accepted, it will not make a profit.

The award of costs

83 The judge ordered that Mr Yazbek pay the Council’s costs. For the reasons given by Basten JA his Honour appealably erred in doing so; in that respect, his Honour’s orders can not stand.

The result

84 I agree with the orders proposed by Basten JA.

85 BASTEN JA: This appeal involved three separate proceedings commenced in the District Court and heard together. The proceedings arose out of a contract to design and construct an Aquatic Centre, at Buttenshaw Park, Springwood, in the Lower Blue Mountains. A tender for the project was let by the Council of the City of Blue Mountains (“the Council”). The successful tenderer was a company controlled by the Second Appellant, Mr Anwar Yazbek. That company with the agreement of the Council assigned its interest to another company controlled by Mr Yazbek, which is now known as FPM Constructions Pty Ltd (“FPM Constructions”), the First Appellant.

86 The first proceedings arose out of the failure of the Council to make payment in response to progress claim no. 8. The claim was for an amount of $373,569.69. It was set out in a letter dated 17 March 2003 from FPM Constructions to the superintendent of works. A certificate of the superintendent was issued in an amount which, according to the calculation, amounted to $122,921.54. (The conclusion reached by the superintendent was then set out in both words and figures, the words providing for payment of $123,716.82. The statement of claim sought the lesser amount, together with interest.)

87 Pursuant to clause 43.2 of the contract, set out below, a precondition to the payment of a progress claim was the making of a statutory declaration by FPM Constructions that the various subcontractors had all been paid, or all other than those particularised in a schedule. The Council resisted payment primarily on the ground that the statutory declaration by Mr Yazbek, which accompanied the claim, was false. Other defences were pleaded, but this was the sole defence relied on at the hearing.

88 The second proceedings arose in respect of progress claim No. 9. That claim was made on 9 April 2003, in an amount of $285,580.80, but no payment was made by the Council. Proceedings were commenced in the District Court by way of liquidated demand five weeks later.

89 In its defence to this claim, the Council alleged that it had properly terminated the contract on 11 April 2003 and that no obligation had arisen as at that time because the superintendent under the contract had not certified the claim in accordance with the contract.

90 The third set of proceedings were commenced by the Council as plaintiff and were brought against FPM Constructions. The Council claimed that it had terminated the contract upon failure by FPM Constructions to show cause why the contract should not be terminated. The Council alleged that it had suffered loss and damage as a result of the default of FPM Constructions, which it calculated as the cost of obtaining an alternative contractor to complete that part of the project which FPM Constructions had failed to complete. The loss or damage was alleged to be in excess of $3 million, but the Council abandoned so much of its claim as exceeded the jurisdiction of the District Court, namely $750,000, and limited its claim to that amount.

91 This third set of proceedings gave rise to a dispute as to whether the contract had been properly terminated or whether the conduct of the Council amounted to an unlawful repudiation. FPM Constructions cross-claimed for its loss of profit on the contract, together with certain consequential losses.

92 The three sets of proceedings were heard by a judge of the District Court and judgment was delivered on 23 August 2004. His Honour dismissed both proceedings brought on behalf of FPM Constructions and gave judgment for the Council in the proceedings commenced by it, for the full amount of $750,000 plus interest. His Honour further ordered that the Council’s costs were to be paid by both FPM Constructions and Mr Yazbek, who was the managing director of FPM Constructions. Mr Yazbek, who had not been a party to the original proceedings in the District Court, joined with FPM Constructions in the appeal lodged by the company in this Court. The fourth set of issues concerns the proprietary of the order made by the trial judge that Mr Yazbek (the Second Appellant) bear joint and several liability for the costs of the unsuccessful proceedings brought by and against FPM Constructions.

Background

93 At some time prior to April 2001, the Council resolved to construct a new aquatic centre at Springwood in the Lower Blue Mountains. The centre was to be constructed on land owned by the Council, which was also the consent authority in relation to the necessary development approval. The Council prepared a written description and a schematic design for the proposed facility. Tenders were sought for a contractor to design and build the proposed centre, which would be provided to the Council as a fully functional and equipped aquatic centre at the end of the contract.

94 The initial tender submitted by a company associated with Mr Yazbek was made in April 2001, but there were numerous changes made prior to the conclusion of an agreement. The Council and Fyntray Constructions Pty Ltd entered into the contract the subject of these proceedings on 17 October 2001.

95 The contract provided for a total payment of a little over $6 million. Subject to certain modifications which are not relevant for present purposes, the agreement adopted the “General Conditions of Contract for Design and Construct” known as AS4300-1995.

96 For the purposes of this judgment, it is sufficient to identify the contractor as FPM Constructions Pty Ltd. On 5 August 2002 the original contracting party, Fyntray Constructions Pty Ltd, assigned its interest in the contract to Fyntray Project Management Pty Ltd. On 22 January 2003 the company filed a notification of resolution changing its name from Fyntray Project Management to FPM Constructions Pty Ltd.

97 Under the original timetable, FPM Constructions was to obtain possession of the site from the Council on 19 October 2001, prepare a development application and obtain development approval by 25 January 2002. It was expected that work would commence on the site on 18 February 2002, with completion and handover scheduled for 17 January 2003. The period thus allowed from commencement of construction to completion was 48 weeks.

98 The initial period for the obtaining of development approval and a construction certificate took considerably longer than anticipated. It appears that work commenced on the site on or about 13 September 2002, some seven months late. By that stage, the projected completion date was 22 September 2003, which allowed a construction period of approximately 53 weeks.

99 The administration of such a contract was obviously a matter of some complexity. Two aspects need to be noted for present purposes. The first is that the contract works could be broken down into separate items, some of which could be carried out contemporaneously with others but, overall, the completion of the contract involved a significant number of sequential steps. Accordingly, at least in relation to the sequential steps, it was necessary to prepare a program in order to ensure that the final stages would be completed by the handover date. The tender document provided by the predecessor to FPM Constructions appears to have been accompanied by a “tender program” which was amended from time to time.

100 The second matter to be noted in relation to the administration of the contract is that significant aspects of the work were to be undertaken by subcontractors. Pursuant to provisions which will be set out shortly, the contract sought to ensure that the owner or principal would not be required to pay the contractor unless entitlements of subcontractors had been paid in full. As the present case demonstrates, there may be disputes as to the amount and timing of entitlements both between the contractor and the subcontractors and between the contractor and the principal.

101 The third matter to be noted concerning the administration of the contract was that provision was made for the principal to appoint a superintendent, who had certain functions, noted below, in relation to certifying progress claims for payment and in relation to the resolution of disputes.

Progress claim No. 8

102 It is convenient to deal first with the appeal by FPM Constructions against the dismissal of the proceedings for payment of progress claim No. 8. Relevant provisions in clause 42 of the contract provided for the making of claims for progress payments, the assessment of those claims and the entitlement to payment of the claims. Thus, so far as presently relevant, clause 42.1 provided:

…
Within 14 days of receipt of a claim for payment, the Superintendent shall assess the claim and shall issue to the Principal and to the Contractor a payment certificate stating the amount of the payment which, in the Superintendent’s opinion, is to be made by the Principal to the Contractor or by the Contractor to the Principal. The Superintendent shall set out in the certificate the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by the Contractor, the reasons for the difference.

… Subject to the provisions of the Contract, within 28 days of receipt by the Superintendent of a claim for payment or within 14 days of issue by the Superintendent of the Superintendent’s payment certificate, whichever is the earlier, … the Principal shall pay to the Contractor … an amount not less than the amount shown in such certificate as due to the Contractor … or if no payment certificate has been issued, the Principal shall pay the amount of the Contractor’s claim. A payment made pursuant to this Clause 42.1 shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable … .”

103 One of the provisions to which the paragraph last extracted above, creating the obligation to make a payment, appears to be subject, is clause 43.2, which relevantly reads as follows:

43.2 Payment of Subcontractors

43.3 Withholding of Payment

not

104 The factual circumstances surrounding this claim, and the refusal to pay it, can be shortly stated: the legal liability under the contract is less clear.

105 The claim was made in writing on 17 March 2003 for work performed during the period 18 January 2003 to 17 March 2003. The total amount said to be due was $373,569.69. On 28 March 2003 the superintendent issued a certificate entitling FPM Constructions to a payment of $122,921.54. On 2 April 2003 Mr Yazbek made a statutory declaration on behalf of FPM Constructions in unqualified terms to the effect that “all subcontractors to the Contractor have been paid all moneys which as at the date of this declaration are due and payable to them by the Contractor for the performance of work under the Contract”. The Council rejected the entitlement to payment on the basis that the statutory declaration was false in a material respect.

106 During the hearing of the appeal, there was some confusion as to whether the falsity of this notice was relied upon as a substantial breach. In fact it was an earlier statutory declaration, sworn on 31 January 2003, which was said to be false. However, the response given by Mr Yazbek in relation to that complaint is instructive and will be noted below. In the pleadings concerning progress claim no. 8, no reference was made by the plaintiff in its amended statement of liquidated claim to the requirement to provide a statutory declaration, nor to the right of the principal to withhold payment pursuant to clause 43.3, until the statutory declaration was received by the superintendent. Rather, the pleadings stated that the issue of the payment certificate on 28 March gave rise to the obligation to pay on 12 April. In its defence, the Council pleaded the lack of a statutory declaration and the lack of “satisfactory proof of the maximum amount due and payable to … subcontractors” under clause 43.3. There was no reply filed by FPM Constructions. Nor did FPM Constructions plead to the set-off pleaded by the Council.

If after the Contractor has paid or the Principal has deducted liquidated damages, the time for practical completion is extended, the Principal shall forthwith repay to the Contractor any liquidated damages paid or deducted in respect of the period to and including the new date for practical completion.”

Peninsula Balmain

190 Secondly, if the suggestion by Giles JA that other powers extending beyond the termination of a contract have been identified refers to the two examples given by Mr Bellemore in his comment on Peninsula Balmain (supra at p 285), I am not persuaded that they take the argument further. The first provision which the author relies upon is clause 44.6, but that clause deals with adjustment on completion of work taken out of the hands of a contractor pursuant to clause 44.4(a) and does not deal with termination under clause 44.4(b). The effect of that clause has been addressed above. Secondly, the author refers to clauses 46 and 47 dealing with notification of claims and notices of dispute. As already noted, in my view clause 47, dealing with dispute resolution, envisages the continuation of the contract. Clause 46 is, in my view, premised on the same assumption. Thus, clause 46.4 provides that the superintendent shall assess the claim and notify the parties of the decision. It continues:

“Unless a party within a further 28 days of such notification serves a notice of dispute under Clause 47.1 which includes such claim, the Superintendent shall include the amount of that assessment in the next payment certificate issued pursuant to Clause 42.”

191 In these circumstances, I am not persuaded that Peninsula Balmain is authority demanding a contrary conclusion to that obtained by reference to the relevant clauses of the contract now under consideration.

192 Finally, it is necessary to refer to the common law principles invoked by clause 44.10. In a well known passage in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477, Dixon J held:

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired.”

Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd

Dennys Lascelles

193 No right to a payment having arisen prior to termination, the effect of clause 44.10 is that no further rights will arise under the contract and the parties are left with their rights under the general law, subject to any relevant statutory provision to different effect, and none applies in the present case. It follows that the primary judge was correct in giving judgment for the defendant in the proceedings with respect to progress claim no. 9.

Calculation of damages

194 Having determined that the contract had been validly terminated, the trial judge assessed the damages suffered by the Council as a result of the breach of contract by FPM Constructions. The assessment was based on evidence of the additional cost to the Council of completing the contract with the services of a new contractor. The evidence relied on by his Honour was the evidence of an expert consultant, Mr Meredith, who had analysed the costs of the Council incurred in completing the project and formed the view that those costs were reasonable. It is true that his Honour dealt with the matter relatively briefly. That was because, on Mr Meredith’s calculation, the costs incurred by the Council were marginally short of $2 million. Because the Council elected to sue in the District Court, it was required to forego any amount in excess of the jurisdictional limit of the Court, namely $750,000: District Court Act, s 50.

195 Mr Meredith sought to assess the cost of completion of the project in two ways. First, he sought to value the work in the contracts let by the Council; secondly, he sought to make his own assessment of the cost of constructing the works. In cross-examination, it was put to him that there were two exercises he had not undertaken, namely an assessment of the cost of the work for which Fyntray tendered and, secondly, the cost to complete so much of the project as had not been completed on 11 April 2003.

196 There was some substance in these criticisms of the exercise undertaken by Mr Meredith, but they did not require the trial judge to discount his evidence entirely. Mr Yazbek’s evidence in cross-examination, relied upon by his Honour, provided support for the view that to complete the contract would have cost FPM Constructions an amount some 10-15% in excess of the contract price. Mr Yazbek was clearly hesitant in putting a figure on it, but the range he identified was between $600,000 and $900,000. In the absence of more precise evidence, his Honour was entitled to form the view that the cost of completion was “at the very least” in excess of the jurisdictional limit of the Court. I would reject the challenge to that finding.

197 I also agree with the additional reasons of Giles JA set out at [67]-[80] above.

Award of costs against Second Appellant

198 On 24 August 2004 the primary judge handed down a further judgment with respect to the costs of three sets of proceedings. His Honour ordered that, in each proceeding, both FPM Constructions and Mr Yazbek pay the Council’s costs. Those costs were to be assessed on a party and party basis up to an including 4 August 2004 and thereafter on an indemnity basis. The order for indemnity costs followed a rejected offer of settlement put on behalf of the Council.

199 The challenge to these orders is limited to so much of each order as imposed an obligation to pay costs on Mr Yazbek personally.

200 The power of the District Court to award costs in these proceedings is located in s 148B of the District Court Act 1973, which reads as follows:

148B(1) Subject to this Act and the rules and subject to any other Act -

(a) costs in or in relation to any proceeding shall be in the discretion of the court;

(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid in relation to any proceedings; and

Legal Profession Act

201 In Knight v FP Special Assets Ltd (1992) 174 CLR 178, the High Court held that a rule of the Queensland Supreme Court Rules permitting the costs of and incident to all proceedings to be in the discretion of the court was wide enough to allow an order to be made against a non-party. Section 148B is more explicit in its breadth than the Queensland rule so that the conclusion applies a fortiori. Further, as noted in the joint judgment of the whole Court in Owners of “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404 at 421:

“It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words.”

202 The principles established in Knight v FP Special Assets were affirmed in Re JJT; Ex parte Victoria Legal Aid (1998) 195 CLR 184 but were not extended to allow the Family Court to make an order against a legal aid authority, being a body with no interest in the proceedings, requiring it to incur expenditure for the conduct of litigation over which it had no control, namely the separate representation of a child.

203 The reasoning in Knight v FP Special Assets was expressly applied in relation to the power of the District Court under s 148B of the District Court Act in New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8 at 11D-12B: per Priestley JA, Spigelman CJ and Sheppard AJA agreeing. The power was applied in relation to proceedings in the Land and Environment Court in Diamond v Baulkham Hills Shire Council [1999] NSWCA 277.

204 The issue in contention is thus the considerations which should govern the exercise of a discretionary power in the present case. The statement of principle relied upon by the primary judge in the District Court was extracted from the joint judgment of Mason CJ and Deane J in Knight v FP Special Assets at 192-193 to the following effect:

“Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. …

For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.”

“The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where the has been a contempt or abuse of the process of the court. Even if the cases were confined to ejectment proceedings (and clearly they are not), the principle lying behind the ejectment cases is that the real litigant rather than the nominal party may be made liable for costs.”

205 When the judgments in Knight v FP Special Assets are read in full, it is clear that there is no significant difference between the approach adopted by Dawson J and that expressed by the other Justices in the majority. The authorities upon which the joint judgment drew are replete with references to awards being made against the “real party”. Reference was also made to the judgment of Brooking J in Burns Philp & Co Ltd v Bhagat [1993] 1 VR 203 at 212 referring to the power of the Courts to award costs “against someone who is not a party in the strict sense”.

206 In the present case, it could not be said that FPM Constructions was merely a nominal party or that Mr Yazbek was the “real party” to the proceedings. No doubt it is true, as his Honour found, that Mr Yazbek was the driving force behind FPM Constructions and was its representative for the purposes of the litigation. That does not mean, however, that the benefit of the proceedings brought by FPM Constructions for progress payments, in law, flowed to anyone other than FPM Constructions, nor that the company was other than the proper defendant in proceedings brought by the Council. Nor is the fact that Mr Yazbek was the sole director and secretary of the company inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors. The carefully crafted exceptions to the principle would overtake the principle itself were that the case.

207 The primary judge found:

“Mr Yazbek had an important and integral role in these proceedings. He was frequently mentioned during the course of the hearing and he swore a number of affidavits. He was the sole witness called by FPM. Mr Yazbek certainly had an interest in these proceedings and I draw a comfortable inference from all of that, that the litigation was effectively run for his own benefit.”

208 In Knight v FP Special Assets, the order for costs, approved by the High Court, was made against the receiver and manager of a company which sought specific performance of a contract. A judgment was entered against the company by default. As noted in the joint judgment at 181:

“Special leave to appeal to this Court from the decision of the Full Court was specifically confined to the question whether the Supreme Court had jurisdiction to make the orders. This Court is not concerned therefore to examine the exercise of any discretion to make an order, that being the point on which there was a division of opinion in the Full Court.”

“In instituting and defending the various proceedings, the appellants were the agents of the companies. In principle, the actions of the appellants cannot be distinguished from those of the directors of a company who bring or defend an action on its behalf. If, under the summary jurisdiction, the Supreme Court could order the appellants to pay the costs of this action, it must follow that the Supreme Court has jurisdiction to order the payment of costs by the directors of any company which commences or defends an action in that court.

As a matter of policy, provision for security for costs is a better remedy for protecting persons involved in litigation with insolvent companies than ordering a receiver to pay the costs of litigation after verdict.”

209 One category of cases where the power may be exercised is where there is a class of persons, equally affected by a particular matter, any of whom may sue, and where the Court may properly infer that the actual plaintiff was a person of straw and that the real driving force behind the proceedings was a different person, with financial resources. Diamond v Baulkham Hills Shire Council [1999] NSWCA 277 fell into that category. However, that is not this case.

210 There may be other cases where such an order is appropriate including the circumstances of Knight v FP Special Assets itself, in which the company was in receivership. Again, that is not the present case, the primary judge expressly finding:

“There is nothing to indicate that FPM is in receivership.”

It is also true that the principle established in Knight v FP Special Assets cannot be limited to the specific circumstances of the case, the joint judgment having expressed a conclusion in more general terms. A further example, not encompassed by those identified to date, is illustrated by Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429, a decision of the Full Court of the Federal Court in relation to an order sought against a litigation funder. The judgment contains an extensive analysis of the case law, including consideration of the judgment of Callinan J in Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406. It is clear that the categories of case which may attract the exercise of the power are by no means closed, nor should they be. Nevertheless, the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria:

(a) the unsuccessful party to the proceedings was the moving party and not the defendant;

(b) the source of funds for the litigation was the non-party or its principal;

(c) the conduct of the litigation was unreasonable or improper;

(d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and

211 Returning to the three criteria identified in the joint judgment in Knight v FP Special Assets, the first is that the party is insolvent or a person of straw. FPM Constructions was not insolvent and the trial judge did not find that it was entirely without resources, although that may perhaps have been inferred from the evidence. If the first criterion were satisfied, that satisfaction was not expressly identified in the judgment below.

212 The second criterion was that the non-party have played an active part in the litigation. As the facts of Knight itself show, that role may be legitimate, as in the case of a receiver or manager. Nevertheless, in a proper exercise of discretion, something more should generally be found, although it may be sufficient that the third criterion is satisfied. In Knight itself, the proceedings were in effect abandoned, and in Arundel Chiropractic Centre, Callinan J described the driving force behind the litigation as a company officer acting “stubbornly and totally unreasonably” (at [30]).

213 Thirdly, the non-party or its principal must have an interest in the subject of the litigation. The term “interest” in this context is of uncertain extent: as suggested by McHugh J in Knight, the real beneficiary of that litigation, if successful, would have been the banks which appointed the receiver and manager. It may have been assumed that they would have indemnified the receiver and manager in any event. In Gore, the Full Court placed some weight upon the fact that the non-party, Justice Corporation, was an entire stranger to the subject matter of the litigation, but had, in effect, purchased an interest in its outcome by contracting to receive 8% of the judgment debt if the claimant had been successful: at [62] and [64]. The interest of Mr Diamond in the litigation involving the Baulkham Hills Shire Council appears to have been of a non-financial kind, but in a practical sense equal to or greater than that of the nominal party.

214 The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors which will clearly tend to interact. Nor should it be forgotten that the power is only to be exercised in exceptional cases. In many cases involving individuals in the superior courts the parties may lack the resources to meet the costs of the litigation if unsuccessful. Similarly, there will frequently be a non-party, be it a company officer or solicitor, who will be active in the conduct of the litigation and who will obtain some direct or indirect financial benefit from its success. The fact that it is entirely proper for legal practitioners to runs cases on a speculative basis, so long as satisfied that they have reasonable prospects of success, demonstrates that care must be taken not to apply the criteria mechanically. Careful attention is required to the conduct of the party said to be involved in the litigation and the nature of the “interest” in its outcome or subject-matter.

215 In the present case, in my view, the exercise of the discretion miscarried. First, as noted above, his Honour gave significant weight to factors which were, taken in isolation, neutral. Secondly, he treated the proceedings as having been run for the benefit of Mr Yazbek without identifying clearly what that benefit was. If it were simply the benefit of a shareholder of a company, that would not by itself be sufficient. Further, it is significant that his Honour made orders to the same effect in all three proceedings, although two of the three proceedings were instituted by FPM Constructions, whereas the third and major proceeding was instituted by the Council. There was no finding that Mr Yazbek had funded the litigation.

216 On the appeal, the Council sought to uphold the order primarily on the separate ground that Mr Yazbek was a guarantor of the obligations of FPM Constructions under the contract with the Council. A secondary ground relied upon was evidence referred to as steps taken to “quarantine assets” of the company so as to put them “out of reach of creditors”.

217 As to the first matter, the Court’s attention was not directed to the terms of the guarantee, nor was it suggested that the guarantee was in evidence in the Court below. Depending on those terms, the existence of such a guarantee might render an order against Mr Yazbek directly unnecessary. This is not a factor which would militate in favour of this Court making or confirming an order in the terms adopted by the primary judge.

218 In relation to the second matter, the first reference to material said to involve the divestment of assets was a summary by his Honour in his principal judgment of the letter from the original contractor, addressed to the Council, seeking assignment of its interest in the contract to the company which became FPM Constructions. This letter contains no evidence of the matters asserted. Secondly, the Court’s attention was drawn to the cross-examination of Mr Yazbek suggesting that he was impecunious and had sought “to enter into transactions to divest himself of some assets” in June 2002. This material is, with respect, not directly relevant to the power to make a costs order against Mr Yazbek. In so far as it was suggested that he had been seeking to protect the assets of the company, that was denied and his Honour made no specific finding in that regard.

219 The best that the Council can do in the present circumstances was to rely on the findings made by Bryson J in the Equity Division in earlier proceedings between the same parties in relation to progress claim no. 7: FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2003] NSWSC 201. In declining to order that FPM Constructions give security for costs of the proceedings, his Honour held at [12]:

“The Contractor’s evidence showed (a position not at all unusual in building contracts) that the Contractor was dependent on the flow of money from progress payments to maintain activity, and was unable to continue and to retain its relationship with subcontractors if it did not receive some such amount as was claimed or if it was left to pursue the lengthy course of dispute resolution pointed out by cl.47, with its stately 98-day progression from notice of dispute to reference to arbitration. Evidence showed that the Contractor was not in a position either to carry on with the work or indeed to give security for the Principal’s costs in any large amount, or in any amount which might be significant, ... . Evidence showed that the individuals who stand behind the Contractor are in no better position to give security. The financial position of the Contractor was precarious, it had taken over from the original contractor which had not been able to manage its finances, and it had encountered difficulties which led to a special arrangement under which consultants who were subcontractors were paid directly by the Principal.”

This material no doubt supports the proposition that FPM Constructions remained in a financially precarious state and might well, if unsuccessful in the litigation, be unable to meet an order for costs. Nevertheless, absent a finding that it was insolvent, this material is ambivalent for the Council. It provided the basis upon which Bryson J declined to order security for costs in the proceedings before him. We were told that an order for security was also refused in the District Court proceedings. Absent some other relevant consideration, it would be curious if, the company not being ordered to provide security, its active director could be made liable for the costs of the proceedings when it ultimately proved unsuccessful. If the proceedings were shown to be hopeless or their conduct was shown to be unreasonable, a different result might follow. In the present case this is not, in my view, sufficient to support the order made below against Mr Yazbek.

Conclusions

220 In the result, the Respondent has been successful on the substance of the appeal brought against it by FPM Constructions but has been unsuccessful in relation to the appeal brought by Mr Yazbek. This has consequences both for the costs order made below and for the costs of the appeal.

221 In relation to the costs in the District Court, the order made in relation to FPM Constructions should stand. However, to the extent that the application made by the Council on 24 August 2004 for costs against Mr Yazbek should have been rejected, the Council should properly pay his costs of that day. It is not possible to identify with any precision from the record what proportion of that day was spent in dealing with the application against Mr Yazbek: there may have been some discussion of the Council’s entitlement to indemnity costs against FPM Constructions. It is also not clear whether Mr Yazbek and the company were jointly represented on that occasion. However, on the assumption that they were, the proper order should be that FPM Constructions pay its proportion of the costs of that day, on a party and party basis and that the Council pay Mr Yazbek his proportion of the costs of the day. It seems likely, from the judgment, that the bulk of the costs were involved in the application made with respect to Mr Yazbek personally. Nevertheless, it is a matter which cannot be satisfactorily resolved at this stage and I would grant leave to the parties to provide submissions to the Court as to an appropriate order, expressing a firm conviction that it should be the subject of agreement, given that it is likely to be a trivial amount in the overall scheme of the litigation. The costs order made by the primary judge should at least be varied so that it is restricted to orders against FPM Constructions alone.

222 In relation to the costs of the appeal, the Council has been successful in relation to all matters with the exception of Mr Yazbek’s costs. That matter I would estimate took up 10% of the time of the appeal. Although Mr Yazbek and FPM Constructions had common representation, the costs should properly be apportioned. The appropriate orders would require FPM Constructions to pay the Council 90% of its costs of the appeal and the Council to pay Mr Yazbek his costs of the appeal, which should constitute 10% of the combined Appellants’ costs. Again, it is appropriate to grant leave to the parties to bring in short minutes to reflect these proposed orders, and a note as to any proposed variation.

223 I would propose the following orders:

(1) in matter no. 1731/03, order that the plaintiff pay the defendant’s costs of the proceedings, on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis;

(3) in matter no. 3916/03, order that the defendant pay the plaintiff’s costs on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis.

(2) Order that the Council of the City of Blue Mountains pay Mr Yazbek’s costs of the application made by it against him personally for its costs in the District Court.

(3) Order that the appeal be otherwise dismissed.

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Citations

FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340

Most Recent Citation

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Cases Cited

20

Statutory Material Cited

3

Diamond v Baulkham Hills Shire Council [1999] NSWCA 277

FPM Constructions P/L v The Council of the City of Blue Mountains [2003] NSWSC 201

Minson Nacap Pty Ltd v Aquatec Maxcon Pty Ltd [2000] VSC 402

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CITATION:	FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340
HEARING DATE(S):	1-2 June 2005
JUDGMENT DATE:	10 October 2005
JUDGMENT OF:	Beazley JA at 1; Giles JA at 2; Basten JA at 85
DECISION:	(1) Allow the appeal by the First Appellant in relation to the costs order made against him personally and vary the orders made by the District Court on 24 August 2004 with respect to costs so as to read; 1. in matter no. 1731/03, order that the plaintiff pay the defendant's costs of the proceedings, on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis; 2. in matter no. 2130/03, order that the plaintiff pay the defendant's costs of the proceedings, on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis; 3. in matter no. 3916/03, order that the defendant pay the plaintiff's costs on a party and party basis up to and including 4 August 2004 and thereafter on an indemnity basis; (2) Order that the Council of the City of Blue Mountains pay Mr Yazbek's costs of the application made by it against him personally for its costs in the District Court; (3) Order that the appeal be otherwise dismissed; (4) Order that the First Appellant pay 90% of the Respondent's costs of the appeal.

CATCHWORDS:	CONTRACT - interpretation of building and construction contract AS4300-1995 - whether statutory declaration produced by builder in support of progress claim was false - effect of falsity of statutory declaration - whether power of superintendent to certify progress claim extends beyond termination of contract - whether builder had accrued right to progress payment - whether termination was lawful - whether show cause notice adequate - whether there was a substantial breach - COSTS - personal costs order against company director and shareholder under s148B of the District Court Act 1973 (NSW) - factors relevant to discretion to make costs order against a non-party
LEGISLATION CITED:	Building and Construction Industry Security of Payment Act 1999 Contractors Debts Act 1997 District Court Act 1973Local Government Act 1993
CASES CITED:	Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16 Arundel Chiropractic Centre Pty Ltd v Deputy Commission of Taxation (2001) 179 ALR 406 Brewarrina Shire Council v Beckhaus Civil Pty Ltd (2003) 56 NSWLR 576 Burns Philp & Co Ltd v Bhagat [1993] 1 VR 203 Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commonwealth Bank v Mehta (1991) 23 NSWLR 84 Diamond v Baulkham Hills Shire Council [1999] NSWCA 277 Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135 Eriksson v Whalley [1971] 1 NSWLR 397 Evans v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 135 FCR 306 FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2003] NSWSC 201 Fraser v NRMA Holdings Ltd (1994) 52 FCR 1 and (1995) 55 FCR 452 Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429 Hounslow London Borough Council v Twickenham Garden Developments Ltd (1970) 1 Ch 233 Hyundai Heavy Industries Co Ltd v Papadopoulos (1980) 1 WLR 1129 Knight v FP Special Assets Ltd (1992) 174 CLR 178 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Minson Nacap Pty Ltd v Aquatec-Maxcon Pty Ltd [2000] VSC 402 New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8 Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211; (2002) BCL 322 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 357 Photo Production Ltd v Securicor Transport Ltd (1980) AC 827 Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (1980) 144 CLR 300 Re JJT; Ex parte Victoria Legal Aid (1998) 195 CLR 184 Re Stewardson Stubbs and Collett Pty Ltd v Bankstown Municipal Council (1965) NSWLR 1671 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Stocznia Gdanska SA v Latvian Shipping Co (1998) 2 WLR 574 Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liquidation) (1936) 54 CLR 361 Yendex Pty Ltd v Prince Constructions Pty Ltd [1989] 5 BCLR 74
PARTIES:	FPM Constructions Pty Ltd (First Appellant) Anwar Yazbek (Second Appellant) The Council of the City of Blue Mountains (Respondent)
FILE NUMBER(S):	CA 40791/04
COUNSEL:	G. McVay (Appellants) S. Donaldson SC/M. Lee/A. Crossland (Respondent)
SOLICITORS:	McLachlan Chilton (Appellants) Marsdens (Respondent)

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 1731/03; DC 2130/03; DC 3916/03
LOWER COURT JUDICIAL OFFICER:	Robison DCJ