Howtrac Rentals Pty Ltd v Thiess Contractors (NZ) Ltd
[2000] VSC 415
•21 December 2000
| COMMERCIAL AND EQUITY DIVISION | Not Restricted |
No. 8288 of 1998
| HOWTRAC RENTALS PTY LTD | Plaintiff |
| v | |
| THIESS CONTRACTORS (NZ) LIMITED | Defendant |
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JUDGE: | Gillard J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 and 30 November; 4-7, 11-13 December 2000 | |
DATE OF JUDGMENT: | 21 December 2000 | |
CASE MAY BE CITED AS: | Howtrac Rentals Pty Ltd v Thiess Contractors (NZ) Limited | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 415 | Revised 31 January 2001 |
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Contract for plant hire – composition of contract – construction – entitlement to stand‑by payment – counterclaim based on implied terms – implied terms of co‑operation and acting in good faith do not oblige a party to agree to a variation of the agreement – counterclaim dismissed.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr G.H. Golvan QC with | Giannakopoulos |
| For the Defendant | Mr P.W. Collinson | Deacons Lawyers |
TABLE OF CONTENTS
PARTIES.................................................................................................................................................................................................... 1
BASIC FACTS.......................................................................................................................................................................................... 1
CLAIM AND COUNTERCLAIM........................................................................................................................................................... 3
ISSUES....................................................................................................................................................................................................... 6
EVIDENCE................................................................................................................................................................................................. 7
FACTS..................................................................................................................................................................................................... 10
COMPOSITION OF CONTRACT..................................................................................................................................................... 18
CONSTRUCTION OF AGREEMENT................................................................................................................................................ 25
HOWTRAC'S CLAIMS....................................................................................................................................................................... 32
(i) Hire Charges - $823,560.80........................................................................................................................................... 32
(ii) Tyre Damage - $143,533.31........................................................................................................................................... 54
(iii) Hungry Boards - $9,142.00............................................................................................................................................ 56
(iv) Damage/Repair - $48,851.25......................................................................................................................................... 61
HOWTRAC'S CLAIMS - CONCLUSION........................................................................................................................................ 62
COUNTERCLAIM BY THIESS........................................................................................................................................................... 63
CONCLUSION....................................................................................................................................................................................... 75
HIS HONOUR:
This is a proceeding instituted by writ in which the plaintiff seeks monies due under an agreement for the hire of equipment and provision of services and the defendant counterclaims damages for breach of contract.
Parties
The plaintiff, Howtrac Rentals Pty Ltd ("Howtrac") is a company which operates an earthmoving equipment hire business providing a range of earthmoving equipment. It operates from premises in Somerville, Victoria. It was formed in 1996 and is owned and controlled by Geoffrey Noel Howard ("Mr Howard").
By training Mr Howard is a diesel engine mechanic who was employed by Caterpillar, the well-known manufacturer of large equipment, where he was trained for management roles. He was employed in various positions eventually being promoted to the position of International Used Equipment Manager with Williams Adams Pty Ltd, a Caterpillar dealer. In 1994 he commenced his own business and formed the plaintiff in 1996.
The defendant, Thiess Contractors (NZ) Limited ("Thiess") is and was at all material times a company incorporated in New Zealand and carrying on business as a construction contractor. It is part of the Thiess construction business located in Brisbane. It has an office in Melbourne. The parent company conducts the largest construction business in Australia.
An Australia company Thiess Contractors Pty Ltd acted as the authorised agent of the defendant and the reference to "Thiess" hereafter includes the Australian company.
Basic Facts
The basic facts which led to the dispute between the parties can be briefly stated.
In 1997, Thiess, entered into a contract with the Electricity Corporation of New Zealand ("ECNZ") to perform works at the Matahina Dam in the northern island of New Zealand. The works were to strengthen the Dam and involved removing material and replacing it. It needed heavy earthmoving equipment in order to perform the works.
From 3 July 1997 until 21 August 1997, Howtrac and Thiess negotiated the terms of a contract whereby Howtrac hired six-773B dump trucks to Thiess to be used at the Dam site.
A 733B dump truck is manufactured by Caterpillar and is a very large truck with a tray dump bin capable of carrying between 45.4 to 52.6 metric tonnes depending on the tyres and site conditions.
The parties finalised the contract on or about 21 August 1997.
During September and early October 1997, six trucks were delivered to the site.
Thereafter Thiess used the trucks in performance of their construction contract and on or about 20 October 1998 the contract between Howtrac and Thiess was terminated by mutual agreement. By that date there was no further requirement for the trucks.
It was a term of the hire agreement that Thiess would pay the plaintiff hire charges.
During the course of the job Howtrac forwarded accounts monthly which were paid.
On 19 November 1998 Howtrac submitted its final invoice to Thiess in Melbourne. The invoice was in the form of a letter together with supporting documents which set out in some detail the amounts claimed by Howtrac.
Howtrac claimed for hire charges, tyre wear damage, hungry boards discussions, damage and repairs, servicing costs, site mobilisation and miscellaneous costs which after taking into account what had been paid, left a net amount outstanding of A$1,090,136.53.
The letter of 19 November 1998 set out in some detail how each amount was made up. On 4 December 1998 Thiess sent a response to the final claim made by Howtrac which was to the effect that Howtrac was not entitled to what it sought. Thiess worked out its own calculation, criticised the performance of the contract by Howtrac and ended by saying that Thiess had shown remarkable restraint "in choosing not to pursue Howtrac for the full impact of its failure to preform (sic) in accordance with the contract we cite" and thereafter a number of criticisms were made.
The letter concluded by stating that the amount that was outstanding was $236,026 and stated as follows –
"We look forward to your early acceptance of the above to enable a final progress payment to be made."
Thiess made it quite clear that it would not pay the amount, it admitted it owed, unless it was in accepted full and final settlement of all claims.
Howtrac refused this demand and the parties were in dispute.
The real area of dispute at that stage concerned the claim by Howtrac for standby time. Thiess refused to pay for standby time.
Twenty days later Howtrac issued its writ in this court.
Claim and counterclaim
Howtrac's case is simple and straightforward.
The plaintiff and the defendant admit there was a contract of hire between them. There are disputes as to what documents constituted the contract and whether the contract was partly oral and secondly, what the contract meant.
The plaintiff alleges that it was entitled to be paid the hire charges on a certain basis, together with other amounts which were due and owing pursuant to the contract or the contract as varied during performance. The evidence revealed that from time to time further discussions took place in relation to certain matters and the parties agreed that the varied position was to apply between them.
Howtrac's claims are for monies due under the contract between the parties. The claims according to the particulars of loss and damage are:
(i)
Hire charges
$2,696,417.40
(ii)
Tyre wear/damage
$143,533.31
(iii)
Hungry boards
$9,142.00
(iv)
Damage/repair
$48,851.25
(v)
Servicing costs
$13,230.00
(vi)
Site mobilisation costs
$17,011.79
(vii)
Miscellaneous costs
$2,417.85
Total
$2,930,603.60
Less paid to date
$1,900,568.03
Total outstanding
$1,030,035.57
After deducting and adding certain sums by reason of New Zealand Revenue laws the total claimed was $1,055,786.41.
The real dispute between the parties concerns the hire charges which include a large sum for standby, that is, when a truck was available during a shift but not used by Thiess.
Items (v), (vi) and (vii) are not in dispute and there is no issue between the parties that the Howtrac is entitled to be paid those sums. The amounts in dispute in items (ii), (iii) and (iv) are small in comparison with the total claim and despite pressure from the Bench to split the difference, the parties have steadfastly soldiered on. The small amounts in dispute have been substantially increased by the legal costs incurred in contesting them.
In its original defence, Thiess counterclaimed four separate claims.
In a further amended defence and counterclaim filed in January 2000 Thiess confined its counterclaim to one claim and this concerned the hungry boards issue.
It is not surprising the other three claims were dropped. They were baseless. The fact that they were raised reflects on the two men at Thiess who were involved in the performance of the contract and who gave instructions for the litigation, Mr Sparkman, General Manager, Victoria and Mr Prater, Project Manager in New Zealand.
A hungry board is a steel panel some 15 millimetres thick which is placed on the sides of the dump body tray bin which contains the rock fill to increase the volume that can be carried by the truck. They run the length of the tray and are from 150mm to 420mm high.
If the sides are raised then the hirer would be able to carry more rock fill per hour, thereby reducing the time for the job and hence have to pay less hire. It clearly would have an economic impact not only on Thiess but also Howtrac if the hungry boards had have been fitted. Howtrac maintained throughout that its refusal to allow the installation was not influenced by economic factors. Its main concern was in respect of the effect on its insurance cover if the trucks were modified.
At this point it is important to note that the trucks which were supplied had a carrying capacity of 45.4 metric tonnes. The trucks can carry up to of 52.6 metric tonnes but in order to do so it is necessary to fit bigger, larger and more expensive tyres on the dumpmaster. Also it is necessary to take account of the site conditions before fitting the larger and very expensive tyres. This is made quite clear by the specification brochure concerning the Caterpillar 773B truck.
Very early in the performance of the contract Thiess informed Howtrac that it wished to fit hungry boards to the trucks to enable them to carry more rock fill. Discussions took place thereafter but no agreement was reached in respect to the installation of the hungry boards.
Thiess' counterclaims that there was an implied term of the agreement, that hungry boards would be fitted to each dump truck in order to meet its pay load capacity, and that by refusing permission to Thiess to modify the trucks, Howtrac was in breach of the contract and as a result Thiess suffered loss and damage. Other implied terms are pleaded and relied upon to the effect that if Howtrac had complied with its obligations under the contract it would have agreed to the fitting of the hungry boards.
According to the amended defence Thiess counterclaims the sum of A$477,298.
Issues
The pleadings and rival contentions between the parties raise the following issues for consideration and determination:
(i)What comprised the contract of hire between the parties?
(ii)What were the terms of the contract concerning –
(a)the hire rates to be paid by Thiess to Howtrac;
(b)provision of tyres, tyre damage and truck repairs and responsibility for same.
(iii)Were there implied terms of the contract as alleged by Thiess to the effect –
(a)that each party would do all things as were necessary on its part to enable the other party to have the benefit of the agreement;
(b)that each party would comply with reasonable requests made by the other party;
(c)that each party was under a duty to act reasonably and in good faith in responding to requests made by the other party;
(d)that hungry boards would be fitted to each Cat 773B Dump Truck as required in order to meet its payload capacity?
(iv)What amount is due to Howtrac under the contract?
(v)If there were implied terms to the effect alleged by Thiess, did Howtrac breach any and which of the terms?
(vi)If Howtrac did breach any implied term did Thiess suffer any damage and if so in what amount?
Evidence
The trial was conducted by witnesses giving their evidence-in-chief by witness statements. A number of witnesses were called by both parties.
It is necessary for the court to briefly comment on the credibility of a number of witnesses.
The first witness was Mr Geoffrey Howard. Mr Howard is a middle aged man who developed his own business in 1994 and frankly admitted that contractual matters, office work and formal documents were not his strong point. Early in his negotiations with Thiess he engaged a Mr Bruce Michell who is a consulting engineer to assist him with the negotiations and the administration of the contract. Mr Michell has continued to assist Mr Howard ever since.
Many letters which were sent by Mr Howard were in fact drafted by Mr Michell.
In my opinion Mr Howard is an honest man who as a witness was doing his best to honestly tell the court the facts. Like many witnesses he demonstrated at times an unreliable memory and uncertainty as to certain matters but nevertheless overall I formed the opinion that he was an honest and basically an accurate and reliable witness.
Mr Michell is an experienced, intelligent engineer who has a very good command of the basic principles of contract. Mr Howard was very wise to engage him not only to finalise the contract between the parties but also to assist him in administering the contract. In my opinion he could more than hold his own in discussions with the very experienced construction men employed by Thiess.
In giving evidence I formed the opinion that he was intelligent, had a very good understanding of the terms of the contract and the performance of same, and was an honest and reliable witness. He was well aware of the issues in the case and was very careful in giving his evidence.
The two main witnesses called by Thiess were Gregory Bernard Sparkman and Mark Andrew Prater.
Mr Sparkman is a civil engineer, who was at all relevant times the civil/mining manager for Victoria, Tasmania and South Australia for Thiess Contractors Pty Ltd, the parent company of the defendant. He had been with Thiess since May 1997. His position involved management responsibility for the delivery of projects and the New Zealand project was one of those over which he had a responsibility.
He is a very experienced man in the field of construction and civil works industry and in the last 15 years has occupied senior project management positions with the Citylink project and Leighton Contractors.
He was involved in the early negotiations with Mr Howard which he then passed on to Mr Prater who joined Thiess on or about 7 August 1997.
Mr Mark Prater is also a qualified civil engineer and has been engaged in civil engineering construction for the last ten years. He has also had experience with Leighton Contractors and was offered a job with Thiess through Mr Sparkman. He and Mr Sparkman had worked together before.
He was employed to be project manager for the Thiess Matahina dam project in New Zealand.
Soon after he commenced employment on 7 August 1997 he attended a project managers' meeting during which Mr Sparkman identified to him a number of issues concerned with the project that had to be progressed. One of the issues was the contractual negotiations with Howtrac.
Both men in evidence presented as persons who appreciated that they were employed by the biggest construction company in Australia. I formed the conclusion that they were hard headed businessmen who were very aware of the importance of making a profit out of a project and using pressure tactics to obtain their way.
The most important part of the evidence of Mr Sparkman concerned alleged conversations with Mr Howard concerning the issue of the payment of hiring costs for standby. This is the big issue between the parties concerning the claim by Howtrac for its hire costs.
In giving the evidence Mr Sparkman relied upon his memory. He had no note of the discussions. There was no letter which was written confirming the discussions which is inconsistent with the conduct of the parties who did adopt the pattern of putting most things in writing. His first witness statement was contrary to his amended witness statement in respect to the alleged conversations. He carried some responsibility for a number of claims made by Thiess which had no substance whatsoever. They were put forward in the defence and affidavits one of which was sworn by Mr Sparkman in support of Thiess' opposition to the claim for summary judgment. Thiess finally abandoned three out of the four claims.
In my opinion Mr Sparkman was very aware that if Thiess failed in this proceeding in its opposition to the claims made by Howtrac for standby here that that would reflect upon his conduct in negotiating the contract with Thiess. I formed the opinion that he was an unsatisfactory witness whose credibility was suspect, and his evidence has to be scrutinised extremely carefully.
Mr Prater falls into much the same category. Whilst denying to Howtrac any entitlement to payment for standby time, the Thiess New Zealand company was making a claim on the proprietor, ECNZ, in which Thiess claimed standby time which it alleged it had paid to Howtrac because of the variation in the head contract, with ECNZ. The claim was subsequently paid. This fact emerged in the course of discovery in the present proceeding. Arguably at the time the claim was made, it was fraudulent. Mr Prater was also responsible for giving instructions for the counterclaims which were dropped and he also swore an affidavit in opposition to the application for summary judgment in which he swore that the claims were proper. He was very aware of the issues in the case. He appreciated that if Howtrac succeeded in its claim for standby time he would be the person at Thiess held responsible for the contractual terms. The attitude of Thiess is that it never pays for standby time. If Howtrac succeeds he will be the one held responsible. I was not impressed by his evidence or his attitude.
In my opinion his evidence also has to be scrutinised very carefully before acceptance.
Facts
Many of the facts set out hereinafter are not in dispute. It will be necessary in considering the issues to further consider in some detail some of the factual matters.
Mr Howard and Howtrac had supplied vehicles for works which were carried out by three substantial companies including Thiess in 1996-1997. However, he did not know Messrs Sparkman and Prater prior to negotiations commencing in July 1997.
On 3 July 1997 Mr Greg Sparkman on behalf of Thiess in Melbourne sent a facsimile to Mr Howard enquiring as to the availability of plant which was required to perform certain works. Mr Sparkman requested Mr Howard to ring and discuss the matters with him.
The following day Mr Howard spoke to Mr Sparkman who wished to know what equipment Howtrac could supply and what servicing and workshop facilities it had to participate in the Dam project. Mr Howard responded by a letter on 8 July 1997 in which he indicated the availability of certain plant and equipment and emphasised in the letter that there were "quite a few legal and contractual issues that we need to put on paper, but at this stage we hope this gives you a starting point".
Messrs Howard and Sparkman met on 1 August 1997 and Mr Howard was told that Thiess required six trucks not four and was asked how quickly he could get six trucks to New Zealand. He said that he had access to four trucks but was concerned whether he could get two more.
Mr Sparkman gave evidence that some time between 1 and 6 August, either at a meeting on 1 August 1997 or subsequently during a telephone conversation or meeting on 4, 5 or 6 August 1997 he had discussions with Mr Howard. His version must be contrasted with what was alleged in the amended defence filed 17 January 2000 in which it was asserted that some time between 3 and 8 July and at a meeting on 1 August 1997 certain discussions took place. In addition in his first witness statement the dates of the alleged discussions occurred in a different time frame. Mr Howard denies these conversations. I accept the version of Mr Howard. I accept that there was no discussion of the duration of the project or the minimum hours that could be worked up to 4 August 1997. There was no discussion about the operating or the time or duration of the project up to that date. There was no discussion concerning minimum monthly cashflow, nor was there any discussion about the circumstances in which standby hours would be paid.
I accept Mr Howard when he said that the conversations with Mr Sparkman were restricted to the matters confirmed in correspondence between the parties.
On 4 August 1997 Mr Sparkman sent a facsimile which, inter alia, raised the question of availability of six trucks, shipping dates and the question of payment. On the same day Mr Howard sent a facsimile to Mr Sparkman stating, inter alia, that he could supply six dump trucks at A$95 per hour per unit and set out in some detail various conditions which he required.
By this time Mr Howard had engaged Mr Bruce Michell the consulting engineer to assist him with negotiating the contract. The facsimile sent on 4 August 1997 by Howtrac was in fact drafted by Mr Michell.
In a conversation held on 6 August 1997 Mr Howard expressed concern that two of the six trucks that he hoped to have, had been sold and that he had to organise shipping of the last four trucks as soon as possible. Mr Sparkman said that Thiess was in the process of putting forward an order so that something could be done.
On 6 August 1997 Thiess sent a facsimile which set out what it was prepared to agree to, including terms relating to hours of operation, rates and payment.
Howtrac followed this up on 6 August 1997 with a facsimile in which some of the matters put by Thiess, were, agreed and other matters were raised for negotiation.
The negotiations continued with Thiess sending a facsimile on 7 August 1997 in which Mr Sparkman concluded –
"Geoff,
I hope this can conclude a hire agreement between the parties."
On the same day Howtrac sent a facsimile which indicated that it agreed in principle but there were certain matters that still required clarification. On 8 August 1997 Howtrac sent a facsimile in which it was stated that it had accepted the payment terms and methodology and concluded that it believed the matters raised "in the various correspondences are resolved and agreed" but it was noted that there had to be a site inspection prior to finalisation of the agreement.
By 9 August 1997 Mr Prater was in charge of negotiating the contract on behalf of Thiess.
On 11 August 1997 Thiess forwarded a facsimile to Mr Howard indicating agreement in relation to some matters but not other matters and in handwriting Mr Mark Prater wrote –
"Geoff,
As discussed formal plant hire documents are currently being typed up. Will be faxed to you later this afternoon. The plant hire order for this work will be #83301 and the supply of the trucks is as per discussions between Greg Sparkman and yourself and outlined above."
Thiess forwarded a plant hire order No. 83301 dated 11 August 1999 which was completed in hand and had attached to it standard conditions of hire orders, conditions of hire-external equipment both of which were signed by Mark Prater, and a document containing special conditions.
The following day Mr Howard went to New Zealand to inspect the works and on the 13 August he toured around the works. He noted that the site was in the early stages of establishment.
Upon his return Mr Howard forwarded a letter dated 19 August 1997 which set out the terms and conditions upon which Howtrac was prepared to agree and in that document incorporated part of the conditions of hire contained in the plant hire order number. The letter was drafted by Mr Michell.
The letter concluded –
"We trust the foregoing and attached schedule is to your satisfaction. Await your early reply in order that current shipping times can be met."
The attached schedule contained what were described as "SPECIAL CONDITIONS".
The letter of 19 August 1997 from Howtrac, contained many terms which were different to the terms set out in the plant hire order forwarded by Thiess.
Included in the changes were the number of minimum guaranteed hours of hire which were expressed as "working hours aggregate", the period of hire, the payment of terms and the cost of transport from Auckland to the site and back to Auckland after the job was completed.
On any view the facsimile of 19 August 1997 constituted a counter offer by Howtrac and this was not disputed between the parties.
On that same day Mr Prater sent back the facsimile and the attached special conditions to Mr Howard, containing handwritten amendments made by him.
Later that day Mr Howard sent a facsimile to Mr Prater in which responses were made to the comments marked by Mr Prater on the earlier facsimile and concluded by asking for confirmation.
Two days later on 21 August 1997 Mr Prater sent a handwritten facsimile which stated –
"Further to our discussion of 19/8/97 and 21/8/97 we confirm our agreement with Items 1 to 5 of your facsimile of 19/8/97."
On 20 August 1997 Mr Howard flew to Japan to finalise the purchase and shipping of four secondhand dump trucks. Mr Howard obtained two trucks in Australia.
The six trucks were given numbers by Thiess. Trucks 1 and 3 were delivered on 9 and 10 September 1997 respectively, trucks 5 and 6 were delivered on 27 and 29 September respectively, and trucks 4 and 2 were delivered on 1 and 2 October 1997 respectively. This was in accordance with the contract documents.
Howtrac appointed Mr Glen Cox, a diesel mechanic employed by it as its mechanical supervisor on site to oversee the servicing and maintenance of the trucks during the period of the hire agreement. In addition, Mr Cox performed an important function on behalf of Howtrac, namely, recording the hours when each truck was operating and the hours when it was not operating even though available i.e. standby. The hours were recorded from the first shift when the trucks were used, namely, 15 September 1997 on a form headed "MACHINE HOURS" which had a column marked "DOWN TIME". On 18 September 1997 he recorded eight hours downtime and noted the cause was lack of operator to drive the truck.
Copies of the Machine Hours forms when completed were given to Thiess. These forms were completed up to 9 February 1998. In the meantime Thiess provided another form from 10 November 1997 which was also completed by Mr Cox and handed to Thiess. This form also contained a column for "standby". This form was on occasions signed by a Thiess representative.
Forms were filled out during the whole job and handed to Thiess. Mr Dirk Retief in January 1998 was employed by Howtrac as its Project Manager on site and one of his functions was to record the hours of operation and standby on the Daily Truck Operating Hours Sheet.
The trucks were used on the construction site. In late August 1998 Howtrac was informed that there were only about three weeks of work involving the trucks and it was anticipated that the hire would cease some time in late September. In fact the agreement was terminated by the agreement of the parties on 20 October 1998 after the trucks were inspected by the parties and a tyre wear report was agreed to by the parties.
Going back in time, on 6 October 1997 Thiess wrote a letter to Howtrac in which it pointed out that
"The existing bodies on your trucks do not carry a full pay load on the above mentioned project.
Modifications are being carried out to increase the capacity of your trucks. Your on site fitter has been advised of our intended works. We have attached drawings and calculations for your information."
The drawings were not included but were sent later. They set out what was involved in the installation of hungry boards.
The same day Mr Howard sent a facsimile to Mr Prater informing him –
"Please note, that no modifications are to be carried out to the trucks without written authorisation from myself."
Howtrac was concerned with the effect of any modifications concerning its insurance cover but in addition whether the modifications would cause damage to the trucks and result in excessive wear of the trucks including tyre wear.
The tyres are large and cost a lot of money.
During the course of the project many tyres were damaged due to the very rough terrain and working conditions and many tyres failed to provide 3,500 hours of use which was contemplated by the parties.
Each truck was valued at A$300,000 . If it was damaged and the insurance did not cover the loss, Howtrac could suffer a substantial financial loss.
In early November 1997 Mr Bruce Michell and Mr Howard travelled to the site in New Zealand in an attempt to sort out the matter of installation of hungry boards. On arrival it was observed that truck No. 6 already had hungry boards installed by Thiess without permission.
Later that day a meeting took place between Messrs Michell and Howard on behalf of Howtrac and Messrs Prater and Nicholson on behalf of Thiess. It was made quite clear by Mr Howard that Thiess had performed unauthorised modifications to the truck, that there was a concern about insurance cover and Mr Howard forbade Thiess to use any truck with hungry boards until the boards were removed. Mr Prater agreed that the hungry boards would be removed.
At that meeting Mr Howard was provided with a bundle of Thiess daily diary sheets. By Christmas 1997 Mr Howard was concerned about the issues that were being raised by Thiess in relation to a number of matters and he requested Mr Michell to take over the administration of the project on behalf of Howtrac on a day to day basis.
Mr Michell provided reports on the installation of hungry boards, discussions took place with insurance brokers engaged by Howtrac, correspondence was sent to and received back from Howtrac's insurers and by the end of March 1998 permission had not been given to install the boards.
The two main issues of concern for Howtrac were safety and insurance.
In April 1998 Mr Sparkman told Mr Howard at a meeting that Thiess would take over the insurance on the trucks and Sparkman provided copies of the Thiess proposed insurance policy for Howtrac to consider. This was passed on to the insurance brokers for Howtrac. On 20 April 1998 a meeting took place where various issues were raised and Mr Howard indicated that hungry boards could be installed, provided agreement was reached in relation to the mounting costs for tyres, damage repair and insurance issues.
On 1 May 1998 another meeting took place between Mr Sparkman and Messrs Michell and Howard concerning the hungry boards in which requests were made for Thiess to pay outstanding claims.
I accept the evidence of Mr Howard that Mr Sparkman replied that if Howtrac did not give Thiess authorisation he had no intention of resolving the remaining issues between the parties and that hungry boards would be fitted first and other issues sorted out later.
One of the matters that Mr Howard raised was the payment of $100,000 in relation to invoices not paid by Thiess. On 1 May 1998 he sent a facsimile to Mr Sparkman which said –
"If $100,000 payment is made today, then we have an agreement.
Please leave a message with my office."
Nothing came of that meeting and no further discussion took place concerning the hungry boards. Thiess abandoned the proposal to fit hungry boards in May 1998. The insurance issue was never resolved to the satisfaction of the parties.
Hungry boards were not fitted to the Howtrac trucks after that meeting.
On 19 November 1998 Howtrac sent its final invoice which Thiess responded to by stating that it only owed a certain sum of money and that it would pay the sum in full and final settlement.
It will be necessary to further consider the facts in relation to the issues.
Composition of Contract
It is the submission of Howtrac that the agreement is wholly in writing and compromises the documents in Exhibit PL1, namely, that portion of plant hire order No. 83301 concerning the obligations of the owner specified in the Conditions of Hire, the plaintiff's facsimile dated 19 August 1997, Mr Prater's handwritten amendment to that facsimile of the same date, the facsimile from Howtrac also dated 19 August 1997 and the handwritten facsimile from Mr Prater dated 21 August 1997. It is the contention of Howtrac that the parties had entered into a binding and concluded contract by 21 August 1997.
Thiess for its part, submits that there were additional documents comprising the contract, namely, the documents in Exhibit DEF1 being the correspondence between the parties from 4 August 1997 to 11 August 1997.
In addition it is submitted on behalf of Thiess that there was an oral content of the agreement. Further it is contended that there were certain implied terms.
There is no doubt in my opinion that the parties had entered into a final, concluded and binding contract on 21 August 1997. That is clear from the wording of the documents which comprise Exhibit PL1. Further, the parties commenced performance of the contract very soon after that date.
Whether or not a binding concluded contract in law has come into existence is a question of fact. The plaintiff has the burden of persuading the court that agreement was reached with respect to essential terms to effect the commercial purpose and that the parties intended to be bound in law by the agreement.
In determining the question, the court considers all relevant facts which includes facts which occurred after the date of the alleged contract. See Hussey v Horne-Payne (1879) 4 App. Cas. 311, Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68, and Toyota v Ken Morgan (1994) 2 VR 106 at 134.
The issue involves a three-fold enquiry.
First, did the parties arrive at a consensus; secondly, if they did, was the consensus such that it was capable of forming a binding contract in the circumstances; and, finally, did the parties intend that the consensus at which they arrived should constitute a binding contract? See Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326.
As a general proposition the court is concerned with the objective manifestation of both the fact of agreement and intention to be bound. As a general rule it is not appropriate to look into the minds of the parties to seek what they actually intended.
In this proceeding the court is concerned with a bi-lateral contract. The evidence shows negotiation over a period of time, offer and counter offer and acceptance, and plainly an intention on both sides to "do business", that is, to bring into existence a contract binding in law.
The negotiations commenced in early July 1997 and continued right through to 21 August 1997. There was at least one face to face meeting between the negotiating parties, then Mr Howard and Mr Sparkman, and some discussions over the telephone but by and large the parties negotiated through correspondence.
In determining whether or not the parties had arrived at a final binding and concluded contract it is necessary to look at the whole of the correspondence in order to see whether they have reached that agreement.
In Hussey v Horne-Payne, supra, Lord Cairns said at p.316:
"Where you have to find your contract or your note or memorandum of the terms of the contract in letters you make take into consideration the whole of the correspondence which has passed. You must not at one particular time draw a line and say, 'We will look at the letters up to this point and find in them a contract or not, but we will look at nothing beyond'."
What the court is concerned to determine is whether there has been final agreement between the parties with respect to the essential terms to give effect to the commercial purpose, and an intention to be bound.
The evidence shows that on 11 August 1997 Mr Prater who had been given the responsibility of finalising the contract on behalf of Thiess with Howtrac, prepared and signed a Plant Hire Order form. It set out in some detail the terms of the proposed contract.
Prior to the preparation of this document, it had been made clear by Howtrac that no contract would be finalised until Mr Howard had visited the site in New Zealand. He travelled to New Zealand on 12 August 1997.
On 18 August 1997 Howtrac sent a facsimile letter to Thiess marked for the attention of Mr Prater which set out in some detail the terms and conditions "under which the hire arrangements will operate between Thiess and Howtrac." A comparison of that document with the Plant Hire Order form revealed a number of changed conditions to that which appeared in the Plant Hire Order form. Mr Prater accepted that there was a difference between the two documents. In my opinion the document of 19 August 1997 represented a counter-offer by Howtrac to Thiess and contained the terms upon which Howtrac was prepared to enter into a contract of hire.
That same day at about 1.49 p.m. Mr Prater faxed back to Howtrac a copy of their facsimile upon which he had made a number of handwritten comments. By so doing he was stating what Thiess' attitude was to the offer made by Howtrac and this document in itself represented another offer. On the same day Howtrac sent to Mr Prater a facsimile marked "urgent" in which it was noted that "We have reviewed your comments marked up on our letter and respond in order that they are noted".
Thereafter was written five paragraphs dealing with the matters raised by Mr Prater and the sixth paragraph was expressed as follows –
"In order that the time provisions of our offer can be maintained we will require your confirmation of the foregoing tonight. We are scheduled to leave for Japan early tomorrow and require that confirmation prior to departure."
On 21 August 1997 Mr Prater sent a handwritten facsimile to Mr Howard which provided –
"Further to our discussion of 19/8/97 and 21/8/97 we confirm our agreement with items 1 to 5 of your facsimile of 18/8/97.
Regards,
Mark Prater."
Mr Howard did travel to Japan and arranged for the acquisition of a number of trucks.
I am satisfied that as at 21 August 1997 the parties had entered into a final and binding concluded contract and intended to be bound in law.
Mr Collinson did raise the question whether two facsimiles which passed between the parties at the end of August 1997 formed part of the contract. In my opinion they did not. They were nothing more than clarification of an aspect of the contract to satisfy a query of Howtrac's financier.
In the facsimile of 19 August 1997 from Howtrac to Thiess, Howtrac accepted the terms noted in the attachment to the Plant Hire Order form under the heading "Obligation of Owner".
In my opinion subject to consideration and determination of the issues raised by Thiess, the contract was embodied in writing and constituted by the Howtrac facsimile of 19 August 1997 which incorporated portion of the conditions of hire found attached to the Plant Hire Order form, Mr Prater's handwritten amendments to that facsimile, Howtrac's facsimile of 19 August 1997 noting the comments made by Mr Prater, and Mr Prater's handwritten facsimile of 21 August 1997.
It was submitted on behalf of Thiess that –
(i)the correspondence passing between the parties from 4 August 1997 up to and including the documents constituted by the Plant Hire Order form and attached documents also formed part of the written contract;
(ii)that there was an oral part of the contract constituted by alleged conversations between Messrs Sparkman and Howard between 1 – 6 August 1997;
(iii)that there were certain implied terms of the contract.
I will deal with the implied terms when considering the counterclaim of Thiess.
With respect to the first issue, the documents from 4 August 1996 up to 11 August 1997 contained a number of statements made by each party, and were negotiations. They did not constitute terms intended to have contractual effect. A close analysis of their contents shows representations being made by both sides which show their negotiating attitude which did not result in agreement between the parties or an intention to be bound.
The documents show the hopes, intentions and expectations of the parties and do reveal what the parties hoped to achieved. But in the end they are no more than negotiations. One can see by looking at the Plant Hire Order form that the parties had got very close to finalising an agreement. But they had not done so.
It is clear from the correspondence between the parties that it was their intention that the contract would be evidenced in writing and that is supported by the correspondence that passed between them on 19 August and 21 August.
In my opinion the documents relied upon by Thiess do not form part of the contract. That is not to say that they are irrelevant to the question of construction; they may be.
In its further amended defence delivered in June 2000, Thiess asserts in particulars concerning the contract the following –
"In so far as it is oral it is constituted by conversations between Geoff Howard of the plaintiff and Greg Sparkman of the defendant during July and August 1997 to the effect as alleged."
In paragraph five of the further amended statement of claim Howtrac sets out the terms of the agreement. In its further amended defence Thiess pleads to the terms set out and in paragraph 5(l) asserts that there were conversations in Melbourne which occurred between the dates of 3 and 8 July 1997 and the dates of 4 and 6 August 1997 and at a meeting on 1 August 1997 between Messrs Howard and Sparkman. The pleading goes on to set out the conversations.
The discussions are alleged to have discussed a number of matters and it is impossible from the pleading to determine the oral term of the contract.
In final submissions, Mr Collinson of counsel on behalf of Thiess was requested to state what the oral term or terms were that were agreed to by the parties during conversations had between Mr Sparkman and Mr Howard in early August 1997.
After submissions had concluded Mr Collinson forwarded to the court a written submission stating that the oral terms were as follows –
"(a)The contract for the project may be extended from 52 weeks to 60 weeks in duration but the minimum 21,000 working hours would still apply to the 60 week period;
(b)In order to protect Howtrac's monthly cashflow Thiess would pay a minimum monthly payment of 200 hours per month;
(c)If the working hours were less than 200 hours per month then the balance up to 200 hours per month would be paid at a standing charge of $60 per hour;
(d)If the working hours in any month were greater than 200, any standby hours previously paid to make up the minimum requirement for previous months would be deducted from the working hours in excess of 200 to calculate the payment for that month;
(e)The entitlement at the end of the hire period would be determined by reference to total working hours with a minimum of 21,000 working hours."
It is submitted that the discussions took place during the period from 1 August 1997, either at a meeting on 1 August or subsequently during telephone conversations or a meeting on 4, 5 or 6 August 1997.
Whether or not the parties have in the course of negotiations agreed to a term which was intended to be contractual depends upon proof of the agreement as to the term, and an intention by the parties objectively determined that the agreed term is to be a term of the contract which the parties expect, will be concluded. It cannot be a term if the subject matter is contained in a term of the written contract which is concluded at a later date.
An analysis of the written contractual documents reveals that "the matters covered by the alleged term partially derived from the Sparkman/Howard conversations in early August 1997 were agreed to in the contractual documents. Indeed in his submissions, Mr Collinson submits that the term relied upon "is the same as the term derived from," inter alia, the Plant Hire Order form, and the facsimile and copy facsimile dated 19 August 1997. If the matters were discussed during the period alleged they were part of the negotiations which were subsequently addressed in the contract.
But in any event I have already found that I prefer the version of Mr Howard of the conversations between he and Mr Sparkman. There is no evidence that the parties agreed to the alleged term and intended to be bound at such an early stage of the negotiations.
The conversations had between Messrs Howard and Sparkman were nothing more than negotiations representing the views, expectations and hopes of the parties but did not result in any agreement with respect to a term or an intention to be bound by that term if a contract later came into being.
Accordingly, in my opinion the contract is wholly in writing and constituted by the documents stated above.
Construction of Agreement
The court's object in interpreting a contract is to determine the common intention of the parties.
It is trite law that the common intention is to be determined at the date the contract was concluded. That is 21 August 1997.
The primary source of the common intention is the words of the contract. They are to be considered in context after taking into account the whole document.
The words are to be given their normal every day meaning unless the words bear a special meaning because, they are technical or because of trade usage or custom or the admissible surrounding circumstances show that the parties used a word in a particular sense.
If the language used is clear and definite there is no necessity to resort to any aids to interpret the agreement. The clear language must be given effect to. But if the language is obscure, uncertain, ambiguous, or susceptible to more than one meaning then the court seeks to determine what the parties intended by resort to admissible evidence and aids to construction.
Sometimes linguistic mistakes are made. If it is clear the parties have failed to properly record their intention, then the latter must prevail over the language.
"On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaiso Compania Naviera S.A. v Salen Rederierna A.B. (1985) A.C. 191 at 201:
'if detailed semantic and syntactical analysis of words in a commercial context is going to lead to a conclusion that flouts business common sense, it must be made to yield to business commonsense'
per Lord Hoffman in I.C.S. Ltd v West Bromwich B.S. (1998) 1 WLR at p.913.
See also Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd (1990) VR 834 at 837, 840 and 848.
The court avoids a result which is unreasonable and absurd when viewed in a commercial setting. Clearly, parties do not intend an absurd or unjust result. See L. Schuler A.G. v Wickham Machine Tool Sales Ltd (1974) AC 235 at pp.251, 255-6, 264 and 272.
But that is not to say the court has a licence to construe the words to achieve a result. Sometimes on a plain meaning of the words the meaning is clear but it is thought that the parties were unlikely to have had that result in mind.
The law is clear. Parties are bound by their contract whether they read it or not and whether they appreciated the significance of its terms. If a term had been drawn to their attention at the time and the likelihood is that the parties would have deleted a term but did not do so, in the absence of compelling evidence of error, the parties are bound.
The court's function is to read the words intelligently in the meaning the parties understood and give effect to them and only if the meaning of the words is open to reasonable doubt does the court consider the consequences. See Total Gas Marketing Ltd v Arco British Ltd (1998) 2 LL. Rep. 209 at 223.
But it is important to construe the words to give effect to what the parties meant.
"The meaning of words is a matter of dictionaries and grammars: the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean".
Per Lord Hoffman in I.C.S. Ltd case ibid at p.913.
As his Lordship said at p.912:
"Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract" – ibid at p.912.
The emphasis on giving effect to what the parties as commercial men intended to achieve is not new.
Lord Tomlin in Hillas & Co v Arcos Ltd (1932) 38 Com. Cas. 23 at p.29 said –
"The problem for a court of construction must always be so to balance matters that, without the violation of essential principle, the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains".
The dicta encapsulates the philosophy of law of contract: that the reasonable expectations of honest men should be protected.
Steyn L.J. summarised the theme as he called it in First Energy (UK) Ltd v Hungarian International Bank Ltd (1993) 2 LL. L. Rep. 194 at 196 when he said –
"A theme that runs through our law of contract is that the reasonable expectations of honest men must be protected. It is not a rule or a principle of law. It is the objective which has been and still is the principal moulding force of our law of contract. It affords no licence to a judge to depart from binding precedent. On the other hand, if the prima facie solution to a problem runs counter to the reasonable expectations of honest men, this criterion sometimes requires a rigorous re‑examination of the problem to ascertain whether the law does indeed compel demonstrable unfairness."
Lord Hoffman summarised the modern approach to interpretation of contracts in I.C.S. Ltd case supra at p.912 when he said after referring to the speeches of Lord Wilberforce in Prenn v Simmonds and Reardon Smith Line Ltd v Yjngvar Hansen-Tangen –
"The result has been subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of 'legal' interpretation has been discarded."
The exception he was referring to is the situation when the parties have made an error in use of language.
In carrying out the task of construction the court is not confined to the words of the agreement. Gone are the days when the court construed a contract in a vacuum.
"The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, anti‑literal tendencies for Lord Blackburn's well-known judgment in River Wear Commissioners v Adamson (1877) 2 App. Cas. 743 at 763, provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language to see what the circumstances were with reference to which the words were used and the object, appearing from those circumstances which the person using them had in view." Per Lord Wilberforce in Prenn v Simmonds (1971) 1 WLR 1381 at 1383-4.
His Lordship, who wrote the leading speech, held that the evidence concerning the matrix of facts "should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the genesis and objectively the 'aim' of the transaction."
The resort to background circumstances and negotiations was discussed in the leading judgment of Mason, J in Codelfa Construction Pty Ltd v State Rail Authority of N.S.W. (1982) 149 CLR 337 at pp.347 et seq.
With respect to negotiations and surrounding circumstances, his Honour said this at p.352 –
"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification."
(Emphases added.)
Lord Hoffman more recently stated the principle in the I.C.S. Ltd case, supra at p.912 when he stated –
"The background was famously referred to by Lord Wilberforce as 'the matrix of facts', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirements that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by reasonable men. The exception is exclusion of negotiation and declarations of subjective intent."
(Emphases added.)
The quest of the court to determine the common intention of the parties requires the court to approach the task on an objective basis. The function of the court is to ascertain the intention from the words. The court is not concerned with what a party actually intended.
"What a man intends and the expression of his intention are two different things. He is bound, and those who take after him are bound, by his expressed intention." – see Simpson v Foxon (1907) P.54 at 57.
The court does not decide what was probably intended to be or what ought to have been or what the parties would have thought about the matter if they had given further consideration to the topic or had been properly advised. The court interprets the document and has no authority to re-write it.
Mason J in Codelfa summarised the approach at p.352 when he said -
"Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract."
Lord Wilberforce expressed the court's approach in the Reardon Smith case (1976) 1 WLR 989 at 997 when he stated –
"What the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to be implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract and in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have those facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed."
(Emphasis added.)
It is important to always bears in mind that it is the final document which records the consensus of the parties. The parties, in negotiating a contract, pursue their hopes and expectations with different emphasis and hope to achieve their goal in a certain way. Often words which are used by one party mean something different to the other party and yet, in the end result, the parties use a formula to effect their agreement.
Lord Wilberforce's speech in Prenn v Simmonds supra at p.1385 is a timely reminder with respect to the approach in this case. His Lordship said –
"Far more, and indeed totally, dangerous it is to admit evidence of one party's objective – even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, in a world of give and take, men often have to be satisfied with less than they want. So again, it would be a matter of speculation how far the common intention was that the particular objective should be realised."
(Emphasis added.)
Further, a court does not construe an agreement in the light of what the parties did or said after the date of the contract. See L. Schuler A.G. v Wickham Machine Tools Sales Ltd, supra; F.A.I. Traders Insurance Company Ltd v Savoy Plaza Pty Ltd (1993) 2 VR 34; Ryan v Textile Clothing and Footwear Union (1996) 2 VR 235 at 237-8 and 261. See recent contrary view expressed by New Zealand Court of Appeal in Valentines Properties Pty Ltd v Hunico Corp Ltd (2000) 3 NZLR 16 at 27. Such evidence is irrelevant to the issue of construction.
Lord Morris, in the Wickham Tools case underlined the point when he said at p.260 –
"If on the true construction of a contract a right is given to a party, that right is not diminished because during some period either the existence of the right or its full extent was not appreciated."
Where the common intention of the parties has been reduced to writing, external evidence is not as a general rule admitted either to show what the actual intention was or to contradict, vary, add to or subtract from the wording of the document.
The broad purpose of the rule was explained by Mason J in Codelfa Construction Pty Ltd supra, at 347 when he said –
"The broad purpose of the parole evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances) including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiation, to subtract from, add to, vary or contradict the language of a written instrument."
There are a number of exceptions to that general rule, one of which is surrounding circumstances to which I have referred above.
In construing the provision of the contract documents the starting point to determine the common intention is the language of the documents.
In construing the provisions of the agreement in this case the starting point to determine the common intention.
Lord Mustill has recently reminded the court of the importance of that approach when he said –
"There comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court. Particularly in the field of commerce, where the parties need to know what they must do and what they can insist on not doing it, is essential for them to be confident that they can rely on the court to enforce their bargain according to its terms."
Charter Reinsurance Co Ltd v Fagan (1997) AC 313 at 388.
(Emphases added.)
Howtrac's Claims
(i) Hire Charges - $823,560.80
This is the real issue in the case brought by Howtrac.
In a nutshell, the dispute between the parties concerns Howtrac's claim for payment for standby when the trucks were available during the course of a shift but were not used by Thiess. Thiess for its part, contends that Howtrac is entitled to the payment of 21,000 working hours measured on the Keinzle clock at a rate of A$95 but is not entitled to any amount for standby over and above 21,000 working hours. In fact the hours worked by each of the trucks did not total 21,000 working hours but in fact totalled 19,714.28 working hours. Thiess submits that Howtrac is entitled to receive the balance of the working hours up to 21,000 at A$95 per hour but is not entitled to be paid for standby.
The Keinzle clock measured the time when the truck was actually moving.
Howtrac has claimed the amount up to 21,000 working hours, that is, the additional but not worked hours, 1,285.72 hours at $95 plus 11,690.29 standby hours at A$60. The amount for standby hours is $701,417.40 which together with the working hours of 1,285.72 at $95 per hour makes a grand total for hire charges outstanding of $823,560.80.
At the end of the contract the actual working hours for the six trucks were 19,714.28 Keinzle hours. The actual standby hours calculated by Howtrac based upon a shift of 9.83 hours was 12,976.01 and in determining what was owed for standby hours the number of hours to make up the minimum working hours of 21,000 was deducted with the result that the net claim for standby hours was 11,690.29.
Whilst Mr Collinson accepted that there was no dispute between the parties as to the recording of the Keinzle hours and standby hours, nevertheless in his oral submissions he sought to argue first of all that the length of the shift was 10 hours and not 9.83 hours and in the alternative it was the contention of Thiess that industry practice was that only eight hours could be claimed for standby.
The contract documents made it clear that the trucks had to be available or a minimum of 100 hours per week based on two shifts per day of 10 hours for six days per week.
In my opinion the evidence establishes that the parties varied the contract by adopting in January 1998, 9.83 hours for each shift. This was on the basis that there should be a reduction in the 10 hours' shift for either a ten minute "smoko" or five minutes for the driver to walk to his truck at the beginning of the shift and five minutes walking away from his truck at the end of the shift. The records revealed in my opinion that the parties did agree to this basis of calculation per shift and Mr Prater in his oral evidence accepted that was so.
I am satisfied that the parties agreed that the shift should be 9.83 hours and Howtrac's calculations are based upon this fact. In my opinion the calculations as to the recording of working hours and standby hours are correct.
The real issue between the parties concerns whether Howtrac was entitled to charge for standby hours over and above the figure of 21,000 for working hours. It is Thiess' contention that Howtrac was only entitled to be paid for 21,000 hours at $95 per hour and was not entitled to any standby.
Howtrac asserts that in addition to its entitlement up to 21,000 working hours at $95 per hour it was entitled to standby hours at $60 per hour based on the actual standby hours recorded less the number of hours to bring the working hours up to 21,000.
The determination of the issue depends upon the construction of the agreement between the parties.
At the outset it is necessary to emphasise a number of well-established principles of law concerning construction.
First, the construction seeks to determine the common intention of the parties at the date of the contract, namely, 21 August 1997.
Secondly, the court is not entitled to take into account the conduct of the parties subsequently to the date of the contract in determining the common intention of the parties. Much evidence was adduced by both sides as to the conduct of the parties during performance, each striving to find conduct which supported its contention. As is the case with much post-contract conduct, the evidence was equivocal. Mr Collinson submitted that although there was evidence supporting the constructions of both parties, there were more pieces of evidence supporting the Thiess contention than the Howtrac contention. In particular he pointed out that in December 1997 Thiess made it fairly clear that it was not going to pay standby and he contends that it was not until July the following year that Howtrac responded to the contrary. On the other hand there is ample evidence that from the very first day of the hire, Howtrac's mechanic in New Zealand was recording standby times in the machine hours document. Mr Collinson submitted that he was doing this purely for servicing or maintenance but in my opinion that is not borne out by the evidence. Clearly he was instructed to do so in order to determine standby hours.
The evidence is equivocal and tends to support both sides' contentions but this merely underscores the vice in seeking to determine the construction of an agreement by post-contract conduct.
The conduct will not be considered for the purposes of construction.
Thirdly, the primary source of the common intention is the words in the contract itself. The starting point is the words within the four corners of the contractual documents, construed in context taking into account the whole of the documentation, and construed in their normal every day meaning subject to any evidence which establishes a particular meaning. That is the starting point.
It is not permissible to look at the extrinsic evidence unless there is ambiguity in the wording or the words are susceptible to more than one meaning. In practice it is not difficult to reach a point where the wording is susceptible of two meanings, when invariably the case is that the warring litigants contend for different meanings.
Fourthly, the court must consider the commercial purpose of the agreement and the subject matter of same. The court should proceed on the presumption that the parties intended in a commercially sensible way to enter into an agreement which was of benefit to them.
Hence the starting point is the contractual documentation.
Before considering the documentation it is relevant to consider what each party was seeking by the agreement. Howtrac for its part supplied six very expensive large trucks. On the secondhand market the value was somewhere in the vicinity of M$1.8 and Howtrac proposed to finance the acquisition through a finance company which meant that Howtrac was liable to make a monthly payment. These valuable assets generated income by being hired to Thiess. The longer the period of use the greater the sum to be paid. Howtrac needed a steady income stream to meet its financial commitments.
Commercial common sense dictated that income had to be received whether the plant was being used or standing idle.
Thiess for its part was seeking to hire the plant to enable it to use it on the project in New Zealand, and no doubt wished to have the plant available at the least cost to it.
These facts were known objectively to both parties.
Commercial common sense dictated to both parties that there should be a different rate for when the vehicles were being used and when they were available but not being used during the course of a shift. That would be a normal incident of a hire of expensive plant. The parties appreciated that there may be periods due to unforeseen circumstances when the vehicles were not in use. It was the expectation of the parties at that time that the plant would be continuously used to move rock and earth during the project. Clearly they contemplated that would happen. But on the other hand the parties would have known at the time of the contract that there may be periods when the vehicles would not be used.
The evidence shows that these facts were objectively known to both parties.
Thiess is a very large construction company in Australia and has had considerable experience in hiring large plant for large construction projects.
With those background facts objectively known to the parties at the time when the contract was concluded, it is necessary to consider the terms of the documents constituting the agreement.
On 19 August 1997 Howtrac sent Thiess a facsimile setting out the terms and conditions "under which the hire arrangements will operate between Thiess and Howtrac".
The same day Mr Prater on behalf of Thiess sent back a copy of the facsimile to Howtrac with handwritten comments. Those handwritten comments were agreed. It is convenient to consider the contractual terms in the document altered by Mr Prater.
The document expressly provides for all essential terms of a plant hire agreement. The equipment was described, the period of hire was expressed to be from 25 September 1997 to 25 November 1998 and the hire rate was expressed as –
"$95AUD/working hr (Keinzle measure)
$60AUD/standby hr"
The document provided for the obligations of Thiess in respect to the use of the plant and included an obligation to provide an operator of each truck, daily servicing and "tyre repairs (damage only)".
Howtrac's obligations were also specified which included scheduled services and the provision of tyres.
The document also provided that the port of arrival was Auckland and provided for the payment of costs of moving the plant to the site and at the conclusion of the hire back to Auckland.
In addition, the document provided for payment terms which were detailed in "special conditions attached".
It was an express term that the plant had to be available for a minimum of 100 hours work per week on the basis that there would be two ten hour shifts for six days each week.
The special conditions also stated the rate of payment and provided for $60 per hour for standby hours. The special conditions in addition to providing for payment also contained other terms, including insurance, damage caused by operator error to be paid for by Thiess, the term of the agreement and that plant hire would not accrue when the plant broke down or was not available for work.
The special conditions provided for a particular payment regime during the course of the job and a table was provided to show how the payment regime was to operate.
The payment was based upon minimum hours per month being 250 hours. On that basis the minimum guaranteed hours for all six units was 21,000 Keinzle hours which was calculated by 250 hours per month for six units for 14 months.
What the payment regime established was that if 250 hours were not worked in any one month then the difference between the working hours and the 250 minimum hours per month would be standby and the working hours would be charged at $95 per hour and the standby hours would be at $60 per hour. What the table demonstrated was that if in a later month a greater period than 250 hours was worked, the difference between the greater number of working hours and 250 would represent a credit for standby which would be allowed at $60 per hour. In the table, in the first month 50 standby hours were charged at $60 per hour and in the third month where there were 50 working hours greater than 250 worked the amount charged in the first month, namely, $3,000, was credited against the payment in the third month.
This was the payment regime that the parties agreed to.
In my opinion the wording of the contractual document makes it clear that it was the presumed intention of the parties that a hire rate would be paid for standby hours but not fully paid during the course of the performance of the contract. The payment regime did not require the payment of standby hours where a truck worked greater than 250 hours per month but it is silent as to what was to happen at the end of the contract. The table stopped at the end of six months.
On the other hand, the contractual obligations made it clear that standby should be paid.
This is made quite clear on a plain reading of the words on the first page of the facsimile reinforced by the fact that it was agreed that there be a minimum guaranteed hours of hire which were specified as 21,000 working hours aggregate.
When the term is married up with the payment terms it is clear that the parties drew a distinction between use of the plant and the rates payable and payment during the 14 months of the contract.
In my opinion there is nothing intrinsically inconsistent with the specification of hire rates and the payment regime and the payment regime does not stand in the way of a final payment taking into account all standby hours.
In my opinion the presumed intention of the parties was as at the date when the contract was concluded, namely, 21 August 1997 that Howtrac was entitled to be paid for the standby calculated at the end of the contract.
In my opinion this presumed intention accords with the commercial common sense of the transaction. This is a matter of importance in the interpretation of a commercial contract.
In considering this question, it is important to consider the expectations of the parties as at 21 August 1997 and the likely circumstances of the performance. One must guard against hindsight.
The agreement was for 14 months. The shifts during which the plant had to be available were two by 10 hours per day, six days per week. Both parties contemplated and expected that the plant would be used in a working mode and not standing idly. In those circumstances the expectation was that each truck would work in excess of 250 hours per month and in a perfect world, each truck could have worked 480 hours per month. But on a large project such as this dam project, there was always the possibility that problems would be encountered during the works which would have the effect of reducing the use of the plant for a period.
The minimum 21,000 working hours could have been achieved within an eight months' period. If the reasonable bystander had put a question to the contracting parties on 12 August 1997 that if the works progressed for eight months without interruption and then there was a period of some two months during which the plant was rarely used, would it be expected in those circumstances that Howtrac would be paid standby? In my opinion the parties acting reasonably at that time would have both answered in the affirmative. Both expected the works to continue without interruption and both could not deny the possibility of an interruption which may be substantial which would affect Howtrac's ability to derive income from the hire of its plant. These large trucks were sent to New Zealand. Howtrac's business is located in Victoria. It would hardly be in its commercial interest to not expect to be paid standby time when its trucks were standing idle for extensive periods of time. It is not as if it could take back the trucks and re-hire them for a short period to someone else.
Mr Collinson in submissions was unable to deny that if that question had been posed the most likely answer was in the affirmative from both parties.
Mr Collinson submitted that there are words in the contractual documents which show that Thiess was not liable to pay for standby hours and that the reference to standby hours was only relevant to a payment regime.
In support of that submission he said that since the parties had a minimum guaranteed hours for working hours then it would follow that there should be a minimum entitlement to non-working hours. There was no such term. I do not accept the logic of the submission. There had to be a minimum working period to ensure the financial viability of the agreement to Howtrac. He submitted that it was odd that the parties should specify only minimum working hours where there was an additional entitlement to standby hours. I have no difficulty with the proposition that commercial common sense dictated that Howtrac would be entitled to an additional entitlement to standby hours.
He further submitted that the guaranteed entitlement of 21,000 working hours effectively guaranteed payment for standby hours on the basis that if only 10,000 working hours were recorded Howtrac would be paid for the additional 11,000 hours at operating rates. He submitted that having agreed upon the entitlement to idle time, i.e. making up to 21,000 hours, there was nothing in the contract to suggest a further entitlement to idle time. But that is not so. There was a minimum working period. This did not in any way affect entitlement to standby time.
He submitted that it was an illogical consequence that standby hours were credited during the payment regime and yet they were to be paid at the termination of the contract. I do not share his view at all. A payment regime was put in place no doubt to ensure payments were made each month at a minimum level but there is nothing in the payment regime which in any way is inconsistent with full payment for standby time at the end of the job.
He also drew attention to the term of the agreement concerning a spare truck. The term was as follows –
"In the event that a spare truck is placed on site to ensure high availability, the aggregate minimum hours guaranteed will remain unchanged, however the cost of establishment and disestablishment will be noted for the main trucks, set out in the special conditions attached hereto."
He submitted that it would be a ridiculous consequence if standby time was paid for the whole period for this spare truck. But that is not what the term provided for. It means that if one of the original six trucks was out of action then there was a substitute for it and no doubt the normal terms and conditions would then apply to the spare truck as a substitute. But there is no warrant for the suggestion that Howtrac could charge standby hours for this truck. Howtrac did not submit it could.
It follows that the plaintiff Howtrac is entitled to recover the following amounts on its claim –
(i) Hire charges -
$823,560.80
(ii) Tyre wear/damage -
$137,292.72
(iii) Hungry boards issue -
$5,000
(iv) Damage/repair -
$48,851.25
(v) Servicing costs -
$13,230
(vi) Site mobilisation costs -
$17,011.79
(vii) Miscellaneous costs -
$2,417.85
Total:
$1,047,364.41
Deduct 10% NRCWT
$104,736.44
$942,627.97
Add 12.5% GST
$117,828.49
TOTAL
$1,060,456.46
Counterclaim by Thiess
Thiess counterclaims seeking $548,893.61 damages for breach of contract. It alleges that Howtrac breached terms of the plant hire agreement by not permitting the installation of the hungry boards.
Howtrac issued its writ on 24 December 1998.
At no time prior to that date, did Thiess allege that it had a claim for damages against Howtrac over the hungry boards issue.
Thiess made a decision in May 1998 not to proceed with the request for installation of the hungry boards. At that time there was an issue between the parties as to the amount of costs incurred by Howtrac in investigating the proposal and the obligation of Thiess to pay the expenses. By May 1998 there was in place an agreement pursuant to which Thiess agreed to pay up to $5,000 for expenses. The issue at that time concerned the amount of expenses, Howtrac claiming a sum of $9,142.
That was the only issue in respect to the hungry boards proposal that was in dispute between the parties.
Between August and October 1998 much correspondence passed between the parties in an endeavour to resolve the outstanding financial issues between them.
In a letter dated 15 October 1998 Mr Prater wrote to Howtrac and asserted –
"Hungry Boards
Our offer for settlement of this issue was $5,000AUD. This is reasonable and adequately compensates Howtrac for its Actual costs in pursuing this issue."
Eventually on 19 November 1998 Howtrac submitted its final invoice setting out the claims it made under the contract. The claims are those made in the present litigation.
On 4 December 1998 Mr Prater responded. He dealt with each claim separately. With respect to the hungry boards claim he again asserted the previous offer of settlement of the issue which he asserted was more than reasonable.
He expressed his view as follows –
"We stand by our previous offer for settlement of this issue ($5,000AUD) which was more than reasonable given the less than enthusiastic nature Howtrac displayed in assisting Thiess with this issue."
At this time the last progress certificate No. 15 had been prepared by Thiess and it revealed that Howtrac was owed A$241,926.13. The certificate was not approved by Mr Prater and not sent to Howtrac.
In the letter of 4 December 1998, Mr Prater after discussing the various heads of claim did a calculation and asserted that the amount outstanding to Howtrac was $236,026 and his letter concluded –
"We look forward to your early acceptance of the above to enable a final progress payment to be made."
The amount of the final certificate has never been paid. Thiess was using the amount to seek a compromise of all the outstanding issues. It can be seen that the parties were somewhere in the vicinity of $800,000 apart.
In addition the letter carried a threat in the following terms –
"We further note that Thiess Contractors (NZ) Limited has shown remarkable restraint to this point in not choosing not to pursue Howtrac for the full impact of its failure to perform in accordance with the contract we cite:
· Unavailable hours well in excess of the 800 offered as settlement of minimum hours.
· Delay in contract completion and corresponding additional costs resulting from the large amount of unavailable hours.
· Additional operational costs through mismatched/undersigned fleets.
· Other costs noted or implied in various items of contract correspondence."
None of the alleged failures by Howtrac to perform the contract referred to the hungry boards' issue. Mr Prater suggested in evidence that the last dot point covered the complaint. I do not accept his evidence. It does not convey to the reader of that letter that there is any issue concerning hungry boards and when the letter is read in context the only hungry boards issue raised referred to the amount of expenses incurred by Howtrac in investigating the issue.
On 15 March 1999 Thiess delivered a defence and counterclaim and one of the claims made was that in breach of the agreement Howtrac wrongfully refused to allow Thiess to fit hungry boards "which refusal resulted in a reduction of 711 working hours" and claimed $500,889. In addition a number of other claims were put, namely, unavailability of trucks, late delivery, and tyre costs. All told the total cross‑claim was NZ$1,497,239.
An amended defence and counterclaim was delivered on 23 July 1999 and the same claims were made.
In a further amended defence and counterclaim delivered 17 January 2000 Thiess dropped the claims made in the counterclaim save and accept for hungry boards claim.
In April 1999 Howtrac sought summary judgment claiming the amount owed under the last progress certificate. At this stage Thiess had four separate claims.
Messrs Prater and Sparkman swore affidavits in opposition. Mr Prater swore that Thiess had a substantial counterclaim against the plaintiff and he summarised the four counterclaims. His affidavit was sworn 5 May 1999. Mr Sparkman swore an affidavit the following day in which he stated that he had read Mr Prater's affidavit and confirmed that the facts stated therein "are true and correct in every particular".
Both men were cross-examined in relation to the cross‑claims, their affidavit and the fact that all the cross‑claims were dropped other than the claim for the hungry boards. I reject their evidence that the decision not to proceed with the balance of the claims was due to a decision being made that too much time would be taken up in seeking to establish the claims.
It is only necessary to examine one claim to show that the statement was false. One of the claims alleged that Howtrac was in breach of the agreement to deliver the six trucks to the project within the time specified in the contract and it was asserted the project was delayed by four weeks. It was asserted and sworn to by both Mr Prater and Mr Sparkman that Thiess "incurred further loss and damage which has been calculated at $288,273."
If that claim had any merit it would be extremely easy to establish. The facts showed that it had no merit whatsoever. The contractual terms concerning delivery were complied with and there could be no suggestion that there had been any delay brought about by late delivery.
The allegations concerning the counterclaims and in particular the swearing of the affidavits in opposition to the summary judgment application reflect on the credibility of both Mr Sparkman and Mr Prater. Both were responsible for giving instructions in relation to the litigation.
In Smith v Littlewoods Ltd (1987) AC 241, Lord Goff of Chieveley (at 280) described the judicial function as follows –
" … The judicial function can, I believe be epitomised as an educated reflex to the facts."
This is not the first case and I have no doubt will not be the last case in which a defendant faced with an arguable case against it trawls over the months of relationship between the parties and with the benefit of hindsight and legal assistance comes up with the view that there are claims available to it which it can use as a tool to force a settlement.
In the circumstances of this case where the evidence reveals that some of the cross‑claims were an afterthought one cannot help but approach the claims with a degree of scepticism.
Taking into account the history of the cross-claim concerning the hungry boards, my initial educated reflex to the claim was that it had little substance.
My initial view was bolstered by a consideration of the pleading and after hearing the evidence my educated reflex has been confirmed.
The counterclaim has no substance and should not have been brought. It was obviously brought as a tactical device. The evidence failed to establish any basis for it.
The counterclaim is based on alleged implied terms. Paragraph 17A of the further amended defence and counterclaim provides –
"17A. Further or alternatively, there were implied terms of the agreement that:
(a)each party agreed to do all such things as were necessary on its part to enable the other party to have the benefit of the agreement;
(b)each party would comply with reasonable requests made by the other party;
(c)each party was under a duty to act reasonably and in good faith in responding to requests made by the other party;
(d)Hungry Boards would be fitted to each Cat 773B dump truck as required in order to meet its payload capacity.
PARTICULARS
The terms pleaded in sub-paragraphs (a) and (b) were implied by law.
The term pleaded in sub-paragraph (c) is implied by law and to give business efficacy to the agreement.
The term pleaded in sub-paragraph (d) was implied by custom and usage in the civil engineering industry and to give business efficacy to the Agreement."
The trucks which were delivered by Howtrac to Thiess fitted the description in the plant hire agreement and were suitable for the purpose for which they were supplied. There was no express term that Thiess was entitled to fit hungry boards. Mr Collinson accepted that there was no express term to that effect.
It is appropriate to consider the implied term pleaded in paragraph 17A(d). It is said that that term was implied by custom and usage in the civil engineering industry and to give business efficacy to the agreement.
In construing a contract to determine whether it contains an implied term to give business efficacy to the agreement, the principles of law stated by the Judicial Committee of the Privy Council in BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1997) 180 CLR 266 apply.
The majority in their advice at p.282 said –
"Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective with out; (3) it must be so obvious that it 'goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
In Byrne v Australian Airlines Ltd (1995) 185 CLR 410, at p.422 Brennan CJ and Dawson and Toohey JJ considered the principles of law relating to the implication of a term in a contract. Their Honours noted that the principles stated by the majority in the Privy Council decision may be too rigid in cases where there is no formal contract. They agreed with Deane J that in the circumstances where there was not a situation where the parties had attempted to spell out the full terms of the contract, "a court should imply a term by reference to the imputed intention of the parties if, but only if, it could be seen that the implication of the particular term is necessary for the reasonable or effective operation of the contract of that nature in the circumstances of the case."
In my opinion the parties here have attempted to spell out the full terms of their contract.
But in any event applying either test in my opinion the defendant Thiess has not established that the term relied upon was implied in the contract. In my opinion the term was neither necessary to give business efficacy to the contract, in other words the contract was effective without it, it is not so obvious that it goes without saying and in my opinion it was not reasonable and equitable given the bargaining positions of the parties. Further, it was not a necessary term for the reasonable or effective operation of the contract bearing in mind the nature of the contract.
If it is relevant to the issue whether a contract contains an implied term to consider the conduct of the parties, the parties clearly by their conduct accepted that Thiess did not have a right to install the hungry boards. Thiess was not prepared to use the hungry boards without the permission of Howtrac.
The law concerning the implication of a term into a contract by reason of trade customer or usage was exhaustively considered by the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd 160 CLR 226.
The High Court (at 236) summarised the propositions of law. They are –
"(1)The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact;
(2)There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract;
However, it is not necessary that the custom be universally accepted, for such a requirement would always be defeated by the denial by one litigant.
(3)A term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement;
(4)A person may be bound by custom notwithstanding the fact that he had no knowledge of it."
As the High Court pointed out at p.237 sometimes the implication of a term does not depend upon the parties' intention actual or presumed but on broader considerations but these observations are concerned with cases where the courts have implied a term into particular types of contracts and the terms really amount to a rule of law. However, in the normal case it is necessary to talk of the presumed intention of the parties.
As the court said –
"In matters of this kind, that phrase means no more than that the general notoriety of the custom makes it reasonable to assume that the parties contracted on the basis of the custom, and that it is therefore reasonable to import such a term into the contract."
It is a question of fact as to whether or not custom or usage implies a term into the contract. The evidence must be something more than a witness saying that he was of the view or opinion that custom or usage would imply a term. As Isaacs J said in Whitton v Falkiner (1915) 20 CLR 118 at 127 –
"It is not for a witness, but for the court, to say whether the article should be properly included under the statutory designation. It is not a matter of scientific or trade opinion whether they ought to be so included. Trade usage and commercial appellation are matters of actual fact and the evidence properly admissible on such a head is as to what merchants and others did at the date of the act in fact call such articles."
Evidence concerning what was customary in a trade or industry must show that it is accepted that in a contract for plant hire there is always a term to the effect that the hirer may modify the vehicle to increase its load capacity. The evidence must show that the custom is so well-known and acquiesced in that everyone making the contract would assume that to be the position.
The evidence put forward by Thiess was through a Mr Colin MacDonald who gave evidence as to his experience whilst working for a number of large contracting companies. This involved responsibility for company owned equipment and hired equipment. He said his duties included responsibility for contract documentation. Whilst his evidence was that often hungry boards were attached to the sides of dump trucks to increase the volume of material it also showed that on all occasions the fitting of the hungry boards was the subject of negotiation between the owner and the hirer and invariably conditions were attached to the installation. The evidence did not establish any custom or trade usage in the industry to the effect that a term was implied that hungry boards could be fitted. The evidence clearly established that it was a matter of negotiation between the parties and invariably installation based upon conditions.
In addition reliance was placed upon the evidence of Messrs Nicholson and Sparkman as to their experience.
Mr Nicholson expressed an opinion that it was the practice in the industry to weigh and fit hungry boards. He had had no experience with the provision on 773B dump trucks. Further, there was no evidence that he had been involved in contract negotiations concerning the hiring of such trucks. In my opinion his evidence does not establish any trade usage.
Mr Sparkman's evidence carries the matter no further in that he gave evidence as to his experience in which hungry boards had been fitted to trucks. His evidence does not establish a trade custom or usage to imply a term as pleaded.
In my opinion the defendant Thiess has not established that the term pleaded by it, namely, that hungry boards would be fitted to each dump truck as required was implied by trade usage or custom.
That brings me to the implied terms set out in paragraph 17A(a), (b) and (c) to the effect that the parties to an agreement would do all things necessary to enable the other party to have the benefit of the agreement, that each party would comply with reasonable requests and that each party was under a duty to act reasonably and in good faith in responding to requests made by the other party.
The authorities do establish that the terms pleaded by Thiess usually are implied into contracts.
For example, it is a general rule of construction that a duty to co-operate in the doing of acts which are necessary to the performance by the parties or one of them of the obligations under the contract will be usually readily implied. See Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596.
But the term does not entitle a party to require another party to agree to a variation of the contractual obligations.
As was said in the Secured Income case, supra, where the acts in question, though necessary to entitle the other party to the benefit of the contract, are not essential to the performance of the obligations and are not fundamental to the contract, then the implied term has no operation. That is the position here.
In certain circumstances there is an implied term that the contracting parties will comply with the reasonable request of the other party. The rule was stated by Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251 at 263 where His Lordship said –
"I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect."
Quoted with approval in Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 at 297.
Again it must be emphasised that there must be a term in the contract to the effect that something shall be done and if that is the position then each party agrees to take steps to facilitate the carrying out of the particular act.
That is not the case here. Thiess were seeking co-operation not to perform the contract but to vary it.
The law has come as far as holding that a duty of good faith both in performing obligations and exercising rights may be implied in a contract.
See Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 369.
But again the obligation of good faith applies in respect to an obligation to perform or in respect to the exercise of a right. That is not the case here. There was no obligation to perform pursuant to the contract concerning the hungry boards issue.
What in effect is being put on behalf of Thiess is that by reason of one or all of these implied terms there was an obligation upon Howtrac to agree to a variation of the agreement. All these implied terms are concerned with the performance of obligations established by the contract or when rights given by the contract are exercised.
On a proper analysis of the facts here neither party was exercising any obligation and neither party was exercising any right given to it by the contract. What Thiess wanted to do was to vary the plant hire agreement to enable the six trucks to be modified to take a greater volume of material. Clearly it had no right to modify the contract and accordingly what it was seeking was a variation of same. None of the implied terms entitle a party to demand that the other party agree to a variation. Further, the implied terms did not oblige Howtrac to agree to any variation.
In any event I am not persuaded on the evidence that Howtrac did not act reasonably or in good faith or that it did not comply with reasonable requests made by Thiess.
The thrust of the complaint made by Thiess is that Howtrac placed impediments in the way of the parties reaching common ground by its conduct in taking time to obtain reports, its dilatory approach to the insurance question, the failure to send correspondence to Thiess expeditiously and a general failure to genuinely co‑operate in trying to resolve the issue. In my opinion Howtrac acted responsibly throughout in its endeavours to consider the proposal. There was a serious insurance question. It was never resolved satisfactorily. At one stage Thiess put up a proposition that it would take over the insurance but this was not finalised before Thiess made a decision not to further proceed.
There was an easy solution to the issue which was never ever put by Thiess. If Thiess thought that Howtrac did not have a bona fide concern over the insurance, then it could have offered unequivocally to provide an indemnity to Howtrac that if hungry boards were fitted and any damage occurred to Howtrac's property Thiess would pay the full amount of the damage not covered by insurance. That proposition was never put. The failure to do so reinforces the conclusion that the issue raised by Howtrac was a genuine one and that in the circumstances it was entitled to take the stand that it did. Thiess was not prepared to take the risk.
Throughout Howtrac disavowed that there was any economic reason why it did not agree. Clearly the provision of hungry boards would have an economic impact on both parties. The use of the hired equipment for a lesser period would mean a saving to Thiess and a reduction in income to Howtrac. As there was no contractual right in Thiess to unilaterally modify the trucks then it would have been perfectly open to Howtrac to have refused the variation of the agreement on pure economic grounds. The parties negotiated a bargain and the bargain established the rights and duties. Howtrac was under no duty to agree to a variation which would have some economic impact on it.
Thiess fails in its counterclaim. None of the terms pleaded by it have been established. In my opinion there was no substance in the counterclaim at all.
On the third day of the trial the court raised with Mr Collinson whether there was any merit in the counterclaim if the court came to the opinion that there was no term implied by custom and usage or to give business efficacy to the agreement. It was put to Mr Collinson that the other implied terms could not lead to an obligation on one party to agree to a variation of the contract.
Despite that clear indication, Mr Collinson after giving the matter consideration over the weekend informed the court that Thiess wished to proceed with the claim. He accepted in final address that the implied terms did not oblige Howtrac to agree to a variation.
Neither the facts nor the law supported the counterclaim and in my opinion it should not have been brought. It has resulted in considerable work, substantial documentation and consumed time at trial and during submissions.
Conclusion
The plaintiff is entitled to succeed on its claims and the cross-claim of Thiess is dismissed.
The claim set out in the Particulars of Special Damage was calculated on the total hire charges together with the other claims, less paid to date and a total which was subject to New Zealand revenue laws.
The amount that the court has determined is slightly different to the net amount claimed in the particulars of loss and damage. The difference is found in the hire charges and it will be necessary for the parties to analyse the figures to see what is the correct amount for the hire charges consistent with these reasons.
I will hear the parties on the form of order and costs.
Howtrac has foreshadowed that it will seek costs on a solicitor client basis.
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CERTIFICATE
I certify that this and the 75 preceding pages are a true copy of the reasons for judgment of Gillard J of the Supreme Court of Victoria delivered on 21 December 2000.
DATED: this twenty first day of December 2000.
___________________________________
Associate
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