Lines MacFarlane Marshall Pty Ltd v Fletcher Construction Australia Ltd
[2000] VSC 358
•13 September 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL AND EQUITY DIVISION | Not Restricted |
No. 7828 of 1996
| LINES MACFARLANE & MARSHALL PTY LTD | Plaintiff |
| v | |
| FLETCHER CONSTRUCTION AUSTRALIA LTD | Defendant |
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JUDGE: | Nathan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10-14, 17, 18, 27, 28 April; 1, 3, 4, 8-12, 15-18, 19, 22, 26, 29 May; 2, 13, 15, 22, 23, 26-29 June 2000 | |
DATE OF JUDGMENT: | 13 September 2000 | |
CASE MAY BE CITED AS: | LMM v Fletcher | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 358 | |
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Construction law – prisons - design and construct contracts - limited time trials – architect's standard of care – class of works – qualifications of expert witnesses – repudiation what amounts to – waiver of design requirements – estoppel.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr P. Vickery QC with Mr R. Manly | Elizabeth Solomon (in association with Minter Ellison) |
| For the Defendant | Mr W. Martin QC with Mr N. Hopkins | Clayton Utz |
GLOSSARY of ACRONYMS
| A&B | A&B Aluminium Fabricators Pty Ltd |
| ACF | Australian Correctional Facilities Pty Ltd |
| CA | The Consultant Agreement between LMM and FCA |
| C section | The mild steel frame of the window fenestration in the dormitory and observation cells. |
| CP, the | FCA's Cost Plan, part of the CA. |
| CW | Connell Wagner – structural engineers and consultants. |
| D&C | Design and Construct building contract, such as the CA. |
| DB, the | Design Brief, prepared by the NPP and part of the CA. |
| DMP | Design Management Plan - FCA's requirements of LMM. |
| DOJ | Department of Justice |
| DRP | The Design Review Process embodied in the PDP |
| FCA | Fletcher Construction Australia Ltd – the defendant company, also called "Fletchers". |
| FF&E | Furniture Fitments & Equipment |
| GCs, the | General Conditions of the CA |
| G4 | Group 4 Correction Services Pty Ltd.- prison operators and co‑venturer with FCA in ACF |
| LMM | Lines MacFarlane & Marshall Pty Ltd – the plaintiff. |
| MMP | Men's Metropolitan Prison, also known as Port Phillip Prison. |
| NPP | New Prisons Project. Government's inter-departmental committee, answerable to DOJ for the MMP. |
| PAN | Project Advice Notice |
| PCN | Project Change Notice – directions from FCA to its consultants. |
| PDP | Project Design Plan – contained in FCA/G4's submission to NPP incorporated into the CA |
| PSA | Prison Services Agreement - incorporated into the CA by way of the defendant's submissions. |
| QA | Quality Assurance |
| RFI | Requests for Information – usually from a consultant to the architect. |
| SF | Steelfinne Pty Ltd – window manufacturers and installers. |
| SP | Spowers Consultants – the architectural firm which replaced LMM. |
| SWIJ | Scott Wilson Irwin Johnston Pty Ltd - mechanical services consultant to FCA |
TABLE OF CONTENTS
GLOSSARY OF ACRONYMS.................................................................................................................................................... 1
CHAPTER ONE - LIMITED-TIME TRIAL................................................................................................................................. 8
CHAPTER TWO - THE PARTIES........................................................................................................................................... 9
CHAPTER THREE - FORMATION OF THE CONTRACT............................................................................................... 10
3.1 D&C Contracts......................................................................................................................................................... 10
3.2 The Consortium........................................................................................................................................................ 11
3.3 Prison Services Agreement (PSA)...................................................................................................................... 12
3.4 Design Review Process (DRP)................................................................................................................................. 13
CHAPTER FOUR - THE CONSULTANT AGREEMENT (CA)......................................................................................... 13
4.1 Structure of the CA.............................................................................................................................................. 13
4.1.1 Annexures A, B and C....................................................................................................................................... 14
4.1.2 Design Brief (DB).............................................................................................................................................. 14
4.2 The Four Stages of Work..................................................................................................................................... 15
4.2.1 Stage 1 – Schematic.......................................................................................................................................... 15
4.2.2 Stage 2 – Design Development....................................................................................................................... 15
4.2.3 Stage 3 - Documentation................................................................................................................................. 15
4.2.4 Stage 4 - Commissioning............................................................................................................................... 16
4.3 The General Conditions (GCs)............................................................................................................................. 16
4.3.1 The Services........................................................................................................................................................ 16
4.3.2 Time...................................................................................................................................................................... 16
4.3.3 Payment............................................................................................................................................................... 16
4.3.4 Design.................................................................................................................................................................. 17
4.3.5 Instructions......................................................................................................................................................... 17
4.3.6 Default and Termination.................................................................................................................................. 17
4.3.7 Dispute Resolution............................................................................................................................................ 18
4.3.8 Applicable Law.................................................................................................................................................. 18
CHAPTER FIVE – CONDITIONS INCORPORATED IN THE CA.................................................................................... 18
5.1 Adhering terms......................................................................................................................................................... 18
5.2 Design Brief (DB)....................................................................................................................................................... 21
5.3 The Cost Plan (CP).................................................................................................................................................... 22
CHAPTER SIX - THE PLEADINGS......................................................................................................................................... 22
6.1 Amended Statement of claim........................................................................................................................... 22
6.1.1 Fee allocation to each of the four stages...................................................................................................... 23
6.1.2 Non-payment.................................................................................................................................................... 23
6.1.3 Repudiation by FCA....................................................................................................................................... 25
6.1.4 Quantification of LMM's claim....................................................................................................................... 25
6.2 FCA's Defence and Counterclaim..................................................................................................................... 26
6.2.1 Incomplete Work................................................................................................................................................ 27
6.2.2 Defective Work................................................................................................................................................... 27
6.2.3 Costs of Rectifying Defective Work................................................................................................................ 28
6.2.4 Rectification Work Done................................................................................................................................ 28
6.2.4.1 Defect 1 - Cupboards for Services................................................................................................................... 28
6.2.4.2 Defect 2 - Concealment of Services.................................................................................................................. 28
6.2.4.3 Defect 3 - Observation Cells............................................................................................................................ 29
6.2.4.4 Defect 4 - Caulking........................................................................................................................................... 29
6.2.4.5 Defect 5 - Ventilation....................................................................................................................................... 29
6.2.4.6 Defect 6 - Prisoner Risk Abatement Works..................................................................................................... 29
6.2.4.7 Defect 7 - Sub-Contractors'/Suppliers' Cost Claims........................................................................................ 29
6.2.5 Rectification work yet to be done................................................................................................................. 30
6.2.5.1 Defect 8 - Windows........................................................................................................................................ 30
6.2.5.2 Defect 9 - Psycho-social Unit Ceilings............................................................................................................ 30
6.2.5.3 Defect 10 - Entry and Administration Building (Building No. 10).................................................................. 30
6.2.5.4 Defect 11 - Stairs.............................................................................................................................................. 30
6.2.6 Long Term Maintenance Costs....................................................................................................................... 31
6.2.6.1 Defect 12 - Cells............................................................................................................................................... 31
6.2.6.2 Defect 13 - Windows....................................................................................................................................... 31
6.2.6.3 Defect 14 - Timber Platforms.......................................................................................................................... 32
6.2.6.4 Defect 15 - Paving............................................................................................................................................ 32
6.2.6.5 Defect 16 - Laundry......................................................................................................................................... 33
6.2.6.6 Defect 17 - Plant Access.................................................................................................................................. 33
6.4 Summation of the Defence.................................................................................................................................. 33
6.5 FCA's Counterclaim................................................................................................................................................ 34
6.6 LMM's Repudiatory Conduct.............................................................................................................................. 34
6.6.1 Refusal or Failure to do Work........................................................................................................................ 35
6.6.1.1 Windows.......................................................................................................................................................... 35
6.6.1.2 Door Schedules................................................................................................................................................. 35
6.6.1.3 Design Meetings............................................................................................................................................... 35
6.6.1.4 Site Meetings.................................................................................................................................................... 35
6.6.1.5 re PAN............................................................................................................................................................. 35
6.6.1.6 Acoustics.......................................................................................................................................................... 36
6.6.1.7 QAs.................................................................................................................................................................. 36
6.6.1.8 Fencing............................................................................................................................................................. 36
6.6.1.9 Wrongful Cessation.......................................................................................................................................... 36
6.6.2 Refusal to comply with instructions............................................................................................................. 36
6.7 Summation of Breaches........................................................................................................................................ 37
6.8 Termination of CA by FCA................................................................................................................................... 37
6.8.1 Notice of Termination....................................................................................................................................... 37
6.8.2 Rescission and Loss.......................................................................................................................................... 38
6.9 LMM's Defence to Counterclaim and Reply............................................................................................... 39
6.9.1 PDP...................................................................................................................................................................... 39
6.9.2 Estoppel.............................................................................................................................................................. 39
6.9.3 Causation........................................................................................................................................................... 39
6.9.3.1 The DRP.......................................................................................................................................................... 40
6.9.3.2 FCA's Conduct................................................................................................................................................. 42
6.9.3.3 FCA's Representations.................................................................................................................................... 42
6.9.3.4 Summation........................................................................................................................................................ 43
6.10 Waiver..................................................................................................................................................................... 43
`6.11 FCA's Election...................................................................................................................................................... 45
6.12 Termination and Rescission........................................................................................................................... 45
6.13 FCA's reply to LMM's reply and defence to its counter claim.................................................... 45
6.13.1 Adhered terms................................................................................................................................................... 45
6.13.2 Re: Estoppel...................................................................................................................................................... 45
6.13.3 Re: Waiver......................................................................................................................................................... 46
6.14. LMM's Rejoinder.................................................................................................................................................. 46
6.14.1 Clause 4 of the CA not applicable to the DRP............................................................................................ 46
6.14.2 Documentation Term – Annexure A............................................................................................................... 47
6.14.3 Maintenance Terms........................................................................................................................................... 48
6.14.4 D&C Building Contracts................................................................................................................................. 48
6.14.5 Duty to Warn...................................................................................................................................................... 48
6.14.6 The Waiver.......................................................................................................................................................... 48
CHAPTER SEVEN – EVENTS LEADING TO THE DISPUTE............................................................................................. 49
7.1 Significance of the DRP......................................................................................................................................... 49
7.2 "Buildability"........................................................................................................................................................... 50
7.3 Operation of the DRP............................................................................................................................................ 52
CHAPTER EIGHT - CHRONOLOGY...................................................................................................................................... 52
February............................................................................................................................................................................. 52
12 February...................................................................................................................................................................... 52
May...................................................................................................................................................................................... 53
2 May............................................................................................................................................................................... 53
13 May............................................................................................................................................................................. 53
24 May............................................................................................................................................................................. 54
29 May............................................................................................................................................................................. 54
June...................................................................................................................................................................................... 54
18 June............................................................................................................................................................................. 54
19 June............................................................................................................................................................................. 55
24 June............................................................................................................................................................................. 55
26 June............................................................................................................................................................................. 56
July....................................................................................................................................................................................... 56
1 July................................................................................................................................................................................ 56
3 July................................................................................................................................................................................ 57
5 July................................................................................................................................................................................ 57
19 July.............................................................................................................................................................................. 57
22 July.............................................................................................................................................................................. 57
23 July.............................................................................................................................................................................. 58
26 July.............................................................................................................................................................................. 58
30 July.............................................................................................................................................................................. 59
August.................................................................................................................................................................................. 60
1 August........................................................................................................................................................................... 60
6 August........................................................................................................................................................................... 60
7 August........................................................................................................................................................................... 60
September........................................................................................................................................................................... 61
9 September...................................................................................................................................................................... 61
10 September.................................................................................................................................................................... 62
23 September.................................................................................................................................................................... 63
October................................................................................................................................................................................ 64
7 October.......................................................................................................................................................................... 64
9 October.......................................................................................................................................................................... 65
16 October........................................................................................................................................................................ 65
21 October........................................................................................................................................................................ 65
23 October........................................................................................................................................................................ 68
November............................................................................................................................................................................ 70
1 November...................................................................................................................................................................... 70
8 November...................................................................................................................................................................... 70
9 November...................................................................................................................................................................... 70
11 November.................................................................................................................................................................... 71
13 November.................................................................................................................................................................... 71
15 November.................................................................................................................................................................... 71
18 November.................................................................................................................................................................... 73
19 November.................................................................................................................................................................... 73
21 November.................................................................................................................................................................... 74
December............................................................................................................................................................................ 74
18 December..................................................................................................................................................................... 74
CHAPTER NINE - WITNESSES............................................................................................................................................... 74
9.1 LMM's witnesses........................................................................................................................................................ 75
Garry Marshall.................................................................................................................................................................. 75
Ralph Bailey....................................................................................................................................................................... 79
Robert Howden.................................................................................................................................................................. 80
John Permewan................................................................................................................................................................. 80
Peter Quigley..................................................................................................................................................................... 81
Donald Webster................................................................................................................................................................. 83
Domenico Di Domenico................................................................................................................................................... 83
Barry Gartner..................................................................................................................................................................... 84
John Kariuki...................................................................................................................................................................... 84
Miles Dacre........................................................................................................................................................................ 85
Neil Packham..................................................................................................................................................................... 86
Michael Milesi................................................................................................................................................................... 86
Paul Vrantsis...................................................................................................................................................................... 87
Stephen Twinn................................................................................................................................................................... 87
Christopher Foley-Jones................................................................................................................................................. 91
Glenn Dickson................................................................................................................................................................... 91
Ralph Lowe......................................................................................................................................................................... 92
Raymond Johnston............................................................................................................................................................ 93
Andrew Jones..................................................................................................................................................................... 93
Brian Pepper...................................................................................................................................................................... 93
William Earle..................................................................................................................................................................... 94
Duncan McKenzie............................................................................................................................................................. 94
Wendy Siu........................................................................................................................................................................... 94
9.2 FCA's Witnesses......................................................................................................................................................... 94
Edwin Codd........................................................................................................................................................................ 94
Michael Brickell................................................................................................................................................................ 99
Andrew Baigent................................................................................................................................................................. 99
Philip Blunden................................................................................................................................................................ 101
Gavin Grahame............................................................................................................................................................... 101
The Bowe Report........................................................................................................................................................... 106
The Kendall Report........................................................................................................................................................ 108
Phillip Warwick.............................................................................................................................................................. 110
Frank Kendall................................................................................................................................................................. 113
Peter Bowe....................................................................................................................................................................... 115
CHAPTER TEN – DEGREE OF COMPLETENESS............................................................................................................. 115
CHAPTER ELEVEN – FCA'S COUNTERCLAIM............................................................................................................... 116
11.1 Refusal to do work and Waiver................................................................................................................ 116
11.1.1. Windows............................................................................................................................................................ 116
11.1.2 Door schedules.............................................................................................................................................. 118
11.1.3 Failure to attend design meetings............................................................................................................. 119
11.1.4 Refusal to attend site meetings................................................................................................................... 120
11.1.5 Refusal to undertake PCN work................................................................................................................. 120
11.1.6 Acoustic report.............................................................................................................................................. 120
11.1.7 QA Plans not rendered................................................................................................................................... 120
11.1.8 FF&E; compound fencing........................................................................................................................... 121
11.1.9 Failure to complete drawings, specifications and schedules............................................................... 123
11.1.10 Failing to follow the CP........................................................................................................................... 123
11.1.11 Refusing to work after 16 November 1996........................................................................................... 124
11.1.12 Refusal to attend site meeting with Mr Hanich.................................................................................... 124
11.1.13 Failure to complete................................................................................................................................... 124
11.2 Inadequate Design and Causation............................................................................................................ 124
11.2.1 Timber platforms............................................................................................................................................ 124
11.2.2 Paving............................................................................................................................................................. 124
11.2.3 Laundry........................................................................................................................................................... 125
11.2.4 Plant Access................................................................................................................................................... 125
CHAPTER TWELVE – THE DEFECTS................................................................................................................................. 125
12.1 Defects.................................................................................................................................................................. 125
12.1.1 Defect 1 – Cupboards for services............................................................................................................... 126
12.1.2 Defect 2 – Concealment of services............................................................................................................ 127
12.1.3 Defect 3 – Observation Cells....................................................................................................................... 128
12.1.4 Defect 4 - Caulking....................................................................................................................................... 129
12.1.5 Defect 5 – Ventilation and requirements of building code................................................................... 130
12.1.6 Defect 6 – Prisoner risk abatement works................................................................................................ 130
12.1.7 Defect 7 – Sub-contractors'/Suppliers' Cost Claims.............................................................................. 132
12.1.7.1 Transfer hinges.......................................................................................................................................... 132
12.1.7.2 Air grilles................................................................................................................................................... 132
12.1.7.3 Steel plates to cell doors........................................................................................................................... 132
12.1.7.4 Door stops................................................................................................................................................ 133
12.1.7.5 Security cowling to Building No. 10......................................................................................................... 133
12.1.7.6 Flashing to top of soldis........................................................................................................................... 133
12.1.7.7 Window reveal.......................................................................................................................................... 133
12.1.7.8 Fold-down bollard..................................................................................................................................... 133
12.1.7.9 Windows to Building No. 19.................................................................................................................... 133
12.1.7.10 Hobs to disabled toilets............................................................................................................................ 134
12.1.7.11 Laundry troughs and sinks........................................................................................................................ 134
12.1.7.12 Fence to dam............................................................................................................................................. 134
12.1.7.13 Windows................................................................................................................................................... 134
12.1.8 Defect 9 – Psycho-social Unit ceilings...................................................................................................... 135
12.1.9 Defect 10 – Entry and Administration Building (Building No. 10).................................................... 135
12.1.10 Defect 11 - Stairs........................................................................................................................................ 136
12.2 Long term maintenance costs.................................................................................................................... 137
12.2.1 Defect 12 - Cells............................................................................................................................................. 137
12.2.2 Defect 13 - Windows...................................................................................................................................... 137
12.2.2.1 The Mild Steel "C Section"....................................................................................................................... 138
12.2.2.2 Galvanising................................................................................................................................................ 139
12.2.2.3 Painting..................................................................................................................................................... 140
12.2.2.4 The C Section and the Window Frame..................................................................................................... 140
12.2.2.5 Reliability of witnesses............................................................................................................................. 142
12.2.2.6 Conclusion re Windows and Frames......................................................................................................... 144
CHAPTER THIRTEEN – STANDARD OF CARE FOR THE CLASS OF WORK........................................................ 144
13.1 The Standard of Care.................................................................................................................................... 145
13.2 Class of Work..................................................................................................................................................... 146
13.3 Summation........................................................................................................................................................... 148
CHAPTER FOURTEEN - CAUSATION............................................................................................................................. 149
CHAPTER FIFTEEN – TERMINATION OR REPUDIATION OF THE CA..................................................................... 150
15.1 Termination at common law...................................................................................................................... 150
15.2 Termination pursuant to clause 23 of the CA................................................................................... 151
15.3 Repudiation by FCA......................................................................................................................................... 152
15.4 Purported termination by FCA................................................................................................................. 154
15.5 LMM's acceptance of FCA's repudiation................................................................................................ 155
CHAPTER SIXTEEN - ESTOPPEL..................................................................................................................................... 157
CHAPTER SEVENTEEN – CONCLUSION.......................................................................................................................... 159
HIS HONOUR:
Alliteratively, euphoniously and inaptly named, Port Phillip Prison squats on the basalt lava plains of western Melbourne. It is neither near Port Phillip Bay, nor near the city of that name. Its component buildings are each named after a vessel of the First Fleet, none of which ever came into Port Phillip Bay. It was built in 1996‑7 by private enterprise to replace the archaic State run prisons at Pentridge. In cosmopolitan functionalist style, its object is utility not beauty. A dispute has now arisen between the architect, claiming a portion of his fees and the builders, who contend that the architect breached the contract to competently and completely design the prison.
The contest surrounding this relatively simple building dispute has consumed three months of court time, tens of thousands of pages of documents and millions of dollars in costs. In order to enlighten the miasma of material, this judgment is divided into chapters and categories.
CHAPTER ONE - Limited-time trial
The trial was conducted according to the "limited trial" procedure. By consent, the parties agreed to predetermined starting and finishing dates. The trial was conducted with the use of prepared witness statements, statements in reply and an electronic court book which was computerised with common court book numbers. Sitting time was divided equally between the parties. They presented their cases at their discretion within that framework. The rule in Browne v Dunn (1893) 6 R (HL) 67 was dispensed with for the purposes of the case. Parties had time clocked against them for forensic activities such as cross-examination of opposing witnesses, opening and closing addresses and lengthy objections on evidence. In the event, the trial was conducted within the preset time frames to the satisfaction of counsel and, I assume, of their clients.
In my view, the procedure needs to be refined and set rules should be established. Undoubtedly, had the trial proceeded according to the ordinary rules, it would have consumed at least (those words are not ornamental) twice or three times the amount of time. The parties are to be commended for their co‑operation. The procedure adopted to conduct limited time trials seems appropriate to deal with complex and lengthy commercial litigation.
CHAPTER TWO - The Parties
The plaintiff, LMM, is a Melbourne architectural firm. The defendant, FCA, is a building contractor - an international firm with extensive experience in building public institutions.
FCA retained the services of LMM to design the Port Phillip Prison, which is also known as the Metropolitan Men's Prison (MMP). That retainer is evidenced by a Consultant Agreement, dated 24 May 1996 (CA).
In 1993, the Victorian State Government adopted a policy of privatising some prisons, building others and closing down those built a century and a half before during the gold rushes. Pursuant to this policy, a scheme known as the New Prisons Project (the NPP) was set up. Its objectives were to organise and supervise the construction of three privately run prisons; a women's prison at Deer Park, comprising 250 beds; a medium security prison for 600 male prisoners at Fullum; and the MMP at Laverton. The MMP was to be a maximum security prison incorporating remand, hospital, medium security and accommodation facilities, together with a psycho-social unit.
The NPP was effectively a specialist committee of government employed experts, charged with the responsibility of supervising the construction of the new prisons in accordance with the government's policy objectives. The Minister in charge was the Minister for Justice, but experts also came from other departments.
Various consortia were formed to bid for each of these projects. Relevant here is the consortium put together under the aegis of FCA consisting of FCA itself, LMM and Group Four Correction Services Pty Ltd (G4). FCA was to be the builder, G4 was to act as the local operator and manager and LMM was to provide the architectural services. LMM actively sought participation in the consortium and addressed a written proposal to FCA in November 1993, informing FCA of its experience. It read: "LMM have experience in the design and documentation of corrective facilities including quality assurance during construction by having successfully completed the Lodden regional prison in Victoria". In the following month, LMM amplified its experience in a further letter, reciting thus: "LMM through their involvement in the Lodden project has an understanding and an appreciation of prison design criteria as well as the process, having been part of a successful design and construct bid." I find those terms to be an accurate summation of LMM's experience. LMM did not puff itself out as a world expert in maximum security prisons, but was only successful for the MMP.
FCA is a large international construction company with extensive experience in building large public and commercial structures. G4 is an international security company experienced in operating prisons. The consortium bid for all of the proposed new prisons.
CHAPTER THREE - Formation of the Contract
3.1 D&C Contracts
It is important to note that the Lodden project was concerned with the construction of a Government operated, minimum security facility in a rural area. It was the subject of a lump sum contract on the basis of specification tenders. Therefore, the Lodden project was significantly different in character to that which the project envisaged for the MMP. The NPP sought bids for a design and construct type contract - that which is known as a "boot" type tender, that is, "build, own, operate, and transfer". The latter phrase encompasses the concept of returning the privatised prison to Government ownership at the expiration of the operational term, or otherwise renewing that term. The NPP offered a design and construct (D&C) contract on the basis of performance tenders, as opposed to tenders whereby the specifications are complete. In the case of the MMP, completion of construction was set for mid 1997. Therefore, it was essential for all members of the consortium to act with haste.
D&C contracts commonly involve the design process proceeding in tandem with or shortly in advance of the construction stage. In this case, it appears to me that a D&C type contract was both preferable for and applicable to the MMP. The prison was to consist of 21 separate buildings having distinct constructional differences. For example, the administration and entry building is of a different character to the dormitory type cells. Likewise, the psycho-social unit required different characteristics from the cell units.
3.2 The Consortium
In mid 1995, the members of the consortium concluded that they should bid for the MMP. The government had established the NPP, in effect, an inter-departmental committee which set terms of reference and served as the vehicle through which it would administer the policy of building privatised prisons. The ministry in charge of the project was the Department of Justice, Victoria (DOJ).
The NPP prepared a brief to short listed parties which was supplemented by an addendum of September 1995 (the design brief – "DB"). The DB required a bid for the design, construction, operation and maintenance of a male maximum security prison to accommodate 600 prisoners. The period set for the operation was twenty years. It required the designer to accommodate various types of prisoners, ranging from prisoners under maximum security to those on remand. The notion of a performance based contract requires the successful bidder to acquit a range of performance parameters during the currency of the contract.
The DB set out requirements for a number of physical features which reflected a certain philosophical position. That is, prisoners are to be accommodated in single cells with ablution facilities; the integrity and dignity of prisoners is to respected; and, the facilities should be as visually attractive as possible. Although much of this philosophy was in place before the NPP, it was difficult to put into effect given the physical constraints of the old pentopticon type prisons built in the nineteenth century.
Bids were submitted by the consortium in November 1995 and March 1996. Its submissions provided that each building would have a secure envelop, cell designs would be fit for the purposes set out in the DB and schedules would be prepared to determine the fixed fit-out requirements. The fit-out of the cells was to be robust and account would be taken of the various maintenance requirements to assure the effective operation of the prison. LMM was responsible for preparing the relevant sketches and providing the necessary architectural input to ensure the bid's success. It is appropriate to say that these sketches and designs were ultimately reflected in the CA as "schematic design".
On 11 April 1996, the consortium was nominated by the NPP as the successful bidder for the MMP. Up until this time, LMM had not charged the consortium for any of its schematic design work. I merely observe that the consortium had also made bids for the two other prisons involved in NPP, but was unsuccessful. The work done by all members of the consortium in preparing the failed bids was unrewarded.
The design brief required the MMP to be ready for habitation by September 1997. Therefore, having been announced the preferred bidder in April 1996, all of the parties had done much preparatory work before formal contractual relationships were established.
3.3 Prison Services Agreement (PSA)
FCA and G4 created a company known as Australian Correctional Facilities Pty Ltd (ACF) which they owned jointly and equally. ACF was the contracting party with the DOJ and was obliged to provide the full programme to the government for the MMP. This contract was entered into in July 1996. I shall call this contract the Prison Services Agreement (PSA). The PSA required the MMP to have a functional life of 20 years (the facility term). During that time, the prison was to be kept in good order and repair by the operator. That operator was G4. The PSA also contained terms which reflected the requirements of the DOJ, as were to be expressed by the NPP. At the expiration of the facility term, the prison could revert directly to government ownership or the parties could negotiate a further facility term.
3.4 Design Review Process (DRP)
FCA entered into a D&C contract with ACF to build the MMP. FCA then contracted with LMM to render architectural services thereafter (the CA). This chain of contracts is of some significance because it constructed a formal hierarchy through which LMM's drawings passed for the purpose of being reviewed – I shall refer to this as "the design review process" (DRP). The DRP required LMM to prepare a drawing and to pass it onto FCA for review, suggestion and endorsement. The drawing would then be referred to G4 for its comments and when those were taken into account by FCA and LMM, the drawing together with any suggested revisions would be passed up to the NPP for endorsement. Once endorsed, the drawing would then be passed down the hierarchy to FCA to be stamped "approved for construction" and then returned to LMM.
It is as well now to introduce some of the dramatised personae. Mr Gary Marshall was the key architect at LMM. The key operatives at FCA were: Mr Sheele, its architect; Mr Grahame, its project manager; Mr Warwick, its construction manager; and, Mr Kendall, the cost planner. At G4, Mr Twinn was more than the key operative - he was crucial. The NPP's involvement in this case was expressed through its architects, Messrs Vrantsis and Milesi.
As will become apparent in this judgment, fixing the time at which LMM's drawings were complete, thereby entitling it to payment, is a vital question.
CHAPTER FOUR - The Consultant Agreement (CA)
4.1 Structure of the CA
A formal documented contract was entered into on 24 May 1996 for the provision of architectural services. Remuneration was fixed in the sum of $1.6M with a further provision for $100,000 in respect of the final commissioning stage of the prison works. The structure of the CA is significant. It contains explicit and other terms which adhere to the contract by reference. The explicit terms are: (1) the schedule of the CA itself, which cites the "services" to be architectural design, construction and commissioning phase services; (2) its general conditions (GCs); (3) its annexures, of which there are three - (A) scope of services, (B) time for completion of services and, (C) a fee table; (4) by reference, the DB; and, (5) the cost plan (CP).
4.1.1 Annexures A, B and C
Annexure (A), Scope of Services, is entitled "Architecture". It divides the services to be provided by LMM into four chronological stages. They are Stage 1 - schematic design stage; Stage 2 – design development stage; Stage 3 – documentation stage (which is at the heart of the dispute and this judgment); and, Stage 4 – construction and commissioning stage.
Annexure (B) deals with "time for completion of services" and reference is made to a bar chart indicating that the entire project was to be completed by August 1997, and it was.
Annexure C, the fee table, distributes the lump sum fee between the four stages of the work: Stage 1 - $30,000; Stage 2 - $685,000 ; Stage 3 - $915,000; and, Stage 4 - $100,000. This latter amount is recited as being a provisional sum to be drawn down on an hourly rate basis. Payment terms indicated that a claim was to be made on the 30th day of each month and that payment was to be made within 30 days of the claim.
4.1.2 Design Brief (DB)
Within the CA, the DB itself is said to include "the brief to short listed parties, prepared by the DOJ" and "FCA's and G4's submission to the NPP, dated March 1996". These documents themselves make reference to other documents. An issue arises as to how far "documents referred to in documents, which are attached to a contract" can, of themselves, become part of the contract. For reasons I shall later explain, I am satisfied that the documents referred to within "the brief to short listed parties" and "FCA's and G4's submission" to the government are also part of this contract.
Pursuant to Annexure (A), under Stage 1, LMM was required to review and develop the DB and to expand all of its relevant components. It was also required to prepare initial concept layouts for the MMP, but to do so within the parameters of the DB and of the CP. All of this work had been done to the satisfaction of FCA prior to the CA being sealed.
4.2 The Four Stages of Work
4.2.1 Stage 1 – Schematic
Under this first phase, broad schematic designs for the MMP were prepared. Details of materials, fittings or modes of construction were not included. The pretty drawings were part of the consortium's bid documentation.
4.2.2 Stage 2 – Design Development
Under the same Annexure, LMM was required to expand on the services provided under Stage 1 and to prepare documentation to fully describe and illustrate the MMP, as well as provide details and sections of materials and finishes. It was also to be responsible for directing all secondary consultants and integrating and co‑ordinating their services. This work was completed by LMM to the apparent satisfaction of FCA.
4.2.3 Stage 3 - Documentation
As it is this stage which provides the forum for contention, it is necessary to rehearse the requirements in Annexure (A) rather fully. LMM was required to: (1) prepare all contract documentation including detailed working drawings, schedules and specifications as necessary to fully describe the works (being the MMP); (2) ensure its drawings complied with all relevant building codes; (3) co-ordinate provision in the structure for holes, ducts, et cetera as required by the other services; (4) provide copies of the drawings; (5) develop colour schemes; (6) maintain a design quality assurance system; (7) participate in the evaluation of various building elements with particular emphasis on recurring maintenance aspects; and (8) be responsible for directing secondary consultants and integrating and co-ordinating these services.
4.2.4 Stage 4 - Commissioning
The final stage was left open ended. This was the stage directed at getting the prison up and running. No fixed fee was set, other than initial provision for $100,000.
4.3 The General Conditions (GCs)
The CA contains the following conditions, as edited:
4.3.1 The Services
1(a) The consultants shall perform the services relating to the work …..
(b) in performing the services the consultants shall;
· Comply with all directions and instructions of Fletcher.
· Exercise the standard of skill, care and diligence to be expected of a professional consultant experienced in the class of works to be executed.
4.3.2 Time
2(d) The consultant must co-operate with Fletcher and all other consultants … to ensure the works are completed as soon as possible.
4.3.3 Payment
3(b) Fletcher will pay the consultant's fee in instalments in accordance with Annexure B … each payment will be based on the value of the services completed by the consultant and will only be made if;
· The consultant submits the claim …
· The consultant is not in breach of a term of the agreement.
(c) Each instalment shall be paid by Fletcher in accordance with Annexure C (that is, monthly).
(e) The consultant shall rectify any error or inconsistency in the consultant's documentation at the consultant's expense and within the time frame instructed …
(f) The consultant must provide to Fletcher … disc copies of all documentation
Clause 4
(a)Fletcher shall provide the Consultant with the DB and CP
(b)The consultant (LMM) must take into account the contents of the DB and CP in performing the services …
(c)The consultant shall not … make any alteration … to the documentation … without FCA's … approval
(d)the consultant shall rectify any error or inconsistency … at the consultant's expense … as FCA instructs …
(e)the consultant must provide to FCA … disc copy of documentation
4.3.4 Design
6(b) All design and documentation prepared by the consultant will be fully co‑ordinated with all other design and documentation produced in relation to the works, so as to eliminate design conflict, omissions or discrepancies.
4.3.5 Instructions
The consultant must carry out any written instruction Fletcher provides.
4.3.6 Default and Termination
(a) If in Fletcher's opinion the consultant fails to comply with any requirements in the agreement or has not proceeded with the services competently or with reasonable diligence, Fletcher is entitled to end the agreement by giving written notice to the consultant.
(c) Fletcher may end this agreement for any reason by written notice to the consultant.
(d) If Fletcher ends this agreement … it may employ others to carry out any part of the services at the consultant's expense.
4.3.7 Dispute Resolution
(a) If a dispute arises … either party may at any time give written notice to the other requesting that a settlement meeting take place. Nominated representatives of both parties must meet within seven days of the notice and endeavour to resolve the dispute in good faith.
(b) If a settlement meeting does not take place, or after seven days of the settlement meeting the dispute remains unresolved, the dissatisfied party is free to pursue its rights under clause 24.
(c) If the dispute remains unresolved after the settlement meeting, the consultants shall continue to perform the services in accordance with the agreement for a period of not less than 28 days.
4.3.8 Applicable Law
The agreement is governed by the law of Victoria. Any legal proceeding must be brought in Victoria.
FCA sub-contracted with various specialists including its civil and structural engineers, Scott Wilson Irwin Johnson (SWIJ), and mechanical and electrical engineers, Connell Wagner (CW). These contracts are mirrors of the CA.
CHAPTER FIVE – Conditions Incorporated in the CA
5.1 Adhering terms
In designating that the DB consist of the NPP brief to the consortium and the FCA/G4 submission of March 1996 made to the NPP, the terms and conditions found in these documents adhere to and become part of the CA. They include a draft project design plan (PDP) contained in the FCA/G4 submission and also a draft prison services agreement (PSA). I have referred to the design review process contained therein as the "DRP".
In my view, the PDP constitutes an integral and necessary part of the FCA/G4 submission. It sets out the reportage hierarchy that I have referred to in section 3.4 and stipulates the role and function of the consultants vis‑à‑vis the consortium. It constitutes part of the CA by necessary reference and intendment. The schedule or front page of the CA descends to the detail of defining the DB and its ingredients. One of the ingredients is the FCA/G4 submission, which would be of no import or intelligence unless it included the PDP. The PDP is dated 20 May and the CA is dated 24 May 1996.The PDP therefore pre-dates the CA and was a document in existence and known to the parties at the time the CA was sealed. Accordingly, the PDP is part of the CA itself.
I pause to interpolate a matter of law relating to so-called contracts of adhesion. I approve the statement of principle, insofar as construction law is concerned, in Hudsons Building and Engineering Contracts (11th edition) at page 440. In strict law, however, all that is necessary to incorporate parts of other documents into the head contractual document is a reference to or identification of the documents in question in some part of the contract, together with a sufficient indication of the extent to which those documents are intended to govern or control the contractual rights of the parties.
In my view, the PDP was compiled at a time when the consortium was anxious to be cited as the successful bidder and thereby gain some recompense for the work already done. In my view, by specifically referring to the DB in the CA, the parties clearly evinced an intention to incorporate all of its component parts into the contract. Furthermore, the PDP itself directs the design manager to forward the plan, that is, the DRP to LMM and for receipt to be acknowledged.
Should I be mistaken in any of this, I am of an alternate but subsidiary view that clause 1(b) or clause 14(a) of the GC's provide the power which was tantamount to a written instruction from FCA to LMM to follow the DRP inherent in the PDP.
The PDP encompasses an FCA document entitled "The Design Management Plan" (the DMP). Its introduction recites:
"The PDP is project specific and incorporates the customer's requirements with the Fletcher Management System to control the design management processes (my interpolation is that this, in effect, became the DRP) for the project and is a companion document to the PMP (Prison Management Plan)."
Three sections of the DMP deal with PDP control, design control and attachments. It states in relation to design:
"that all design work shall be carried out in accordance with the Fletcher design program attached. This program is subject to revision to ensure the construction, commissioning and handover objectives are met. LMM is assigned responsibilities for design and construction."
As to the review processes, clause 2.6 of the DMP provides that the following stages apply - Sketch plans, schematic layouts, detailed layouts and 100% documentation – "for construction" documentation. As to the review process, the DMP says:
"at the conclusion of each stage of design documentation and prior to formal submission to the client representatives, a formal documented review of the design is conducted by the design team. Planned formal design reviews are included in the approved Fletcher design program. Prior to the release 'for construction' (100% documentation stage) issue of design documentation, the design documents shall be reviewed by the Fletcher project design manager and cost planner to ensure client brief requirements are met, acceptance criteria for constructed work performance measures are defined, buildability and operational safety requirements are met, the design conforms with statutory requirements, and Fletcher cost plan requirements are met."
I have interleaved this reference to the DMP because its terms are part of the contractual documentation and because FCA contended at trial that its "approved for construction" stamp did not mean that the documents were complete, or that they were then obligated to pay.
5.2 Design Brief (DB)
The design brief prepared by the NPP consists of five lever-arch volumes. As it is incorporated by express reference, there can be no doubt as to its being part of the CA. The design brief itself recites, in part:
"The PDP will be a critical document (my emphasis) in which the time and quality objectives associated with the MMP are identified, recorded and communicated to all members of the development team."
Furthermore, 4B recites:
"LMM must take into account the contents of the DB and the CP."
The inter-relationship of the PDP and the DMP with respect to the CA, and with that the DRP, becomes readily apparent. FCA cannot disavow the structure it created and incorporated into the CA.
Mr Milesi, who gave evidence at trial, prepared the DB. That evidence illustrated the inherent contradiction within the brief insofar as the monetary interests of the parties is concerned. I suppose these contradictions attach to all building contracts. The owner naturally wishes to obtain as much "building" as possible for each dollar. The builder, working to a price, wants to minimise expense and thereby maximise profit. In this case, the position was slightly more complex because the operator, G4, wanted a prison constructed in a manner which would be the least costly to operate. Of course, the architect wanted to maximise his returns. The DB contained terms such as "a facility which would contain and supervise prisoners in a safe, secure, humane and just manner" and "measures to ensure no prisoner deaths occurred within the prison due to unnatural causes". The rhetoric of the DOJ, as expressed in the DB, fulfilled the aspirations of the most socially concerned. However, some of the objectives conflicted with each other and others were fanciful. As an illustration of the latter, I refer to a performance outcome which set the criteria for prisoners testing positive for non-prescription drugs at 8% per year.
In my view, the DRP set out in the PDP adheres to the CA and becomes part of it not merely because it is a document referred to by the parties at the time of sealing, but because as a matter of business efficacy it gives form and substance to the contractual relationship between them.
5.3 The Cost Plan (CP)
This was the pre-construction estimate of expenses and constraints prepared by Mr Kendall of FCA. If LMM's designs did not meet the financial constraints of the CP, FCA requested and obtained re‑drawings of them. In any event, the MMP was built to budget, on time and proved to be very profitable for FCA.
CHAPTER SIX - The Pleadings
This chapter will not merely recite the pleas but also interpolate some necessary comments and cross references to the defences and counterclaim.
6.1 Amended Statement of claim
LMM contends and FCA admit that representatives of the parties met in June 1995 and decided to make a submission to the DOJ for the design and construction of the MMP. In July of that year, LMM confirmed its agreement to provide architectural services for the project, subject to some discussion about its fees. My interpolation is that there is now no need for me to explore the allegations relating to a "success fee", that is, LMM's initial assertion that it was to be paid $100,000 if the consortium's bid for the MMP was successful. The plaintiff has abandoned its claim, submitting to FCA's defence that the success fee was incorporated into the general fee structure once the CA was concluded. It is also accepted by the parties that an original bid was put before the DOJ in November 1995. After re-working, an amendment was submitted in January 1996.
In February 1996, LMM submitted an account for the sum of $30,000. In any event, FCA admits that this amount was paid on account of the architectural services undertaken by LMM as part of the CA. It makes a similar concession in respect of an account in the sum of $70,000 rendered on 17April 1996 by LMM, admitting that both of these were paid in respect of architectural services.
6.1.1 Fee allocation to each of the four stages
The pleadings then move directly to the CA, LMM pleading that FCA was to pay the agreed sum of $1.6M and a further $100,000 in respect of the commissioning phase by instalments as various parts of the services were completed. Each payment was to be based on the value of the completed services so long as LMM was not in breach of any of the terms of the CA. For ease of comprehension, I repeat the four stages:
1.Schematic Design – $30,000
2.Design Development - $685,000
3.Design Documentation - $915, 000
4.Construction and Commissioning - $100,000.
6.1.2 Non-payment
The terms for payment provided that progress claims were to be paid on the 30th day of each month and that payment was to be made 30 days after the claim. LMM pleads that on 9 September 1996 it submitted a progress account representing work done in the sum of $270,000. It is critical now to note that this account was dated incorrectly - it bore the date 9 August 1996. The relevance of this error will become apparent when I deal with the performance of the contract and its termination.
LMM then pleads that pursuant to the CA, FCA was required to pay the sum of $270,000 before 9 October 1996. On 26 September 1996, FCA sent a document known as a 'PAN' (project advice notice) to LMM, informing it that it had assessed LMM's progress claim and reduced it to the sum of $52,950.
LMM then pleads that on 7 October 1996, it sent a fax to FCA disputing the assessment of LMM's claim and of FCA's assessment of the degree of completion of LMM's work. The same fax, so it is pleaded, requested a settlement meeting under the terms of clause 23(a) of the CA. LMM pleads that a settlement meeting, or that which passes for the same under the CA, occurred on 16 October 1996. The particulars then introduce the key characters in this litigation. On behalf of FCA, Messrs Grahame and Kendall and Mr Garry Marshall on behalf of LMM. The meeting failed to resolve the dispute. On 17 October 1996, FCA paid the sum of $62,950 to LMM as a progress payment leaving a balance outstanding of $207,050. LMM then pleads that, on 21 October 1996, FCA advised LMM of a revised assessment that it had made in respect of the progress claim for $270,000. FCA assessed the value of the work completed at $145,463 leaving a balance to be paid based on this assessment of $96,587. LMM pleads that FCA promised to pay the sum of $96,587 within the following week and contends that FCA failed to do so and, furthermore, that FCA has not paid at all. Consequently, the balance of $207,050 is due as not having been paid within the time frame specified in the CA. On 11 November 1996, LMM submitted to FCA a further account in respect of additional professional services completed in respect of the construction and commissioning stage, together with some variations which FCA had requested and agreed to pay for under the terms of the CA. The value of this work was placed at $76,525.
On 15 November 1996, FCA wrote to LMM indicating that it would not make any further payments in respect of works and services unless LMM wrote back confirming its commitment to perform all of its obligations under the CA. LMM then pleads that it continued to perform the services under the CA for not less than 28 days after the settlement meeting on 16 October 1996. It pleads that under the terms of the CA it was entitled to and did cease performing the services on 16 November 1996.
6.1.3 Repudiation by FCA
LMM pleads that FCA by its conduct repudiated the CA. It particularises that conduct as: FCA's failure to pay the progress claim within 30 days; and, FCA's refusal to pay the balance of its own revised assessment, namely $96,587, within the week commencing 21 October 1996 or at all. Further, LMM contends that FCA's refusal to make further payments pending LMM's confirmation of its commitment to perform the works in full, manifested an intention not to make progress payments as required under the CA.
On 20 November 1996 at a meeting convened between Mr Marshall for LMM and a Mr Hanich for FCA, Mr Marshall informed Mr Hanich that LMM would not carry out any further services as it had not been paid its progress claim, nor even the revised assessment which FCA had promised to pay. As a result, LMM accepted FCA's repudiation of the agreement and it was, therefore, at an end. I observe at this juncture and as a pertinent observation that Mr Hanich, at this meeting, had in his possession a cheque for the sum of $96,537. Mr Hanich could not be called as a witness because of illness. I was left to surmise the reason for the non delivery of the cheque. LMM pleads in the alternative that FCA repudiated the CA on 16 December 1996. It relies on the facts already referred to and adds that FCA served an invalid notice of termination upon it on that date, wrongfully purporting to terminate the CA. Furthermore, on or about that date FCA retained the services of Spowers Consultants (SP) in place of the plaintiff in respect of the MMP.
As the sealant, or lack of it, was one of the issues raised by Dr Baigent, it is as well to observe that this problem was recognised when the windows were being installed. Thus, this was long after LMM ceased to be involved in the project. Furthermore, LMM was ignorant of the shop drawings in question.
12.2.2.5 Reliability of witnesses
I have already observed that the evidence of Dr Kariuki and Messrs Dacre and Gartner is to be preferred over that of Dr Baigent. These witnesses replied to Dr Baigent and, in my view, did so effectively. Dr Kariuki thought that proper sealing of the gaps would at least hinder the corrosive process which, in any event, was slow and unlikely to lead to problems before the expiration of the 20-year term. He considered that the corrosion protection required for the embedded steel (that is, the return arms of the C in the C section) was properly addressed in LMM's drawings. He stated that:
"The embedded steel in the good quality precast concrete panel was unlikely to be the source of corrosion because the quality of the concrete was in this case, superior to that usually specified."
As to the suggestion that electrolysis would occur between the mild steel and aluminium, Dr Kariuki did not agree with the proposition that there was a large amount of aluminium negativing the effect of a relatively large surface of steel.
An important aspect of Dr Kariuki's evidence was that, in his opinion, the precast concrete panels as specified by SWIJ, provided a sufficient concrete cover over the return arms of the C section, which prevented carbonation from reaching the reinforcing steel and initiating a corrosive process. Dr Kariuki thought that if the painting and film finishes as specified by LMM were properly maintained, G4 would be able to deliver the prison back to the DOJ at the end of the term in good order and condition. He said that the concrete provided an alkaline environment and steel formed a passive oxide layer, which in itself was resistant to corrosive forces even in the presence of moisture. He directly contradicted Dr Baigent by stating that the type of deterioration and degradation referred to by him would simply not occur. He also indicated that on his various inspections of the prison, he had not seen any spalling of the concrete, which was consistent with the corrosion of steel embedded in the concrete. In my view, Dr Kariuki's and Mr Dacre's evidence overwhelmed that of Dr Baigent and, accordingly, served to undermine FCA's case on this point.
As if to further corrode Dr Baigent's evidence, Mr Gartner who also inspected the prison said that he, not unlike other witnesses, noticed that some windows were properly sealed and others were not. He thought that the problems, if any, could be resolved by the proper application of a sealant.
Mr Gartner accepted the cost estimate of Mr Packham, namely, that the cost of applying a bead of silicon sealant around the window frames would amount to $10,644. He indicated that this would obviate potential risks of corrosion. The fact that FCA seeks to recover almost $2M for this defect does very little for its credit. In any event, I find this defect to be of FCA's own creation.
12.2.2.6 Conclusion re Windows and Frames
I conclude that:
· The design for the windows and frames was not included as an architectural service within the CA;
· The windows and frames were not designed by LMM;
· If they were, FCA waived LMM's design obligations;
· There is no direct line of causation in relation to LMM's failure to design and FCA's putative loss;
· FCA is estopped from denying it waived the obligation or that it required LMM to design windows;
· Even if LMM did design the windows and frames and there was no waiver or estoppel, the windows are not defective;
· Even if there is a defect, it relates only to the sealing, which could and should be remedied as part of the regular maintenance obligation.
CHAPTER THIRTEEN – Standard of Care for the Class of Work
Clause 1(b) of the GC's provided that LMM shall "exercise the standard of skill, care and diligence to be expected of a professional consultant experienced in the class of work to be executed". FCA's argument is that LMM failed to discharge this duty in respect of the class of work under which the MMP should be categorised. Therefore, it is necessary to examine the class of work involved.
13.1 The Standard of Care
In my view, the common law, as expressed by Windeyer J in Voli v Inglewood Shire Council (1963) 110 CLR 74 at p.84 and approved in Bryan v Maloney (1995) 182 CLR 609, cites the principles which bind me viz:
"An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence. He is not required to have an extraordinary degree of skill or the highest professional attainments. But he must bring to the task he undertakes the competence and skill that is usual among architects practising their profession. And he must use due care. If he fails in these matters and the person who employed him thereby suffers damage, he is liable to that person. This liability can be said to arise either from a breach of his contract or in tort."
As has been observed throughout the centuries, acting with due care, skill and diligence does not mean that the result is perfect, or that the professional extends a guarantee to that effect to the customer (see, for example, John Cooke and Mandatories v Cosmo Falconer's Representatives (1850-1851) 13 SC 157 and the cases referred to in Voli cited above). The standard of care required must be based upon events, as they occur in prospect and not retrospect. Hindsight of a 20/20 kind is not the measure. These comments of mine are mostly otiose insofar as this case is concerned, for I am quite satisfied that LMM displayed more than an adequate degree of care, skill and diligence in relation to the class of work that I have described.
I specifically refer to the evidence of Mr Twinn, who was an expert in providing maximum security facilities for buildings. Applying his higher and more stringent standards to LMM's work, he opined that it was adequate. The opinions of Mr Twinn, the expert on the ground who exercised close and constant scrutiny of the drawings passing through his hands, must be given great weight. I have noted that, in my view, he applied a higher standard of care than that which was appropriate for the project. Even applying that standard, he considered that LMM had discharged its duties and obligations (see NRMA v Morgan (1999) 31 ACSR 345, concerning the standard of care required by specialists).
13.2 Class of Work
Various views were expressed by the witnesses concerning the class of work involved in the MMP project. None of the witnesses referred to the Sydney Opera House, nor to its architect Utzon. That represented architectural and constructional experimentation, which produced a building of stunning novelty. The MMP does not fall into that category of public construction, although Mr Codd's evidence suggested that it might. This was not always the case with prisons. Victoria's former prisons, built in the latter nineteenth century, were a reflection of Joshua Jebb's plans in Britain. They, in turn, were the projection of John Howard's pioneering work as Sheriff of Bedfordshire. The resultant Pentonville Gaols were also the product of the work of Jeremy Bentham and Elizabeth Fry. At the time, expenditure on prisons in the colony comprised a significant portion of all public expenditure. They were built on the grand scale with expensive materials and often accorded accommodation superior to that to which the prisoners had been accustomed. The "Melbourne Argus" reported on 22 March 1859 that "the new gaol (Melbourne), stairs and balconies in the interior by which the respective stories of cells are reached are constructed of light ironwork instead of stone and together with the lofty glass roof give an aspect of greater airiness and cheerfulness to the place than such structures usually present." I observe that the prison was serviced by the latest technologies of the time, including hydraulic lifts for lifting food to the upper stories, ventilation shafts and a large flue near the roof to ensure a continuous fire.
The MMP, despite the lofty rhetoric in the DB, is a far cry from these earlier constructions. In the 1860s, there may well have been a class of work which could be classified as prison architecture. That decade saw the construction of massive bluestone structures at Beechworth, Ballarat, Bendigo, Geelong, Arrarat, Pentridge and Melbourne. There was very little prison construction for the next 130 years. The MMP was a novel venture insofar as it was to be constructed under the "boot" system. The limited prison construction which had occurred in Victoria concerned State run facilities. The MMP was to be operated by private entrepreneurs. Of course, whether the operators are State or private entities has little effect upon the main function of a prison, namely, incarceration. However, a new ingredient was injected into the MMP project, that is, G4's requirement that the prison be run as profitably as possible. This was in conflict with FCA's objective that the prison be built as cheaply as possible. Therefore, I consider that the "class of work" concerned here involved some novelty. In my view, that factor should be given some weight, although it is neither decisive or of any major significance.
It is uncontested that a prison is intended to serve a public function. Its purpose is to incarcerate those citizens who have broken the criminal law or, if on remand, are alleged to have done so. Different standards of accommodation must be provided. In order to maintain discipline within a prison, there must always be a "worst place" to which recalcitrant inmates can be sent. Facilities must be provided for the sick and the psychologically disturbed. There must be provision for the proper recreation of prisoners and staff and amenities suitable for the preparation and consumption of meals. Therefore, a prison is a large public institutional facility, requiring different types and standards of accommodations all within a secure perimeter. In this case, all the inmates were to be male. This is another characteristic, albeit insignificant, to be taken into account.
Having heard the opinion of the witnesses and having identified the purposes for which the services were required, I conclude that the standard of skill, care and diligence expected of LMM under the terms of the CA was that of an architect experienced in the design and construction of large public institutional buildings requiring secure environments. In my view, this class of work would encompass the construction of prisons for both males and females, incorporating maximum and minimum security standards, large remand centres, secure hospital facilities for the mentally disabled and those compulsorily incarcerated, hostels to detain illegal immigrants and quarantine facilities. The class of work is not restricted to so-called "male maximum security prisons". I am satisfied that there is no such architectural speciality, whether in this jurisdiction or in the whole of Australia. Furthermore, as all prisons require a range of accommodation whatever the security status, a class of work restricted to "maximum security" would have little meaning in the real world of penology.
13.3 Summation
The terms of a contract will often dictate the standard of care required of its actors. In this case, I am entitled to take into account facts which are peculiar to the CA when assessing the standard which should be applied to the class of work involved. I incorporate the matters referred to in the preceding paragraphs in this category. Accordingly, this was a large, male, maximum security prison designed to be operated by private enterprise. It was constructed by private entrepreneurs, rather than by the State's own building authorities and it was a D&C type contract. Further, a hierarchy of the interested parties was set in place to review the architectural design drawings, that is, the DRP process. Additionally, the contract was predicated upon a 20 year term with the option of renewal. However, a comprehensive maintenance programme was to be implemented in the interim. I should also refer to G4 and ACF. The contract between FCA and LMM was part of the larger scheme from which the MMP was built. LMM was bound to assume, as was the fact, that it could receive instructions as to how to proceed from both FCA and G4, acting on FCA's behalf. FCA cannot now, in my view, disavow the work of Mr Twinn.
Finally, I observe that LMM was part of the bid consortium. It was LMM's schematic drawings which assisted ACF in qualifying as the preferred bidder. Thereafter, work was done in conjunction with the NPP which resulted in FCA's further submissions and input into the DB. When the CA was sealed, LMM had done about half the work required of it under its terms. None of this work was subject to complaint. LMM had participated in the architectural process for approximately one year prior to the sealing of the CA.
In my view, all of the above factors are relevant in ascertaining the standard of care required for the "class of work" involved and in identifying the standard expected by FCA. The class was "large public institutional facilities requiring different types and standards of accommodation within a secure perimeter". The standard required was that of a professional architect performing a D&C contract on behalf of a cost‑conscious client. That standard required the skills which, to my mind, LMM possessed and acquitted reasonably, competently, and fairly.
CHAPTER FOURTEEN - Causation
Causation is a question of fact. Whether a particular act or omission to act caused damage or whether the damage resulted from the act or omission in question, is to be answered by applying commonsense to the facts. I am bound by March v E & M H Stramare Pty Ltd (1991) 171 CLR 506. That case was subject to some comment by Kirby J in Chappel v Heart (1998) 195 CLR 232, where His Honour referred to the "but for" test. Kirby J said at p. 269:
"In this sense the 'but for' test, so qualified, remains a relevant criterion for determining, whether the breach of duty demonstrated is a cause of the plaintiff's damage. However, it is not the exclusive test. Nor is it sufficient on its own to demonstrate the causal link for legal purposes. It is a mistake to read this court's cautionary words about the 'but for' test as an expulsion of that notion from consideration where the question of causation is in contest."
However, I do not think, as was contended by Mr Martin, that the 'but for' test must first be satisfied before the court should consider issues of causation by reference to commonsense and experience. The comments of Kirby J do not reflect such a radical position.
The common sense issue for me to dispose of is whether the various failures or omissions by LMM, if they occurred, if FCA is not estopped from asserting the breaches and if FCA had not waived LMM's obligations, would have materially caused or contributed to FCA's purported loss or damage.
I refer back to Chapter Twelve. I find that FCA failed to discharge the onus placed upon it to establish that any act or failure to act on the part of LMM caused or materially contributed to any of the alleged 17 defects. I state this finding merely by way of completeness and in order to meet much of Mr Martin's arguments. Indeed, I have found that LMM discharged its duty of care in respect of the architectural services that it provided for the class of work into which the MMP fell.
CHAPTER FIFTEEN – Termination or Repudiation of the CA
In my view, LMM was entitled to terminate the contract on 16 November 1996. The purported termination by FCA in December was of no effect. That was a construct for litigious purposes. LMM was also entitled, under the terms of clause 23 of the CA and at common law (by virtue of clause 24 of the CA), to treat the CA as having been repudiated by FCA as of 16 November 1996.
15.1 Termination at common law
It is trite to say that one party may regard the contract as terminated if the other side has, by its conduct, repudiated it by refusing to perform its part of the deal. That is what occurred in this case. FCA would not pay LMM as it was obliged to do under the CA.
It is my opinion that clause 23 of the CA entitled "Dispute Resolution", does not "cover the field" in defining the ways in which the CA could be terminated by either party. I come to this view by making reference to clause 24 entitled "Applicable Law", which provides that the agreement is governed by Victorian law (Victoria being the place where the works were to be constructed). Accordingly, if the procedure under clause 23 is not pursued, then the entire panoply of the Victorian common law as to termination comes to bear upon this contract.
I am of the view that the procedure stipulated in clause 23 was followed. However, even if it was not, LMM was entitled to treat FCA's non-payment as a refusal to perform its part of the bargain and, accordingly, to bring the contract to an end.
Clause 22 entitled "Default and Termination", enumerates the paths available to FCA to terminate the contract. The contract is silent and accepts the common law as to how LMM could effect termination. LMM is not provided with the same options as those invested in FCA by virtue of clause 22. That clause entitles FCA to terminate the CA should LMM, in FCA's opinion, default or for any reason upon written notice (my emphasis). In effect, FCA could terminate at its own option for any reason. LMM could not. However, that position is ameliorated by clause 24, which subjects the CA to the law of Victoria.
15.2 Termination pursuant to clause 23 of the CA.
As I have already observed, it is my view that LMM did comply with clause 23 of the CA. The three conditions provided therein were satisfied: (1) there was a settlement meeting properly convened and it failed; (2) LMM worked during the "work out" period; and, (3) the dispute remained unresolved, therefore, the contract was at an end.
Clause 23 is discretionary and not mandatory. It provides one method of terminating the contract. However, a proper reading of the clause does not permit it to be read as providing the only method of termination. Part (a) reads: "If a dispute arises either party may give written notice ". Part (b), in my view, opens the door to the common law. I rehearse it again. If a settlement meeting does not take place, or the dispute remains unresolved after seven days of the settlement meeting, the dissatisfied party is free to pursue its rights under clause 24. One asks rhetorically: what are the dissatisfied party's rights under clause 24? This brings us back to the law of Victoria and to the common law.
Furthermore, the expression "is free to pursue" implies an option, rather than an obligation. If a settlement meeting fails, the dissatisfied party may terminate the contract but must, under the terms of Part (c), continue performance for 28 days. Therefore, if the meeting of 16 October constituted a settlement meeting, LMM became entitled to terminate the contract if the dispute remained unresolved after seven days therefrom, provided that it continued to work for 28 days and that the dispute remained unresolved. All this occurred.
In my opinion, clause 23 provides the parties with an optional method of dispute resolution. It neither usurps the common law, nor creates a condition precedent for the application of it. I refer to clause 23(a), which I rehearse again. If a dispute arises, either party may at any time, give written notice to the other requesting a settlement meeting. Representatives must meet within seven days. The emphasised words are not perchance. The clause may be invoked by either of the parties. If it is, the parties must meet within seven days, provided that the settlement meeting is called for by written notice. If the settlement meeting does not take place or if it fails, either party after seven days may avail itself of the law of Victoria to terminate the contract.
Taking the view that the letter of 16 October constituted a request for a settlement meeting, the parties did not meet within seven days as required by clause 23(a) (see paragraphs 204 to 210). Alternatively, taking the view that the letter complied with clause 23 and that the parties did meet or at least corresponded through the exchange of letters and faxes in such a way as to amount to a meeting, LMM became entitled, upon a lack of resolution, to terminate the contract.
15.3 Repudiation by FCA
The issue of whether or not a party has repudiated a contract must be assessed objectively upon the facts and not by ascertaining the subjective intention of the repudiating party. It is a serious matter, which is not to be lightly inferred. In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, Deane and Dawson JJ cite Lord Herschell's dictum in Carswell v Collard [1893] AC 635 with approval, viz:
"The question is what effect the lessor's conduct 'would be reasonably calculated to have upon a reasonable person'. It suffices that viewed objectively the conduct of the relevant party has been such as to convey to a reasonable person in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it."
Pursuant to Annexure C, clause 3 of the CA, FCA was obliged to pay within 30 days of a claim made by the 30th of each month. On 9 September, LMM submitted its account 6436, which was incorrectly dated for work done between June and August. In my view, the account had to be paid by 9 October. However, by 8 and 9 October (see paragraph 202), FCA had not made any payment. Six days later, on 15 October, FCA paid part of the account only, that is, $62,950. On the next day, the settlement meeting occurred. Five days later, on 21 October, FCA sent a revised assessment of account No. 6436 prepared by Mr Kendall in the sum of $145,463, leaving a balance to be paid, according to this assessment, of $96,587. FCA promised that it would pay within the week commencing 21 October, that is, by 25 October. Although Mr Grahame says that he requisitioned the cheque on Thursday 24 October, it was never paid to LMM. No good reason was advanced as to why the cheque may have languished in FCA's Accounts Department. In my opinion, viewed objectively and according the greatest latitude possible to FCA, its own self‑assessed obligation to pay $96,587 which it then failed to honour would raise a belief in the mind of the reasonable observer, and a firm one at that, that FCA was turning its back upon or repudiating the contract. FCA's previous protestations, which contested the amount due, the late payment of some accounts, and its self‑assessed partial sum, which it did not pay when it said that it would, gives rise to a reasonable opinion and belief that FCA had not and would not perform its part of the bargain.
In FCA's letter of 8 November, it asserted that: "payment of your fee had been made in accordance with the CA". This would have left in the mind of any reasonable observer contemplating this chronology, a clear view that FCA was not going to pay anything more. Nevertheless, LMM provided FCA with another opportunity. LMM's correspondence of 11 November elicited FCA's response of 15 November which affirmed FCA's decision not to pay, or at least only to do so on its own terms, namely, if "LMM would affirm its commitment to the contract". In my view, this amounts to even clearer evidence of repudiation. FCA were effectively saying the following: "We have not paid you and will not do so. Please confirm that you will go on working for nothing". The implication being that FCA might pay LMM if it continues to work but that it will not get all that is due.
At the time that Mr Grahame sent his letter of 16 November, he was aware that LMM's demand for payment meant that FCA faced potential legal action. It was plain that the threat was not an idle one. At that point, even FCA had admitted that moneys were outstanding. Yet, FCA's letter of the 16 November reaffirmed its stance that it would not pay. I consider that FCA's failure to pay, in the face of the clear admonition and warning contained in Mr Marshall's fax of 8 November (see paragraph 217), amounts to a clear repudiation of the contract on FCA's part. It must be remembered that LMM was still working. Indeed, LMM considered that it was obliged to do so up until 16 November. In my view, any reasonable person would conclude that FCA was not prepared to abide by its obligation to pay the account in full within 30 days for LMM's architectural services. FCA had contested the amount due, assessed the amount owing on its own terms, agreed that it would pay some, then did not and was told that it might be sued if it did not pay. Nevertheless, no further payments were forthcoming. All this time, LMM was continuing to work and yet, as of 15 October, it had not been paid anything. Therefore, on 15 November, the only conclusion which any reasonable person could draw was that FCA would not pay within the terms of the contract and that it had unilaterally set it aside.
In my view, the failure to pay after receiving advice that legal action would follow within 24 hours is further evidence of FCA's repudiation of the contract. Accordingly, LMM was entitled to accept such conduct as evidence that the contract was at an end.
15.4 Purported termination by FCA
By its Notice of 18 December, FCA purported to terminate the CA (see paragraph 230). This may well have been an attempt by FCA to bring its position into alignment with the agreement. However, it had twice admitted to itself that it owed LMM money. In my view, FCA must have appreciated its own default long before it issued the notice. Furthermore, the contract was plainly at an end - LMM had ceased work and sued for its fees and FCA's position had not changed insofar as payment was concerned.
It must be recorded that LMM's demands, as at November, represented approximately 99% of its fee entitlement for the documentation stage. At trial, Mr Marshall conceded that this was probably an overestimate. Mr Martin contended that this concession amounted to an admission on the part of LMM that its demands were unsound and unreasonable and, therefore, submitted that FCA was entitled to terminate under the terms of clause 22 of the CA.
I turn to LMM's plea that FCA's opinion that it should terminate the CA was neither reasonably formed, nor constituted a reasonable exercise of its discretion. Mr Martin contends that the overstated demand gives rise to the reasonable opinion and allows for the exercise of the discretion, as embodied in the notice (See Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234). It is not strictly necessary to deal with this point because I have found that FCA repudiated the contract in the proceeding month. However, I do observe that FCA's opinion was unreasonable. I reject Mr Grahame's opinion for the following reasons. It is now known that SP charged FCA less than $200,000 for the services relating to the documentation stage. This figure cannot be ascertained with precision because there was some overlap with the services provided in relation to stage 4. However, the SP figure is not much greater than the value attributed to the LMM work for which FCA did not pay. Further, it must be recalled that the SP figure related to the total completion of the works and that LMM never conceded that it had completed all the works.
15.5 LMM's acceptance of FCA's repudiation
In my view, when LMM ceased work on 16 November, it accepted FCA's repudiation of the CA. Acceptance of the repudiation was entrenched and became absolutely clear to FCA by virtue of the correspondence between Messrs Marshall and Hanich (see paragraphs 227 – 228). The cessation of work by LMM constituted acceptance by it of FCA's repudiation of the CA. It amounted to an unequivocal manifestation of an intention to cease performing the CA.
The common law provides that an unequivocal intention to accept the other party's repudiation of the contract and to cease performing it does not require formal expression, nor the service of a formal notice (see Tropical Traders Ltd v Goonan (1964) 111 CLR 41). In Vitol SA v Norelf Limited [1996] 3 All ER 193, Lord Steyn said at 200-201:
"I am satisfied that a failure to perform may sometimes signify to a repudiating party an election by the aggrieved party to treat the contract as at an end. … Sometimes in the practical world of businessmen an omission to act may be as pregnant with meaning as a positive declaration."
In my view, the situation envisaged by Lord Steyn occurred here. In truncated terms, LMM said: "If you don't pay me, I won't work". To which FCA responded: "We won't pay you, except 'perhaps' on our terms". LMM then replied: "Well, we'll stop work". Following this, FCA did not pay. It must be seen to have accepted LMM's cessation of work of the CA, its termination and its unequivocal intention to avoid the contract in the event of non‑payment. Mr Hanich's failure to pass the cheque in his pocket on to LMM on 20 November in the full knowledge that LMM had ceased work four days before, constituted conduct amounting to an acceptance of LMM's repudiation of the contract. FCA could have kept the CA alive. It could have enticed LMM to resume work. Indeed, all of the market power resided with FCA. It chose to do none of those things. Those omissions amounted to positive conduct, which had the effect of accepting LMM's acceptance of FCA's own repudiation of the contract. I appreciate that FCA may have considered that it was being manipulated ("blackmailed" is too harsh a term) by LMM, given that it would be difficult to find an alternative architect when the documentation stage was almost complete and the final stage about to commence. In any event, that notional pressure was insignificant when compared to the financial power exercisable by FCA.
CHAPTER SIXTEEN - Estoppel
If necessary, I would have found that LMM's estoppel pleas were made out. As for the estoppel pleading, see section 6.9.2. I have already found that LMM's waiver pleas have been successful. The principles of equitable estoppel were reviewed and refined in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and subsequently in Commonwealth v Verwayen (1990) 170 CLR 394. Further, they were cited with approval in Giumelli v Giumelli (1999) 73 ALJR 547. The principles can be distilled in the terms enunciated by Brennan J in Verwayen at p.428-429 viz:
" … equitable estoppel yields a remedy in order to prevent unconscionable conduct on the part of the party who, having made a promise to another who acts on it to his detriment, seeks to resile from the promise."
Perhaps the principles of estoppel could only apply if the specific defects, to which LMM has replied, were brought to FCA's attention at the time, thereby establishing the conduct from which it would now be unconscionable to permit FCA to resile. As LMM has now been successful in pleading that the defects cannot be attributed to it, or that they were not found, or that they were immaterial, its estoppel plea, as a matter of logic, need not be examined. However, as a matter of fairness to the parties, I make the following comments.
I consider that the relevant law is best recited in Hudsons Building and Engineering Contracts (11th ed.) at para 5-021.
"From early times it has been sought to be contended on behalf of contractors or their sureties who have carried out defective work … that the owner has waived or is estopped from claiming damages by reason of the fact that the breaches of contract were visible during the course of the architect's or engineer's usual visits to the site while supervising the work but no disapproval was then expressed. It is clear it is submitted that no estoppel or waiver could arise unless some matter was expressly brought to an architect's or engineer's attention by the contractor and he was expressly asked for and gave his approval. Even in such a case the estoppel would only, it is submitted, operate in relation to an apparent characteristic of the doubtful work or materials, and not to some concealed defect of which the architect engineer was unaware at the time of expressing his approval."
The author is careful to use the disjunction "or" when considering estoppel and waiver. The law has customarily distinguished between the two legal concepts. In any event, had it been necessary to decide the estoppel issue, I would have addressed the following considerations (as per Verwayen): (1) the nature of the promise to pay, inherent in FCA's "approved for construction" documentation within the framework of the DRP; (2) whether it could be said that LMM acted upon that promise; (3) whether LMM, in so doing, sustained a detriment; (4) whether it could be said that FCA sought to resile from that promise, and, finally, (5) whether such resolution would be unconscionable.
I have previously examined the DRP (see section 3.4). With a D&C contract, there was the possibility that after having stamped the plans "approved for construction", some alteration or amendment might be required. In those instances where amendments were necessary, LMM accommodated the changes so that they could be incorporated in the framework of its fee structure and, except in one instance, it did not seek further payment for variations. However, the behaviour of the parties clearly establishes that once a drawing was marked "for construction", it was then used for that purpose. In my view, the drawing was then complete within the terms of the CA and FCA accepted an obligation to pay for those architectural services. That which FCA contested in September and October 1996 was, in reality, not that the work had been done defectively but that some of it had not been done at all. The Bowe and Kendall reports raise some suggestion of defective work, but they largely deal with work which was omitted. The schedule of defects was produced by Mr Codd.
I consider that it could be argued that FCA did make a promise to pay LMM upon the drawings being stamped "approved for construction" and that LMM acted on the basis of that undertaking. LMM has plainly suffered a detriment insofar as it continued to work on the project in the expectation, now unfulfilled, of payment in full for its approved drawings. There is no doubt that FCA resiled from its promise to pay for such drawings. Accordingly, I think it would be unconscionable in the circumstances to tolerate a situation whereby FCA is to become unjustly enriched because LMM has performed its part of the contract for a diminished sum.
CHAPTER SEVENTEEN – Conclusion
(1)I consider that LMM's claim for architectural services, provided and not paid for, to be made out as to 93% of the architectural services for Stage 3, which together with some agreed additions, brings that figure to $196,950.
(2)I consider that LMM performed the consultancy agreement, discharging of the standard of care required by it, considering the class of work involved.
(3)I dismiss the counterclaim and find that the architectural services provided by LMM did not omit anything, which should have been included, did not contain defective design elements and did not result in work which requires rectification or reconstruction.
(4)I find that, had architectural services been required and not provided, or had architectural drawings been supplied which were defective, then the defendant waived strict compliance with the contractual terms requiring them.
(5)Further, I find that FCA would now be estopped from denying that it had accepted the position whereby LMM had omitted certain works or had provided defective architectural services.
(6)I find that the contract was legally terminated by LMM.
(7)I find that FCA, by its conduct, repudiated the contract as from 16 November 1996.
(8)I find that, in the event that there are some design defects, they do not arise from or were not caused by, LMM's architectural services. Rather, I find that they arise from FCA's conduct.
In the result, the counterclaim must be dismissed. Judgment for the plaintiff for $196,950. I shall hear argument as to costs.
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