Interceramics Australia Pty Ltd v Quadric Pty Ltd
[2003] VSC 142
•9 May 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4145 of 1998
| B E T W E E N: INTERCERAMICS AUSTRALIA PTY LTD | Plaintiff |
| v | |
| QUADRIC PTY LTD (ACN 005 245 992) | Defendant |
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JUDGE: | BYRNE J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 26, 27, 31 March; 1, 2, 3, 7, 8, 9 April 2003 | |
DATE OF JUDGMENT: | 9 May 2003 | |
CASE MAY BE CITED AS: | Interceramics Australia Pty Ltd v Quadric Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 142 | |
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CONTRACT – Building contract – terms of contract – whether fixed price agreed – variations – contra charges.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr W.J. Martin Q.C. and Mr P. Fyfe | Jackson McDonald |
| For the Defendant | Mr J. Shaw | City Pacific |
HIS HONOUR:
The construction of the Crown Casino on the south bank of the Yarra River in the mid-1990s was an enormous project carried out at great expense and subject to severe time constraints. Part of it involved the construction of a hotel of which the upper floors were fitted out in a very luxurious style. The subcontract for the fit out of floors 32 to 39 was awarded by the builder, Grocon Pty Ltd, to the defendant, Quadric Pty Ltd. Quadric, in turn, sub-let to the plaintiff, Interceramics Australia Pty Ltd, the contract for the provision of stone work for these floors. This case concerns the amount payable by one or other of Quadric and Interceramics to the other as a consequence of the final accounting of the stone work subcontract.
The size, quality standards and time constraints for the project, including the stone work subcontract, had a number of consequences which bear upon this litigation. First, the size of the project meant that there were no local trades available for the work; such of them who might have been available were already engaged on other parts of the project. Quadric was, therefore, obliged to engage an out-of-state contractor. Interceramics was based in Western Australia and this meant that its costings had to make allowance for its remoteness. Second, the exceptionally high quality and the complexity of the design meant that materials and work which might in other circumstances be acceptable were liable to be rejected, and variations in texture, grain and colour of the stone were not tolerated. The consequence of this was that the contractor was obliged to make allowance for this in the price. Third, the time constraints meant that the design was incomplete when the contracts were let. As will be seen, this had the consequence that anything in the nature of a competitive tender for a fixed price contract was not available.
Notwithstanding the voluminous pleadings and court book, the issues in this case were few in number and fairly narrow in compass.
First and foremost was the issue as to the terms of the contract or contracts, including the basis for assessing payment for the stone work. Interceramics contended that it entered into two contracts, one for the stone work for levels 32 to 37 for which the price of $3.1M was agreed.[1] The second contract was for the two remaining floors, levels 38-9, for which no fixed price was agreed. It is said that a fair and reasonable price for this and some variations is $3,029,480[2] giving a total contract price of $6,129,480. The amount paid was only $4,791,182[3] so that the balance due to Interceramics is $1,338,298[4]. The position of Quadric on these matters was that no fixed price was ever agreed to for any part of the work. The Interceramics subcontract was made "back to back" with Quadric's own contract with Grocon and, under these two contracts, the amount payable was the amount assessed by Rawlinsons (Vic) Pty Ltd (“Rawlinsons”), the quantity surveyor for the Crown Casino project retained by the developer, Hudson Conway.[5] Rawlinsons assessed the value of the stone work performed for levels 32 to 39 in the sum of $4,314,662 so that Quadric has overpaid Interceramics by $476,520.[6] In its counterclaim Quadric seeks judgment for this sum plus contra-charges totalling $125,819.
[1]Statement of claim para. 4.
[2]Statement of claim para. 13.
[3]Statement of claim para. 14, defence para. 14.
[4]Statement of claim para. 15.
[5]Defence para. 7.
[6]Defence para. 36.
Before I turn to the facts of this case it is necessary that I make a preliminary remark about some unusual features of the evidence presented by the parties. As is customary, evidence-in-chief was by witness statement. Interceramics filed and served written statements of seven witnesses. Nevertheless, only three were called. Of the other witnesses, Allen David MacKinnon was the General Manager of Interceramics until April 1996 and Vincenzo La Cava was and is a director. As will be seen, each of these men is said to have played a significant role in the events which give rise to this litigation. On matters upon which they might have given evidence and which are in controversy I shall draw an O'Donell v. Reichard[7] inference adverse to Interceramics.
[7][1975] VR 916.
The witness statements filed and served on behalf of Quadric suffered from many deficiencies. Apart from quantities of irrelevant material, they often tended to recount the effect of conversations rather than what was said. Much of this was, therefore, unhelpful, if not inadmissible. Furthermore, in many respects, these witness statements, as drawn or following successful applications to strike out passages, simply failed to deal with matters in issue. Where the objection was one as to form, I granted leave to counsel for Quadric to lead oral evidence from the witness to cure the difficulty, but this leave was not always exercised. The contra charges counterclaim provides an example of an issue not wholly dealt with. When counsel for Quadric was cross-examining an Interceramics witness about these on day 3 of the trial, his attention was drawn to the fact that there was nothing in his witness statements to prove them. He was warned to give consideration to this before Interceramics closed its case. Late on day 4 of the trial, after Interceramics had closed its case, counsel for Quadric sought to fill this gap by seeking leave to call a Grocon foreman to give oral evidence. I ruled that, in the circumstances of this case, including the decision of counsel for Interceramics not to call a number of witnesses, the granting of leave at that stage would inflict incurable and unfair disadvantage on Interceramics and leave was refused.
The Stone Work Subcontract
This subcontract was negotiated in such a way and in such haste that it is difficult to say with any precision when exactly it came into existence. Grocon had on 19 February 1996 issued its order for Quadric to carry out the fit out including stone work for levels 32 to 39. The design was not complete. The order provided that the price was to be negotiated progressively with Crown's quantity surveyor, Rawlinsons. The work, however, was to proceed immediately.
Quadric says that the stone work subcontract was made on or about 2nd April 1996 and that it dealt with all eight levels. As pleaded, this agreement is said to be partly in writing, partly oral and partly to be implied. The date is that of a fax from Quadric's projects manager, Malcolm David Alexander, to Interceramics marked for the attention of Mr MacKinnon and enclosing a letter of 29 March 1996 and the Quadric purchase order No. 5802 also dated 29 March 1996. The order is in the following terms:
"To acceptance of your tender submission dated 19/02/96 for supply, delivery and installation of stone walling, flooring and joinery items for Melbourne Casino project based on drawings, specification, finishes schedule and subcontract agreement between Quadric Pty Ltd and Grocon Pty Ltd.
Rates to be determined between Interceramics, Quadric Pty Ltd and Rawlinsons."
The letter of 29 March is in these terms:
"We refer to your letter of submission dated 19th February, 1996 and subsequent discussion between our two companies regarding the above project.
We have pleasure in hereby appointing your company as the sub-contractor to supply all necessary labour, material and equipment to carry out the stone works as described in Contract Documents including, but not limited to, drawings, specification, finishes schedule and the sub-contract agreement between Quadric Pty Ltd and Grocon Pty Ltd, the conditions of which will form the basis of the contract between our two companies.
By this letter your company is authorised to proceed immediately with procurement of materials and execution of the above works.
As discussed, rates are to be agreed progressively between our two companies and the project Quantity Surveyors, Rawlinsons.
All Progress Claims are to quote our Purchase Order No. 5802/1440 and are to be lodged no later than the 19th of each month and you will be required to provide with each claim current documentation for contributions made to Long Service Leave, Redundancy and Building Union Superannuation Schemes for all workers involved with the Casino site.
We enclose our Purchase Order and a copy of the Sub-contract Agreement between ourselves and Grocon Pty Ltd.
We look forward to a mutually successful association on this prestigious project.”
Mr Alexander said that this letter, purchase order and a copy of the Grocon-Quadric Subcontract were also mailed to Interceramics at the same time. In fact, part only of this subcontract was enclosed: an incomplete form of contract not including the schedules or the specifications. Indeed, by this time, it seems that Mr Alexander did not have a copy of any construction drawings, details or specifications for the work which Quadric was to perform. Representatives of Interceramics had come to Melbourne and inspected the site, had had some discussions with Mr Alexander and the Quadric estimator, Edwin Thomas Frost, regarding the nature and extent of quantity of the work, but nothing more. The Interceramics letter of 19 February 1996, which is referred to, was not a tender or an offer in any legal sense. In these circumstances, the fax of 29 March with its enclosure is more like a non-contractual letter of intent rather than a contract. I conclude, therefore, that, as at 2 April 1996 when the letter of 29 March 1996 and the enclosed order and contract were received by Interceramics, no binding contract had been entered into.
In the months which followed, the drawings were developed by the architects and stone samples approved. On 3 April a number of construction drawings were issued. On the following day, Richard Ho, an engineer then employed by Interceramics as a contracts manager, submitted a number of stone prices to Mr Frost. For present purposes, I record that the quoted price for the supply only of a 20mm slab of Papiro stone ex-Perth was $135.00. I select this type of stone, which was identified in the specifications as S129, because it was adopted at the trial as typical for comparison of prices, although it was not the only type of stone used in the Interceramics subcontract. It does not appear that any response was made to this quotation.
Mr Ho on 12 April 1996 calculated from the drawings his price for performing the stone work on levels 32 to 37, the only levels sufficiently documented at this time to price. Again, selecting as typical, his price for S129 stone used on the floor of bathroom 11, he calculated the rate per square metre as follows:
Material $135.00 Cutting $75.00 Fixing materials/sundries $10.00 Labour (site fixing) $120.00 Total $340.00 He calculated the quantity required as 7.63 m2, added 25 percent for wastage and rounded the quantity off at 10 m2, giving a price for this part of the work as $3,400. A like calculation was made for all the stone in bathroom 11, giving a total of $18,780. To this he added approximately 20 percent, presumably for overheads, preliminaries and profit, and included in his undated quotation for this type of bathroom the sum of $22,464. The total amount quoted for levels 32 to 37 in this undated quotation was $2,982,738.
This quotation was the subject of discussions between the parties on 28 April following which Mr Ho revised his prices upwards so that the type 11 bathroom was on 3 May 1996 quoted at $27,495, and the total price for the eight lower levels became $3,655,149.
In response to Quadric’s request on 3 May for a detailed priced bill of quantities to enable the rates to be quantified and verified, Mr Ho, on 6 May 1996, produced a priced bill which showed the total cost of the type 11 bathroom to be $26,759 and the total price $3,655,149, as before. Included in this total price of $3.6M were three items:
Overtime allowance $80,000.00 Contingencies $30,000.00 Preliminaries $208,237.07 Total $318,237.07 The rate per square metre for S129 Papiro floor slabs in this bill was $493.24. This rate was made up as follows. I include his earlier rate of 12 April for comparison.
12 April 7 May Materials $135.00 $95.00 Delivery to site 0.00 $5.00 Cutting $75.00 $50.00 Site labour $120.00 $150.00 Fixing materials $10.00 $15.00 Total $340.00 $315.00 Overhead 20% $68.00 $63.00 Profit 0.00 $115.00 (36.5%) Total $408.00 $493.00
It seems that this price of $3.6M was unacceptable to Quadric and Quadric was unmoved by Mr Ho’s offer to reduce it by $300,000 to $3,355.149. In his letter of 16 May 1996, Mr Alexander described the 6 May quotation as exorbitant. On 20 May, Interceramics reduced its price further, to $3,230,00. Even this was considered by Quadric to be too high and, on the same day, Mr Frost told Mr Ho that they were wasting each other’s time. At this stage, it appeared that Quadric saw itself as at liberty to award the subcontract to another stone supplier, and Interceramics raised no protest that this might be a breach of any contract.
On 21 May 1996, however, the impasse was broken in telephone conference between Mr Alexander, Mr Frost and Gregory John Dollman at Quadric’s office in Melbourne on the one hand and Vincenzo La Cava on behalf of Interceramics in Italy. All of these persons other than Mr La Cava gave evidence. I find that, in this conversation, Mr La Cava reduced the Interceramics’ price again, this time to $3.1M, saying that this would mean a saving of $70,000 on levels 38 to 39 which had not yet been priced. This was acceptable to Mr Alexander and he told this to Mr La Cava. On this basis, it was agreed that Interceramics might proceed with the work to all levels 32 to 39. That day he confirmed this by letter and directed that Interceramics should proceed to procure the stone:
“Further to our Letter of Intent dated 29th March, 1996, and telephone conversation of earlier today, we reaffirm our authorisation for you to proceed with the sourcing and procurement of the selected stones for this project subject to the architects final approval of all samples.
We confirm your advice that you will immediately prepare and dispatch by air the outstanding samples. We refer the attached summary indicating the status on each type of stone.
As Greg Roberts of Grocon Pty. Ltd. advised earlier today, you must now indicate whether you can obtain the outstanding stones in accordance with the architects specification. That is, that further shipments of bulk stone will match the samples provided as the end quality will be closely monitored by the architects.
We also confirm your revised contract value of $3,100,000.00 with the likelihood of further savings of $70,000.00. Please arrange for your office to resubmit the Bill of Quantities together with your intended schedule of works showing how completion will be achieved by end October, 1996.
We are sending Richard Ho another copy of the main construction programme to assist in this regard.
Naturally, we anxiously await the samples and look forward to seeing you on your return to Australia.”
I find that, in this conversation of 21 May, Interceramics and Quadric entered into an agreement to perform the stone work for levels 32 to 39. There was before me a dispute as to the price for this. Counsel for Quadric contended that the price for all levels remained to be determined by Rawlinsons in due course. I think not. In the Quadric order of 29 March it was said that the rates were “to be determined between Interceramics, Quadric Pty Ltd and Rawlinsons”. I have concluded that no agreement was then made. The events which followed, culminating in the telephone conference of 21 May, show that the contracting parties themselves fixed the total price for the lower levels so that the role of Rawlinsons became only that of approving the priced bill which would make up that total price. The reference to the agreed sum including preliminaries and to the saving of $70,000 to be had for the two upper floors, suggest that this price, and the rates which were to form its basis, would be used for the pricing of the stone work, which was not included in the $3.1M price, together with any variations. Accordingly, Mr Alexander wanted Interceramics to prepare a fresh priced bill of quantities showing these new rates so that they could be checked and approved. Accordingly, Mr Ho on 23 May prepared a revised priced bill of quantities showing as its total the agreed sum of $3.1M. He achieved this, first, by deleting from the $3.6M bill the three items for overtime, contingencies and preliminaries which brought the total down to $3,336,912. He then reduced the rates for the Papiro stone, S129 floor slabs and S130 wall slabs, by $66.70 so that they became $426.54 and $399.40 per square metre respectively. All quantities and the other rates remained unchanged. This meant that the price for the S129 Papiro floor slabs which had been $408 in the 12 April quote and $493.24 in the 6 May price bill was now $426.54.
Mr Ho said that he sent this bill to Mr Frost on 23 May and again on 29 July 1996. He said, too, that from time to time in the following months he discussed this bill with Mr Frost. Mr Frost denied this. There was in evidence a copy of the bill together with a fax cover sheet of 23 May, referring to its transmittal to Mr Frost. Mr Frost said that he did not receive it. He said that “throughout June, July, August and September, 1996 I requested many times for Interceramics to provide rated bills of quantities for levels 32 to … 39”. There was, however, no request in writing. Furthermore, Mr Frost’s reference to August and September is surprising, for Mr Alexander said he received the $3.1M rated bill on 29 July, a fact which is confirmed by a stamp on the fax cover sheet of 23 May. Of these three versions I accept the evidence of Mr Ho. His priced bill of 23 May 1996 was sent by fax on that date and again on 29 July 1996. It is, to my mind, likely that Mr Frost or Mr Alexander would have made a written request for such an important document if they had not received it soon after the 21 May request. There were in evidence many faxed letters in this period dealing with other matters such as stone quality and scheduling. Moreover, on 10 July Interceramics submitted a fixed price for levels 38 and 39 with a priced bill for this work based on Mr Ho’s 23 May rates. Quadric did not respond to this until 6 August. Finally, I rely upon my impression of Mr Ho as an honest and reliable witness.
Finally, on the question of the agreement of 21 May, I mention that my conclusion on the evidence before me accords with the position adopted by Quadric in its defence. I refer to this at this point rather than at the outset because counsel for Quadric was keen to disavow this pleading and because, in one respect at least, the pleading cannot be correct. In paragraph 6 of the defence, Quadric asserts that the agreement was made on or about 2 April 1996, that is when the letter of 29 March and the official order were received. I have found this not to be the case. In paragraph 7(b) it says that it was a term of this agreement which it calls the Subcontractor Agreement that:
“the rates payable to [Interceramics] by [Quadric] would be progressively agreed upon between the parties and upon the rates assessed by Rawlinsons as quantity surveyor for the Crown Casino Project.”
If this is intended to be a summary of the provision in the official order it is not correct. The rates were there to be determined by Interceramics, Quadric and Rawlinsons.
In paragraph 10 of its defence Quadric refers to the 21 May conversation as follows:
“In accordance with the Subcontractor Agreement on 21 May 1996 each of [Interceramics] and [Quadric] agreed that rates payable by [Quadric] to [Interceramics] for stone works for Levels 32 to 37 at the Crown Casino would be in the sum of $3,100,00.00 [should be $3,100,000].”
It cannot be correct as a matter of grammar that the rates would be a total sum agreed upon. Nor can it be correct as a matter of fact, because it was common ground that the Interceramics rates had not been prepared or submitted on 21 May. Nevertheless, the evident intent of the pleading confirms my view of the evidence which I have set out above.
The difficulty which Quadric faced, after it had agreed the $3.1M price for the lower six floors arose from the fact that it had not agreed a fixed price with its contractor, Grocon. It seems that it had agreed to carry out the fit out work, including the stone work, on the basis that it would accept in payment the amount which Rawlinsons determined to be fair and reasonable. What it sought to do from August 1996 onward was to lock Interceramics into a similar arrangement. Interceramics resisted this in the months of negotiations which followed. I should add, too, that these negotiations were conducted against a background of dissatisfaction by Quadric and Grocon and the project architect with the quality of the stone work and with the lack of progress which Interceramics was making in terms of the builder’s programme of work.
In September 1996, Rawlinsons provided a disc containing its measured quantities for the stone work for all of the levels 32 to 39, including changes which had been made since May 1996. It was accepted that these quantities were more accurate than those taken off the early drawings by Mr Ho in April 1996 and they thereafter formed the basis for the negotiations regarding the Interceramics contract price.
Mr Ho, on 11 November 1996, prepared and submitted a further priced bill based on the Rawlinsons quantities. In order to preserve the effect of the price agreed on 21 May, he extracted from the Rawlinsons quantities those items which he had included in his bill of 23 May 1996 and for which he had an agreement of $3.1M. He then readjusted the rates for this work so as to produce this agreed total. Since the Rawlinsons quantities were less than those which he had estimated, including wastage, this had the consequence of increasing his rates of 23 May. To take again by way of example, the rate for Papiro S129 floor slab, this became $540 per square metre. For the purposes of the negotiations then underway, Interceramics engaged a consultant firm of quantity surveyors, R.J. Vaughan & Associates. This firm provided a breakdown for the new rates including that for the S129 floor slabs. I will add Mr Vaughan’s breakdown of 13 December 1996 of this item to those previously provided. Mr Vaughan was not called as a witness, but his rate of $540 per square metre was accepted as fair and reasonable by Mr Keith Anderson Irwin, the quantity surveyor who was retained as consultant for this case by Interceramics, subject to the allowance for wastage. Mr Irwin would have allowed for materials and wastage only $106.25, with the consequence that the final rate would become $529.15 per square metre.
12 April 7 May 13 December Materials $135.00 $95.00 $115.31 Delivery to site 0.00 $5.00 0.00 Cutting $75.00 $50.00 $75.00 Site labour $120.00 $150.00 $223.40 Fixing materials $10.00 $15.00 $12.00 Total $340.00 $315.00 $425.71 Overhead $68.00 (20%) $63.00 (20%) $51.08 (12%) Profit 0.00 $115.00 (36.5%) $63.86 (15%) Total $408.00 $493.00 $540.65
These rates were, of course, not relevant for the pricing of the work on levels 32-37 as it stood on 21 May 1996, for the total price for this had been agreed. They were, however, adopted by Interceramics for the pricing of the variation work and for that of the work on the two upper floors.
On behalf of Quadric it was contended that they were not relevant even for these purposes, for the rates for this work were to be those determined by Rawlinsons, presumably on the basis that they were fair and reasonable rates, alternatively, on the basis that they were rates which the Court should determine were fair and reasonable. Quadric contended and Roger Goodwin, the quantity surveyor from Rawlinsons, confirmed that the rates contained in the 11 November bill were not fair and reasonable rates.
It is necessary, therefore, that I consider what was the contractual machinery, if any, for pricing this part of the stone work contract. Quadric argued that this was contained in terms of its official order of 29 March which I have set out at [8] above. The difficulty with this is that the order contemplates an agreement between Quadric, Interceramics and Rawlinsons on this matter but makes no provision for the case where no agreement is achieved. In its pleading and in the negotiations which took place in the latter months of 1996 when the work was well underway, Quadric appears to have taken the position that Rawlinsons was to have the last say as to pricing, so that the role of Interceramics was simply to present its suggested prices and then, with the assistance of Quadric, to attempt to persuade Rawlinsons that they were fair and reasonable. It was put that this was the basis for the pricing of the fit out work in Quadric’s contract with Grocon and, since the stone work contract was to be back to back with this, the same procedures should apply. It is, of course, possible that this should be the case if this was agreed between Interceramics and Quadric. The question is whether such an agreement was made.
The matter must be determined at the time of the agreement on 21 May 1996 and in accordance with orthodox principles of contract which seek to infer the terms of the agreement from what the parties said and did at that time.
I have already set out my findings as to what was said in the telephone conference of 21 May. The conversation took place against the background of the rejection by Quadric of a series of offers with respect to stone work for levels 32 to 37. Prior to the conversation, the parties were at the point where Interceramics was about to abandon all hope of carrying out the work and where Quadric was giving consideration to giving the work to another contractor. Also, there appears to have been no certainty in the minds of the negotiators that, in any event, Interceramics would be given the stone work contract for levels 38 and 39. And so the agreement which was reached was that Interceramics would have the stone work subcontract for all of the levels. In exchange it agreed to reduce its price to $3.1M for levels 32 to 37, which figure included the deletion of an existing item of $208,237 which was the value of preliminaries in the previous rated bill. This value of preliminaries represents approximately $34,700 for each of levels 32 to 37. I infer that the mention of $70,000 saving for Quadric which was expected to be had on the two remaining levels represented approximately twice the average preliminaries for each of the lower levels. In this way Interceramics would absorb the cost of preliminaries in its rates for these upper levels as it had for the lower six levels. Furthermore, Interceramics was requested to submit its revised bill of rates based upon the agreed price. In the normal course of things in a fixed priced building contract, this might be done for the purpose of valuing progress payments as well as for the purpose of valuing variations. It is, for this reason, that such a bill is submitted for approval to the quantity surveyor to avoid distortions in the rates which may operate unfairly against the employer. The fact that Interceramics was required to submit a priced bill suggests to me that the negotiators had in mind that the bill would perform either or both of these roles. In fact it played no part in assessing progress claims by Interceramics. I conclude then, that the reasonable bystander, familiar with the ways of the construction industry, would have understood the parties to have agreed on 21 May that the priced bill, when checked for distortions and approved, would provide the basis for pricing variation work. I conclude that the parties so agreed.
It follows from this that the role of Rawlinsons thereafter was not to determine whether the rates which made up the agreed price were fair and reasonable; nor was it to stipulate rates which it judged fair and reasonable. It was to detect and remove distortions in and disconformities between the rates submitted by Interceramics. Mr Goodwin said that this is what he did with respect to the May bill and the November bill. With respect to the November bill, he said that he checked the arithmetic and the relationships between the rates for different items of work. He said that he would accept them as being balanced and not disproportionate. In this, his evidence accorded generally[8] with that of Mr Irwin.
[8] I shall, at [34] below, refer to certain differences when I deal with the pricing of the variations.
Where the two quantity surveyor witnesses differed was on the altogether different question whether the rates adopted in the November priced bill were fair and reasonable. Mr Irwin accepted as reasonable Mr Vaughan’s make up of the rates of which $540 for the Papiro S129 floor slabs has been mentioned.[9] Mr Goodwin’s rate for this was $501 per metre. Although the two witnesses said that they would accept a 10% to 15% discrepancy for differences of professional opinion, neither would accept the other’s rate as a fair and reasonable one. As I have already mentioned, I do not consider this an issue of any significance in this case, given the terms of the contract as I have found them. If it were necessary for me to resolve this difference of opinion, however, I would prefer Mr Irwin’s figures. I reach this conclusion because Mr Goodwin, unlike Mr Irwin, was unable to provide a detailed breakdown in support of his preferred rate and, when he was pressed upon the component parts which appeared in attachment 23A to his witness statement, his answers were confused and uncertain and, in some respects, contradictory.
[9]See [21] above.
I conclude in summary therefore that the stone work subcontract entered into between Interceramics and Quadric was entered into on 21 May 1996. The terms of the contract, so far as are here relevant, were that Quadric would pay Interceramics $3.1M for the work which was the subject of the price at that time and that Interceramics would provide a priced bill of quantities for this work. This priced bill was to provide the basis for valuing the work on the two remaining levels and any variations to the work required thereafter.
Variations
Thirteen variation items were claimed by Interceramics for stone work other than that priced at $3.1M in May 1996. They totalled $3,029,480. Variations (e), (h), (i), (j) and (l) to a total value of $36,946 were not pursued, leaving the remaining eight variations with a total claimed value of $2,992,535. Of the eight items in issue, all but two were accepted by Quadric as variations in the sense that they required work to be done in addition to that comprised in the initial $3.1M agreement. The issue was as to the price to be paid for this work.
It is convenient to deal with these six variations together. They may be described by reference to the date of the Interceramics letter in which the claim was first made.
Variation (a) 23 May 1996 $ 37,500.00 Variation (b) 10 July 1996 $2,069,000.00 Variation (c) 12 August 1996 $ 304,016.00 Variation (d) 27 August 1996 $ 2,000.00 Variation (f) 21 October 1996 $ 37,200.00 Variation (g) 7 January 1997 $ 1,895.52 Total $2,451,611.52
In each case Interceramics submitted its price for the work prior to its commencement. The attitude of Quadric in response was that the work must be done as instructed but that the prices would have to be approved by Rawlinsons. As the months went by, Quadric expressed this position with increasing vigour, culminating, with respect to variation (g), with threats to terminate the contract for breach if the work was not done. The prices quoted by Interceramics were never agreed to by Quadric or approved by Rawlinsons. The position adopted by Rawlinsons was simply that the whole of the Interceramics stone work subcontract, as built, was valued at $4,314,662, so that the question of pricing variations did not arise.
It falls to me, therefore, to determine the value of these variations in the light of the contract under which they were performed, as I have found it. The case for neither party, as presented, really addressed these variations individually except perhaps for Mr Ho’s general statement that his quoted prices were reasonable. I think it is fairer to the parties to approach this aspect of the case on the basis that the whole of the work, other than the basic work on levels 32 to 37 as at 31 May 1996, was as measured by Rawlinsons in their revised bill which was priced on 11 November 1996.
Mr Irwin reworked this bill insofar as it dealt with these variations. He detected certain inconsistencies and errors in Mr Ho’s pricing and concluded that the cost of levels 38 and 39, based on the rates established for the basic work, was $1,554,380.19 and that that for the variation work on levels 32 to 37 was $584,996, a total of $2,139,376.19.
It is not easy to reconcile this breakdown with the evidence of Mr Goodwin, and counsel did not undertake this task. For reasons which I have set out, I prefer the analysis of Mr Irwin to that of Mr Goodwin generally. I therefore feel comfortable in accepting his figuring and I do so. I find, therefore, that the proper value of the six variations is $2,139,376.19.
Variation (k) is for $60,923 being the cost of the air freight of stone referred to in Interceramics’ letter of 6 November 1996. The circumstances of this, according to Mr Ho, were that he raised at a meeting with Mr Alexander on or about 1 November 1996 a conflict between the drawings and an architect’s instruction regarding the type of stone required for part of the work. He informed Mr Alexander that there was a nine-week delivery delay for the stone required by the architect. At the time, the work was running behind programme and Mr Alexander requested him to air freight the stone, saying that Quadric would bear the cost. There were no conditions imposed. Mr Ho confirmed this by a fax of 6 November 1996 without specifying what was the likely cost of the freight.
Mr Alexander’s account of this was very different. He said that at this meeting Mr Ho told him that the balance of the stone would be on site by Christmas but that there was a problem with certain stone for which there was a nine-week delivery time. He said that Mr Ho told him that this might be avoided by freighting it from Italy by air. Mr Alexander told Mr Ho that, if this was the only work outstanding, Quadric would pay the cost of air freight, a cost which Mr Ho estimated at $30,000. Mr Alexander told me that when Mr Ho informed him a couple of days later that a substantial amount of stone would not be on site by Christmas, his offer was withdrawn.
Upon receipt of Mr Ho’s fax of 6 November, Mr Alexander endorsed it with his version and transmitted this to Ed Otadoy of Interceramics. His annotation is as follows:
“Ed: the agreement is as follows: -
Richard [Ho] advised the site meeting last Friday that while all other material would be on site to enable full completion by 21.12.96, he could not procure the architraves on time. Our undertaking is that provided all other works are fully complete by 21.12.96 I will gladly pay for the air freight of this item/s. You must fulfil your commitment by then to facilitate reimbursement.”
Mr Alexander addressed this matter again in his letter to Interceramics of 29 April 1997 when the final account between the parties was being negotiated –
“Air freight costs were quoted by yourselves at $30,000.00 and acceptance of same by ourselves was strictly conditional on arrival of the relevant material prior to the Christmas shutdown. This condition is in writing and did not occur – you broke the agreement and are entitled to nothing.”
It will be seen that on this version, the condition is significantly different from his earlier account.
I have regard to these discrepancies in assessing the evidence on this matter. I also have regard to the fact, which I accept, that the need for speedy delivery of the stone in question was the consequence of a design discrepancy or change. In these circumstances, it would be very surprising if, at the meeting of 1 November, the parties had come to an agreement which would put Interceramics at risk of bearing the extra cost. I have regard, too, to my generally favourable assessment of Mr Ho as a reliable witness. I accept his evidence that the agreement to pay for the air freight was unconditional.
The amount claimed is $60,923. No documentary evidence of this cost was presented. Mr Irwin said he sighted a receipted invoice for the air freight in the sum of $60,222. No objection was taken to this evidence and it was not challenged. From this, he deducted $4,651, being the cost of seafreight, giving an extra over cost of $55,571. He then added a 10% margin, arriving at a figure of $61,128. I accept this evidence and price the variation accordingly.
Variation (m) was for “Additional wastage due to [Quadric] improperly rejecting material”. The amount claimed is $480,000. I will not dwell long on this item notwithstanding the large amount involved. It is an egregious example of a global claim. In summary, it is said that Interceramics allowed 25% for wastage, a figure which was not substantiated. Next, it is said that Quadric rejected an additional 30% of stone and that this rejection was improper since the stone in fact conformed to the contract requirements. No evidence of these matters was given. The total stone used was 8,000 square metres, so that 2,400 square metres represents this extra wastage. No evidence was led of the total amount of stone used. To this, was applied the rate of $180 per square metres for supply, cutting and delivery, a figure which was not shown to be correct. I do not, however, fault the mathematics. The claim is no more respectable when presented in the alternative as damages for breach in the implied term of the subcontract not to reject stone which was in accordance with its description and quality required under the contract.[10] I reject it in either form.
[10]Statement of claim para.17.
I therefore allow for variations the aggregate sum of $2,200,504.19.
Contra Charges
Quadric claims to be entitled to deduct from the contract sum, seventeen items totalling $125,819.08[11]. It was conceded in final address on its behalf that these contra charges were not sustained on the evidence other than the last: payment of $3,787.08 for employees of Interceramics not paid by it.[12] I shall now deal with this item.
[11]Defence para.40.
[12]Defence para.40(c).
The stone work was completed early in 1997. On 2 June 1997 Quadric submitted details of all contra charges to be levied upon it by Grocon and for which it wished to adjust the contract sum. The amount presently in question was not included. The document in evidence in support of this contra charge is a receipt from the Building Workers’ Industrial Union of Australia and dated 13 November 1997 acknowledging receipt from Quadric of the sum of $3,787.08. The payment is there described as being for wage settlement for Ken Stanton, $1,535.58 and Vince Todorov, $2,251.50.
Mr Dollman in his witness statement said that the payment was made following queries from the union whether certain entitlements and contributions other than wages had been paid to the workers. He said that “after 4 months work and no co-operation from Interceramics, Quadric eventually paid $3,787.08 to the union in order to finalize the matter”. He referred me to some sixty pages of correspondence dealing with the issue dating from 30 July 1997 to 14 November 1997. There the matter rested at trial. I have taken it upon myself to examine carefully this correspondence.
It seems that the two workers were on Workcover. Mr Stanton was on light duties between 17 December 1996 and 12 January 1997 but, according to Interceramics, chose not to present himself for work. The union on his behalf claimed fifteen days’ pay totalling $1,535.50 for this period on the basis that Interceramics had no light work available for him to perform. Grocon and Quadric were under considerable pressure from the union to satisfy this claim and Quadric did so at a meeting with the union on 13 November 1997. While I can understand that Quadric felt obliged to make the payment, I can see no contractual or other obligation in Interceramics to indemnify it for so doing.
The position with Mr Todorov is different. The union claim on his behalf was for BUS and Incolink contributions. Interceramics maintained in its correspondence that these had been paid and it produced confirmation of this from the bodies concerned. By the end of October 1997 the union demand was for this plus pro rata annual leave of either $2,014.50 or $2,251.50, depending upon the number of weeks of employment. At the meeting on 13 November 1997 Quadric agreed to pay the larger annual leave assessment and apparently did so. Mr Ho maintained that all employees were paid in full and that the union claims were baseless. He said that any payment by Quadric was not authorised by Interceramics. Strictly speaking, there is no evidence that the union demands were well founded. Faced with the uncontradicted assertion of Mr Ho that the employees were paid their entitlements, this contra claim must fail.
Conclusion
I conclude, therefore, that the following represents the entitlement of Interceramics under the stone work subcontract.
Base Work (Levels 32-37) $3,100,000 Levels 38-9 $1,554,380 Variations to levels 32-37 $ 584,996 Variation (k) $ 61,128 Variation (m) Nil Less contra charges Nil Adjusted contract sum $5,300,504 Less paid $4,791,182 Balance due to Interceramics $ 509,322
It would seem therefore that there should be judgment for Interceramics on its claim in the sum of $509,322 and that the counterclaim should be dismissed. I will hear counsel further as to the terms of the orders to give effect to these conclusions and as to interest and costs.
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