Grahame Allen & Sons Pty Ltd v Water Resources Commission
[1998] QSC 181
•8 September 1998
IN THE SUPREME COURT
OF QUEENSLAND
Application No. 1084 of 1992
[Grahame Allen & Sons Pty Ltd v Water Resources Commission]
BETWEEN:
GRAHAME ALLEN & SONS PTY LTD
Plaintiff
AND:
WATER RESOURCES COMMISSION
First Defendant
AND:
DAVID J TARDREW
Second DefendantREASONS FOR JUDGMENT - WILSON J
Delivered 8 September 1998
I have for determination an application to amend the statement of claim.
The action concerns claims arising out of the construction of the Kroombit Dam near Biloela. The plaintiff was an earthmoving contractor. The first defendant was a corporation sole constituted under the Water Resources Act 1989, and the second defendant was a superintendent appointed by the first defendant.
By the writ issued on 20 July 1992 the plaintiff claimed against the first defendant damages for breach of contract and against the first and second defendants damages for negligence.
The statement of claim was delivered on 25 January 1993. It has previously been amended. The amendments for which leave is sought are contained in a draft amended statement of claim which is exhibit RWQ 1 to the affidavit of Roger William Quick filed on 11 August 1998. They are unopposed except for paragraph 62 of the draft, which raises an additional cause of action, namely misfeasance in public office.
The statement of claim alleges that in about September 1991 the first defendant invited tenders for the performance of certain excavation, processing and stockpiling of filter materials and concrete aggregates. The plaintiff was the successful tenderer, and a contract was entered into between the plaintiff and the first defendant on 1 November 1991. The second defendant was the superintendent appointed by the first defendant under the contract.
The information supplied to tenderers was in two volumes which contained a number of representations. In substance these were that:
(a)Particular areas (identified in the statement of claim as “the Source”) contained a sufficient quantity of processable materials from which the tenderer could obtain the necessary filter materials and concrete aggregates: paragraph 18.
(b)The processable materials did not contain more than 2% of material passing through a certain (small) sized sieve: paragraph 19.
Both representations are alleged to have been false, and negligently so: paragraphs 23, 24, 25 and 26. The plaintiff contends that because of the inadequacy of the quantities of processable material in the Source, it was more expensive and time consuming to obtain and process relevant materials.
The plaintiff claims in negligence as well as contract. It alleges that the existence of inadequate quantities of processable material in the Source was a latent condition within the meaning of the contract, entitling it to payment for a variation: paragraphs 28-35. It alleges that it received various directions from the second defendant to carry out more expensive and difficult processing procedures for which it is entitled to payment as a variation: paragraphs 36 - 40. It alleges that the tender documents contained errors and omissions for which the first defendant is liable under the contract: paragraphs 41 - 44.
On 7 February 1992 the first defendant gave the plaintiff a notice purportedly pursuant to the contract calling on it to show cause why powers contained in the contract should not be exercised against it. In the notice the first defendant relied principally on the plaintiff’s failure to obtain sufficient quantities of materials from the Source at an adequate rate. The plaintiff contends that the show cause notice was given unreasonably and that it was ineffective. In any event it says it did show cause.
By a further notice served on 5 March 1992 the first defendant purported to take the remaining work out of the plaintiff’s hands. The plaintiff contends that this notice was not given bona fide and that it was given unreasonably. The work was taken out of the plaintiff’s hands and it claims to have suffered loss of profits and consequential losses as a result.
Paragraph 62 of the draft amended statement of claim is in the following terms:
“Misfeasance in Public Office
62. Further, the Notice referred to in paragraph 56 was given by the First Defendant to the Plaintiff:
(a)in purported discharge of the duty referred to in paragraph 2(e);
(b)knowing that in the premises referred to in paragraphs 45 to 57, the First Defendant lacked power under the Contract to issue the said Notice, or recklessly, not caring whether it had that power or not; and
(c)(through Mienert and the Second Defendant) maliciously, with the intention of harming or destroying the Plaintiff’s business.”
The substance of the objection to the amendment is that it introduces an additional cause of action which is statute barred.
The Court’s power to allow amendment is contained in O 32 of the Supreme Court Rules, which provides:
“Amendment in general
1.(1) The Court or a Judge may, in any cause or matter, at any stage of the proceedings, allow or direct either party to alter or amend the writ of summons, or any endorsement thereon, or any pleadings or other proceedings, in such manner and on such terms as may be just.
(2) Where an application to the Court or a Judge for leave to make the amendment mentioned in subrule (3), (4) or (5) is made after any relevant period of limitation current at the date of the issue of the writ has expired, the Court or a Judge may nevertheless grant such leave in the circumstances mentioned in that subrule if the Court or Judge thinks it just to do so.
(5) An amendment may be allowed under subrule (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.”
(Underlining added)
Misfeasance in public office is a tort for which the applicable limitation period is 6 years unless s 38(1) of the Limitation of Actions Act 1974 applies. The 6 years would have expired in March 1998. Section 38 (1) provides:
“Postponement in cases of fraud or mistake
38(1) Where in an action for which a period of limitation is prescribed by this Act -
(a)the action is based upon the fraud of the defendant or the defendant’s agent or of a person through whom he or she claims or his or her agent; or
(b)the right of action is concealed by the fraud of a person referred to in paragraph (a); or
(c) ...
the period of limitation shall not begin to run until the plaintiff has discovered the fraud or, as the case may be, mistake or could with reasonable diligence have discovered it.”
(Underlining added)
The plaintiff argues that it was only on discovery that the relevant facts were ascertainable. The first defendant’s affidavit of documents was served on 11 June 1993 and inspection took place on 15 June and 27 December 1993. There was a reinspection between November 1997 and February 1998 as a result of which the plaintiff’s solicitor realised for the first time that the first defendant had been aware, prior to taking the work out of the plaintiff’s hands, that the matters on which it relied resulted from the inferior condition of the Source.
What are the elements of the cause of action for misfeasance in public office? Importantly, does it involve “fraud” in the sense in which that term is used in s 38(1)? In Northern Territory v Mengel (1994-95) 185 CLR 307 at 370 Deane J said:
“Misfeasance in public office
As Lord Diplock observed, in delivering the judgment of the Privy Council in Dunlop v Woollahra Municipal Council [1982] AC 158 at 172, the tort of misfeasance in public office is ‘well-established’. Its elements are: (i) an invalid or unauthorised act; (ii) done maliciously; (iii) by a public officer; (iv) in the purported discharge of his or her public duties; (v) which causes loss or harm to the plaintiff. That summary statement of the elements of the tort inevitably fails to disclose some latent ambiguities and qualifications of which account must be taken in determining whether a particular element is present in the circumstances of a particular case. The critical element for present purposes is malice.
In the context of misfeasance in public office, the focus of the requisite element of malice is injury to the plaintiff or injury to some other person through an act which injuriously affects the plaintiff. (See Bourgoin SA v Ministry of Agriculture, Fisheries and Food [1986] QB 716 at 776-777.) Such malice will exist if the act was done with an actual intention to cause such injury. The requirement of malice will also be satisfied if the act was done with knowledge of invalidity or lack of power and with knowledge that it would cause or be likely to cause such injury. Finally, malice will exist if the act is done with reckless indifference or deliberate blindness (cf Owen v Homan (1853) 4 HLC 997 at 1035 [10 ER 752 at 767], per Lord Cranworth LC: ‘wilful ignorance’) to that invalidity or lack of power and that likely injury. Absent such an intention, such knowledge and such reckless indifference or deliberate blindness, the requirement of malice will not be satisfied.
Clearly, there was no basis in the circumstances of the present case for a finding of such an intention, such knowledge or such reckless indifference or deliberate blindness against any of the appellants. That being so, it follows that the appellants were not liable to the Mengels for misfeasance in public office in the circumstances of the present case. Subject to what is said above, I am in general agreement with the reasons given in the judgment of Brennan J for that conclusion.”
The plaintiff submits that “fraud” is not confined to common law deceit, and that at the very least it includes any form of conduct which involves moral turpitude. The defendants submit that the cause of action for misfeasance in public office does not involve fraud, and observe that in Mengel Deane J did not refer to unconscionability. They point to the following passage in the judgment of Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ at p 347:
“ The cases do not establish that misfeasance in public office is constituted simply by an act of a public officer which he or she knows is beyond power and which results in damage. Nor is that required by policy or by principle. Policy and principle both suggest that liability should be more closely confined. So far as policy is concerned, it is to be borne in mind that, although the tort is the tort of a public officer, he or she is liable personally and, unless there is de facto authority, there will ordinarily only be personal liability. (See James v The Commonwealth (1939) 62 CLR 339 at 359-360, per Dixon J. See also Racz v Home Office [1994] 2 AC 45 at 50-54 per Lord Jauncey of Tullichettle.) And principle suggests that misfeasance in public office is a counterpart to, and should be confined in the same way as, those torts which impose liability on private individuals for the intentional infliction of harm. For present purposes, we include in that concept acts which are calculated in the ordinary course to cause harm, as in Wilkinson v Downton [1897] 2 QB 57, or which are done with reckless indifference to the harm that is likely to ensue, as is the case where a person, having recklessly ignored the means of ascertaining the existence of a contract, acts in a way that procures its breach.”
Here the plaintiff alleges that the first defendant served the notices knowing that the cause of the difficulties was the condition of the Source. It contends that it is to be inferred that it acted in the knowledge that its conduct was beyond power, or recklessly, not caring whether it had that power or not. Reckless indifference is clearly an element of misfeasance in public office, as is knowledge of the lack of power in the context of a malicious intent to cause harm.
In Graham v Deming No 440 Pty Ltd ( 15 September 1994, unreported) Williams J said:
“It has been held by the Court of Appeal in England in Applegate v Moss [1971] 1 QB 406 that fraud in the context of s 38 does not even necessarily import moral turpitude. It is enough if the conduct of the defendant is so unconscionable that it would be inequitable to allow him to rely on the Act to bar the plaintiff’s claim. Here the allegation is that the defendants were under a fiduciary duty with respect to the plaintiffs, and that in consequence they were obliged as trustees to account to the plaintiffs. The allegation is then that they have failed to account. Further, the allegation is that the true accounting position is known only to the defendants and they have not as yet made full disclosure in accordance with their obligation to the plaintiffs. If those matters are made out then it seems to me that concealed fraud within s 38(b) would be made out.”
The plaintiff referred also to the judgment of Mahoney ACJ in Seymour v Seymour (1996) 40 NSWLR 358 at 372 where His Honour said:
“In my opinion, the section is not confined to simple common law fraud. It extends to conduct beyond that. On the other hand, it is not, I think, sufficient merely that for the defendant to take advantage of the statute of limitations would be unconscionable or inequitable in the wide sense of these terms. Terms such as unconscionable and inequitable now are used to describe conduct which, in previous times, would not have fallen within them: see Baumgartner v Baumgartner (1987) 164 CLR 137 at 147 and Hibberson v George (1989) 12 Fam LR 725 at 731.
Nor, in my opinion, is ‘fraudulently’ wide enough to include everything which would fall within the description of ‘equitable fraud’. Equitable fraud is a doctrine which depends, for this purpose, too much upon nice distinctions which have been drawn in other times: see Snell’s Equity, 29th ed (1990) at 550 et seq; Meagher, Gummow & Lehane, Equity: Doctrines and Remedies, 3rd ed (1992) at par 1208; and see the discussion in Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 553. The history of the English legislation was recently reviewed in Sheldon v RHM Outhwaite (Underwriting Agencies) [1996] 1 AC 102: see, eg, at 144, 153.
In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who ‘closes his eyes to wrong’ or is so lacking in conscience that he is not conscious of his own lack of proper standards.)”
I accept the submission that if it can be inferred that the plaintiff knew that its conduct was beyond power or that it acted with reckless indifference, then there was “fraud” within the meaning of s 38(1) as that provision was interpreted in Applegate v Moss and Seymour v Seymour . The case would come within paragraph (a) of s 38(1), or alternatively paragraph (b) on the basis that the first defendant did not disclose that it had had such knowledge until discovery in the action - which was at the earliest June 1993. On either view, the limitation period has not expired. As the expiration of the limitation period was the only objection taken to the amendment, in those circumstances the plaintiff should be given leave to amend the statement of claim in accordance with the draft.
Even if the limitation period has expired, I may allow the amendment if it arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed: Supreme Court Rules O 32 r 1(5).
The plaintiff says that the trial judge will be asked to infer the matters of knowledge or reckless indifference and malice which are pleaded in subparagraphs (b) and (c) of paragraph 62 from the same primary facts as those already pleaded in respect of the other causes of action. The primary facts relied on by the plaintiff are those in paragraphs 45 to 57. (So far as relevant, these are reproduced in an annexure to this judgment.)
Because the primary facts relied on do not differ, I consider that the new cause of action arises out of the same facts or substantially the same facts. Thus I have a discretion to allow the amendment even if the limitation period has expired.
Not to allow the amendment would be to shut the plaintiff out of a cause of action. I do not accept that the addition of the new cause of action is likely substantially to lengthen the trial, or that the defendants are likely to be prejudiced by it. Accordingly, I would allow the amendment.
I order that the plaintiff have leave to deliver an amended statement of claim in accordance with the draft which is exhibited to Mr Quick’s affidavit.
ANNEXURE
Statement of Claim - paras 45 - 57
Notice to Show Cause Given UnreasonablyFurther and alternatively, the following were express terms of the Contract:
(a)that if the Plaintiff defaulted through substantial breach of the provisions of the Contract or refused or neglected to comply with any direction given in writing by the Second Defendant under the Contract the First Defendant could call upon the Plaintiff, by notice in writing, to show cause why powers contained in Clause 48.1 of the General Conditions of the Contract should not be exercised (Clause 48 of the General Conditions of the Contract);
(b)that any such notice to show cause would not be given unreasonably, and would state that it was a notice under the provisions of Clause 48.1 of the General Conditions of the Contract and would specify the default, refusal or neglect on the part of the Plaintiff upon which the notice was based, and the notice would specify the period, which would not be less than fourteen (14) days after service of the notice, by which the Plaintiff was required to show cause (Clause 48 of the General Conditions of the Contract); and
(c)that if the Plaintiff failed to show cause to the satisfaction of the First Defendant, that the First Defendant could:
(i)take the work remaining to be completed under the Contract wholly or partly out of the hands of the Plaintiff;
(ii)cancel the Contract; or
(iii)suspend payment under the Contract.
(Clause 48 of the General Conditions of the Contract).
On 7 February 1992, the First Defendant gave a Notice to Show Cause to the Plaintiff, purportedly pursuant to Clause 48.1 of the General Conditions of the Contract, requiring the Plaintiff to show cause to the First Defendant within fourteen (14) days after service of the said Notice.
The Notice to Show Cause was given relying upon the following alleged defaults by the Plaintiff under the Contract, namely:
(a)That the Plaintiff failed to provide a Works Program in accordance with Clause 7.0 of the Special Conditions of the Contract.
(b)That the Plaintiff failed to achieve the overall rate of progress required by the provisions of Clause 34.2 of the General Conditions of the Contract in that the Work was not 15% complete when 25% of the Contract period had elapsed, nor was the Work 40% complete when 50% of the Contract period had elapsed.
(c)The Plaintiff failed to comply with all of the requirements of Clause 8.0 of the Specification.
Estoppel
In the premises referred to in paragraphs 51(b)(vii) to (ix) the Second Defendant, on behalf of the First Defendant, represented to the Plaintiff:
(a)that it would not require a Works Program until after 28 January 1992 or until after the sandscrew was in operation whichever was the later; and
(b)(impliedly) that it would not assert that the Plaintiff was in breach of the Contract by failing to provide a Works Program.
In reliance on the representation referred to in paragraph 48 the Plaintiff did not provide the First Defendant with a Works Program until 20 February 1992, after the sandscrew was in operation.
In the premises:
(a)it would be unconscionable for the First Defendant to assert that the Plaintiff’s failure to provide a Works Program in January 1992 constitutes a breach of the Contract; and
(b)the First Defendant is estopped from so asserting.
The Notice to Show Cause was given unreasonably by the First Defendant in breach of Clause 48.1 of the General Conditions of the Contract.
Particulars
...
(e)Progress of the Works: At the time of the giving of the notice the First Defendant was aware of, but failed to have any or any proper regard to the following facts:
(i)the Plaintiff’s notification of a latent condition as referred to in paragraph 31;
(ii)the Second Defendant’s failure to properly investigate the said notification as referred to in paragraphs 33 and 34;
(iii)the First Defendant’s failure to cause the Second Defendant to properly investigate the said notification as referred to in paragraphs 33 and 34;
(iv)that contrary to the Tender Document the Source did not contain sufficient processable material to carry out the Work as referred to in paragraphs 18 and 23;
(v)that contrary to the Tender Documents Dry Creek Areas A and B contained material with more than 2% passing a 75 µm sieve as referred to in paragraphs 19 and 24;
(vi)that as a result of the matters referred to in subparagraph (v), on or about 17 January 1992 the Second Defendant relaxed the specification to allow 3% of material passing a 75 µm sieve in the filter materials;
(vii)that the First Defendant was using the Plaintiff’s water supply at the Source for its own purposes at a rate of 336,000 litres per day; and
(viii)that the matters referred to in sub-paragraphs (iv), (v), (vi) and (vii) were the cause of the Plaintiff’s failure (if any) to comply with:
(A)Clause 34.2 of the General Conditions of Contract; and
(B)Clause 8.0 of the Specification;
...
(j)As a result of the meeting referred to in sub-paragraph (i) the Second Defendant, Jim Mienert and Daryl Brigden unreasonably and incorrectly formed the view that the Plaintiff had not understood Volume 2 of the Tender Document when:
(i)they knew or ought to have known that a proper understanding of Volume 2 of the Tender Document required geotechnical engineering expertise;
(ii)they knew or ought to have known that Grahame Allen did not have any geotechnical engineering expertise;
(iii)they knew or ought to have known that the Plaintiff had engaged Trevor Jarvis, an engineer with geotechnical engineering expertise, to advise it on the contents of Volume 2 of the Tender Documents.
...
Notice to Show Cause Defective
The Notice to Show Cause was defective in that:
(a)the Notice did not notify the Plaintiff of the respects in which it was alleged to have failed to comply with Clause 7.0 of the Special Conditions of Contract;
(b)the Notice did not notify the Plaintiff of the respects in which it was alleged to have failed to comply with Clause 8.0 of the Specification;
(c)at the time of giving of the Notice the Plaintiff had not failed to comply with Clause 8.0 of the Specification;
(d)alternatively at the time of giving the Notice the First Defendant had no reasonable grounds for believing that the Plaintiff had failed to comply with Clause 8.0 of the Specification; and
(e)the Notice did not provide a period of a minimum of fourteen (14) clear days after service for the Plaintiff to show cause.
Claim for Unreasonable Termination/Repudiation of Contract
The following were implied terms of the Contract:
(a)that the First Defendant would act bona fide and reasonably in determining whether the Plaintiff had shown cause in response to any such notice to show cause; and
(b)that the First Defendant would act bona fide and reasonably in determining whether to exercise the power referred to in paragraph 45(c).
Particulars
...
By letter dated 20 February 1992, the Plaintiff responded to the Notice to Show Cause of 7 February 1992 and did show cause.
The First Defendant ought to have been reasonably satisfied with the letter referred to in paragraph 54.
On 5 March 1992 the First Defendant gave Notice to the Plaintiff that the First Defendant had taken the Work remaining under the Contract out of the hands of the Plaintiff, purportedly in accordance with Clause 48.1 of the General Conditions of the Contract.
The Notice that it had taken over the work was not given bona fide and was given unreasonably by the First Defendant and in breach of the terms referred to in paragraph 53.
Particulars
...
Preparation of the Negligent Report
Further, in breach of its duty referred to in paragraph 21 the First Defendant failed to exercise reasonable skill and care to ensure that the information contained in the Tender Document was accurate in that:
...
(e)Incorrect Determination of Quantities:
The First Defendant incorrectly calculated the quantities of processable material in the Source.
Particulars
(i)In or about July 1991 the First Defendant calculated the quantities of processable material in the Source as being:
(A)in Dry Creek Areas A and B, 168,600 m3 plus 35,500 m3 of spoil; and
(B)in Kroombit Creek, 85,000 m3 plus 50,000 m3 of spoil.
(ii)In or about July 1991 the First Defendant calculated that the quantities of specified product that could be obtained from the quantities of processable material referred to in sub-paragraph (i), were those required under the Contract.
(iii)In calculating the quantities referred to in sub-paragraphs (i) and (ii), the First Defendant:
(A)relied on the information contained in the Report as aforesaid;
(B)had no or insufficient regard to horizons of material that were unprocessable;
(C)had no or insufficient regard to the contamination of processable material by unprocessable material;
(D)assumed that specified product could be obtained from material in the Source located at depths greater than the depths of the trench investigations at 56T, 57T, 58T and 61T, when it had no reasonable grounds for doing so;
(E)did not allow for the Source to be battered at 95T, 90T, 68T or at the 92T end of Section 21 on Drawing number A1-98598;
(F)included material from 90T and at the 61T end of Section 18 on Drawing number A1-98597, that is located outside the Source;
(G)assumed, contrary to the matters stated in subparagraph (d), that the material below the water table was suitable for processing; and
(H)assumed that the material contained in Section 20 on drawing number A1-98598 was suitable for processing when it had no reasonable grounds for doing so.
**(iv)On or about 5 August 1991 the First Defendant re-calculated the quantities of processable material in Dry Creek Areas A and B as being 159,730 m3 plus 33,974 m3 of spoil.
(v)Further, on or about 6 August 1991 the First Defendant carried out testing below the water table along Section 17(A) on drawing No. A1-98592 of the Report.
(vi)As a result of the said testing on or about 6 August 1991, the First Defendant knew or ought to have known (as was the case):
(A)that the material below the water table was unprocessable because it contained significantly more than 2% cohesive fines passing a 75 µm sieve and was interposed with layers and balls of clay;
(B)that its quantity calculations were or might be incorrect; and
(C)alternatively, that further testing was required to determine whether the material below the water table was processable.
(vii)Despite the matters referred to in sub-paragraph (v) and (vi) the First Defendant:
(A)did not carry out any further or any further adequate testing of the material below the water table prior to 1 November 1991;
(B)did not revise its quantity calculations; and
(C)did not inform tenderers that its quantity calculations were or might be incorrect.
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