Mancorp Pty Ltd v Bauderstone Pty Ltd Trading as Baulderstone Hornibrook (No.2) No. SCGRG 89/960 Judgment No. 3702 Number of Pages 7 Contracts Building, Engineering and Related Contracts

[1992] SASC 3702

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA DEBELLE J

CWDS
Contracts - building, engineering and related contracts - Breach of contract - Damages - Whether provision in building contract precludes claim for damages at common law - HELD, damages at common law are recoverable. Szvmonowski and Co v Beck and Co (1923) 1 KB 457; Duncombe v Porter (1953) 90 CLR 295 and Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd (1974) AC 689, applied.

HRNG ADELAIDE, 7 September, 27-29 October 1992 #DATE 13:11:1992
Counsel for plaintiff:     Mr W J N Wells QC with
   Mr P Heywood-Smith
Solicitors for plaintiff:    Thomson Simmons and Co
Counsel for defendant:     Mr V Bruce QC with Mr M Rice
Solicitors for defendant:    Ross and Mccarthy

ORDER
Declaration made.

JUDGE1 DEBELLE J In this action for damages for breach of contract, the plaintiff Mancorp Pty Ltd ("Mancorp") claims that the defendant Baulderstone Pty Ltd ("Baulderstone") has acted in breach of a contract to construct a building in Hindmarsh Square, Adelaide, now known as the Price Waterhouse Centre. It had been ordered that the question whether the defendant is liable to the plaintiff should be determined as a preliminary issue. On 5 June 1992, I published reasons for holding that Mancorp had lawfully terminated the building contract. As yet, no judgment has been entered in respect of that preliminary issue. 2. After those reasons had been published, the parties identified another issue which they sought to have determined before proceeding to an assessment of the damages payable to Mancorp. The question is, whether upon a proper construction of the building contract and in the events that have happened is the plaintiff's claim for damages restricted in any, and if so, what way by the terms of the contract? On 7 September 1992, I ordered that that question be determined as a preliminary issue. The question arises in this way. 3. In October 1988, Mancorp engaged Baulderstone to construct the building which is now known as the Price Waterhouse Centre. The building work began in November 1988. One of the documents which comprised the contract made by Mancorp and Baulderstone is a draft agreement entitled "Agreement for Construction of Works at 75 Hindmarsh Square, Adelaide." In correspondence between the parties it was often called "the Agreement". Clause 33 of this agreement provided a procedure by which Mancorp as the building owner could terminate the employment of Baulderstone as builder. Clause 33 provided:-
    "Determination by the owner
    33.1 Events of Default If the Builder shall make fault in any
    one or more of the following respects, that is to say is the
    Builder:-
    33.1.1 Without reasonable cause, wholly suspends the
    carrying out of the Works before Practical Completion thereof;
    or
    33.1.2 Fails to proceed with the Works with reasonable
    diligence or in a competent manner; or
    33.1.3 Refuses or persistently neglects to comply with
    written notice from the owner requiring the Builder to remove
    defective work or improper materials or goods and by such
    refusal or neglect the Works are materially affected; or
    33.1.4 If the Builder shall become bankrupt or enter or
    attempt to enter into any composition or arrangement with his
    creditors or being a company shall have an execution levied
    against it or shall have a winding up order made or pass or
    attempt to pass a resolution for winding up or shall be a party
    to the appointment of or have an official manager or inspector
    appointed pursuant to the provisions of the Companies (South
    Australia) Code or have a receiver of the whole or any part of
    its property or undertaking appointed to be a party or to
    attempt to enter into any composition or scheme of arrangement
    with its creditors.
    33.1.5 Is otherwise guilty of a substantial breach of this
    Agreement
    THEN in the case of the events set out in Clause 33.1.4 the Owner
    may by written notice forthwith determine the Builder's employment
    without prejudice to any other rights and remedies it may possess and
    in any such case the Owner may, without prejudice to any other rights
    and remedies it may possess, send to the Builder by certified mail
    notice specifying the default complained of an indicating the Owner's
    intention to either:-
    33.1.6 determine the Builder's employment under this
    Agreement: or
    33.1.7 remove from the control of the Builder, the part or
    parts of the Works specified in that notice.
    If within fourteen (14) days of the date of service of a
    notice pursuant to this clause, the default notified had not
    been rectified then the Owner may forthwith serve by certified
    mail on the Builder a further notice either determining the
    Builder's employment under this Agreement or removing from the
    control of the Builder that part of those parts of the Works
    (whichever the case may be) which are specified in the notice.
    Any purported determination by the Owner pursuant to this clause
    shall be ineffective if at the date of giving the first-mentioned
    notice the Builder has served a notice of determination on the Owner
    pursuant to Clause 34.1.
    33.2 Consequence of Termination In the event of the employment
    of the Builder being determined pursuant to Clause 33.1 hereof
    the following shall be the respective rights duties and
    liabilities of the Owner and the Builder:-
    33.2.1 The Owner may employ and pay some other person or
    persons and purchase all materials and goods necessary to
    protect and maintain and to carry out and complete the Works in
    accordance with this Agreement or any part or parts thereof
    and the Owner or such any such aforesaid persons may enter
    upon the Works and use all temporary buildings plant tools
    equipment goods and materials intended for delivered to and placed
    on or adjacent to the Works (without the Owner being responsible to
    the Builder for any wear and tear thereto).
    33.2.2 The Builder shall if so required by the Owner within
    seven (7) days of the date of determination assign to the Owner
    without payment the benefit of any agreement for the supply
    of materials or goods or for the carrying out of any part of the
    Works for the purposes of this Agreement and after any such
    assignment the Owner shall pay the price fixed by any such
    Agreement insofar as the price thereof has not already been
    paid by the Builder PROVIDED ALWAYS that the Builder is not in
    default thereunder in which case the Owner shall not be
    obliged to accept assignment of the relevant Agreement. Payments
    made under this paragraph may be deducted from any sum due or to
    become due to the Builder.
    33.2.3 The Builder shall forthwith vacate the Site and
    remove therefrom all temporary buildings plant tools equipment
    materials and goods owned by it and in the event that the
    Builder does not vacate the Site and remove therefrom all
    temporary buildings plant tools equipment materials and goods
    owned by it as aforesaid then the Owner may, not less than seven
    (7) days after notifying the Builder in writing of its intention
    so to do (but without being responsible for any necessary loss
    or damage occasioned by any such removal) remove or sell any
    such property of the Builder holding the proceeds less all
    reasonable costs incurred to the credit of the Builder.
    33.2.4 Upon completion of the Works by such other person or
    persons the Owner shall ascertain and give written notice to the
    Builder of the costs and expenses properly incurred in achieving
    such completion of the Works and shall if required by the
    Builder make available to the Builder all such supporting
    documentation as the Builder may reasonably require to verify
    the calculation of such costs and expenses. In the event that
    the amount of such costs and expenses when added to the moneys
    paid to the Builder by way of progress payments up to the date
    of determination result in a total amount in excess of that
    which would have been otherwise payable under this Agreement the
    difference shall be a debt payable to the Owner by the Builder
    and if the same amount when added to the said moneys results in
    a lesser total amount than that which the Owner would otherwise
    have been required to pay under this Agreement then the
    difference shall be a debt payable by the Owner to the Builder.
    33.3 Suspension of Payment If the Owner serves a notice on the
    Builder pursuant to Clause 33.1 the Owner may at its absolute
    discretion suspend payment of any moneys payable to the Builder
    pursuant to the terms of this Agreement until such tile as the
    default notified has been rectified by the Builder or if the
    Owner exercises its rights of determination pursuant to Clause
    33.2, until such time as the final accounts for the project have
    been prepared pursuant to the provisions of Clause 33.2.4." 4. A number of disputes arose between Mancorp and Baulderstone. Ultimately Mancorp invoked Clause 33 and terminated the employment of Baulderstone as builder. These disputes are examined in the reasons for judgment published on 5 June. It is sufficient for present purposes to note that on 5 July 1989 Mancorp served on Baulderstone a letter dated 5 July which enclosed a notice bearing the same date. The notice specified the defaults complained of by Mancorp and stated an intention to terminate the employment of Baulderstone. The letter read as follows:-
    "We enclose a Notice served pursuant to Clause 33 of the
    Agreement. We hereby advise that pursuant to clause 33.3 of
    the Agreement payment of any moneys that may be payable to
    you is suspended." 5. The material parts of the notice were in the following terms:-
    PRICE WATERHOUSE CENTRE NOTICE SPECIFYING DEFAULTS
    COMPLAINED OF AND INDICATING INTENTION TO TERMINATE EMPLOYMENT OF
    BUILDER TO: Baulderstone Pty Ltd 284 Portrush Road KENSINGTON
    SA 5068 Mancorp Pty Ltd whose registered office is situate at
    240 Currie Street Adelaide SA 5000 hereby gives notice specifying
    defaults complained of and indicating its intention to terminate
    your employment under the contract between it as the Owner and you
    as the Builder for the construction of the building known as the
    "Price Waterhouse Centre" (the "Building") the "Agreement for
    Construction of Works at 75 Hindmarsh Square Adelaide" marked
    "Draft 2" and dated 24th of October 1988 (being one of the contract
    documents and hereinafter referred to as "the Agreement") in that
    you are in default of terms and conditions of the said contract
    (including those recorded in the Agreement) in each of the
    following respects." (The notice then specified the alleged
    defaults of Baulderstone and then concluded:) "This notice is
    given without prejudice to all other rights and remedies that
    Mancorp Pty Ltd may possess." 6. Baulderstone did not take any action to remedy the alleged defaults. On 1 August 1989, Mancorp wrote to Baulderstone enclosing a notice of the termination of Baulderstone's employment. The letter was in the following terms:-
    "We refer to our letter to you dated 5th July 1989 and to
    our Notice of Intention to Terminate and now enclose Notice of
    Terminations. Mancorp considers Baulderstone's failures to
    comply with its fundamental obligation to proceed with the
    construction of the Price Waterhouse Centre, its failure to
    comply with Architect's instructions including those itemised in
    Architect's Instruction No. 26 and its failure to otherwise
    comply with the terms of the contract as evincing an intention
    not to be bound by and thereby repudiating the contract.
    Further and in the alternative to its termination pursuant to
    the terms of the contract an so that no doubt shall exist as to
    the possibility of continuance on site by Baulderstone, Mancorp
    accepts Baulderstone's repudiation of and hereby terminates the
    Contract. Mancorp hereby gives notice to Baulderstone upon
    determination of the Contract that:-
    1. Pursuant to Clause 33.2.1 of the Agreement and/or its
    other rights, Mancorp proposes forthwith to enter upon the Works.
    2. Pursuant to Clause 33.2.1 of the Agreement and/or its
    other rights, Mancorp requires that all temporary buildings,
    plant, tools, equipment, goods and materials intended for delivered
    to and placed on or adjacent to the Works be left for the use of
    itself, its servants, agents, contractors or sub-contractors.
    3. Mancorp requires that Baulderstone furnish to it within 24
    hours copies of all agreements entered into by Baulderstone for
    the supply of materials or goods or for the carrying out of any
    part of the Works for the purposes of the Contract to enable Mancorp
    to decide within the seven (7) day period stipulated in Clause
    33.2.2 of the Agreement which of such agreements it will require
    Baulderstone to assign the benefit of.
    4. Pursuant to Clause 33.2.3 of the Agreement and/or its other
    rights (but subject to the requirements stated in paragraph 2 hereof
    pursuant to Clause 33.2.1), Mancorp requires Baulderstone to forthwith
    vacate the Site.
    Mancorp hereby gives notice pursuant to Clause 33.3 of the
    Agreement that payment of any monies which may otherwise be
    payable by Mancorp to Baulderstone is and will continue to be
    suspended until such time as the final accounts for the project
    have been prepared pursuant to the provisions of Clause 33.2.4
    of the Agreement." 7. Thus, Mancorp purported both to proceed pursuant to clause 33 and to accept Baulderstone's repudiation of the contract. The notice enclosed in the letter was in the following terms:-
    "PRICE WATERHOUSE CENTRE
    NOTICE OF TERMINATION OF EMPLOYMENT FROM OWNER TO BUILDER TO:
    Baulderstone Pty Ltd 284 Portrush Road KENSINGTON SA 5068
    WHEREAS Notice Specifying Defaults Complained of and Indicating
    Intention to Terminate Employment of Builder has been served on
    you AND WHEREAS you have failed to rectify the defaults
    specified in the said notice within fourteen (14) days of
    service thereof. Mancorp Pty Ltd whose registered office is
    situate at 240 Currie Street Adelaide SA 5000 HEREBY GIVES
    NOTICE pursuant to the said Notice and Clause 33 of the
    Agreement referred to in the said Notice that your employment
    under the contract referred to in the said Notice is determined
    forthwith. This notice is given without prejudice to all other
rights and remedies that Mancorp Pty Ltd may possess." 8. In the reasons for judgment on the question of liability I held that Baulderstone failed to remedy the defects complained of by Mancorp in its notice to terminate dated 5 July 1989 and that Mancorp therefore lawfully terminated the contract on 1 August 1989 pursuant to clause 33. I held also that by its conduct Baulderstone had repudiated the contract and Mancorp had accepted the repudiation. 9. Mancorp arranged for another builder to complete the construction of the Price Waterhouse Centre. It now claims damages for breach of contract under the following heads:- 1. Increased cost of construction; 2. Increased cost paid to consultants; 3. Damages for failure to supply pre-cast concrete panels to specification; and 4. Loss of rent. In addition, there is a general claim for damages for breach of contract. The claim for loss of rent is made on the footing that Baulderstone was aware that Mancorp had negotiated with Price Waterhouse, a firm of chartered accountants, to occupy the building soon after completion. Mancorp alleges that the dispute resulted in substantial delays in completion of the contract which in turn delayed the occupation of the building by Price Waterhouse and caused Mancorp to lose rental income. 10. Mr Bruce QC, who appeared for Baulderstone, submitted that Mancorp's claim for damages is limited by clause 33.2.4 of the contract so that Mancorp is unable to claim any damages other than the increased cost of construction. He submitted that clause 33 provided an alternative to a building owner's remedies at common law and is in substitution for them. The consideration for the loss of those remedies at common law, he said, is a more certain procedure which provides a means by which an owner can with relative expedition bring a dispute to a head, remove the builder and get on with the building work. Mancorp, he said, could either have relied on the procedure provided in clause 33 or have accepted the repudiation by Baulderstone of its obligations under the contract. It was not possible to invoke both remedies; it had to elect between them. If it had accepted the repudiation by Baulderstone, Mancorp had available to it all its common law rights to damages. As it had invoked the procedure in clause 33, it was bound by the terms of clause 33 and could recover as damages only what clause 33.2.4 provided. I turn first to the question whether clause 33.2.4 limits Mancorp's rights to damages at common law. It is true, as Mr Bruce contended, that clause 33 provides a more certain procedure than might be available at common law by which an owner can terminate the employment of the builder and bring about a speedy completion of the building. It provides rights which might not be available at common law such as the right to use the builder's plant, tools, equipment and materials and the right to suspend payment of monies due to the builder. In so far as clause 33.2.4 provides for an accounting as between owner and builder in respect of any difference in the cost of construction and provides that the owner is entitled to claim any additional costs payable in consequence of the termination of the contract, the contract reflects the common law position: see Smail v D.L. Starbuck Pty Ltd (1971) VR 449 at 452-453; Mertens v Home Freeholds Co (1921) 2 KB 526; and Hudson's Building and Engineering Contracts (10th edition) at page 587. The fact that the owner must pay to the builder any difference if the cost of completion, when added to progress payments already paid, results in a total amount which is less than what otherwise have been payable by the owner is a curious provision. It is a provision which would enable a builder to profit from the termination in circumstances where the builder may have been in breach of the contract. It also penalises a builder who has been able efficiently to complete the building at a lesser cost. The usual provision is that the accounting as between the owner and the builder has regard to such other losses as the owner might have incurred. In the events which have happened there is nothing which calls this part of clause 33.2.4 into operation. However, I do not think that either the procedure in clause 33 or the rights provided in clause 33.2.4 displaces such other entitlement to damages as the owner might have at common law. 11. If a party to a contract wishes to exclude the ordinary consequences that would flow in law from the contract he is making, he must do so in clear and unambiguous terms. That principle has been expressed in relation to contracts concerning the sale of goods: see Szymonowski and Co v Beck and Co (1923) 1 KB
457 per Scrutton LJ at 466, on appeal (1924) AC 43, or 48 and 52; Minister of Materials v Steel Bros and Co Limited (1952) 1 All ER 522 at 524, 526; Duncombe v Porter (1953) 90 CLR 295 at 306, 311. The principle applies with equal force in relation to building contracts. As Lord Diplock observed in Modern Engineering (Bristol) Limited v Gilbert-Ash (Northern) Limited (1974) AC 689 at 717:
    "It is, of course, open to parties to a contract for sale
    of goods or for work and labour done or for both to exclude by
    express agreement a remedy for its breach which would otherwise
    arise by operation of law or such remedy may be excluded by
    usage binding upon the parties (cf Sale of Goods Act 1893,

    Section 55). But in construing such a contract one starts with
    the presumption that neither party intends to abandon any
    remedies for its breach arising by operation of law, and clear
    express words must be used in order to rebut this presumption." 12. There is no suggestion in this case of any usage which rebuts the presumption that neither party intended to abandon its common law remedies. The contract contains no provision which expressly precludes any entitlement the owner may have to claim damages for losses other than the additional cost of completion. To construe clause 33 in the way in which Baulderstone contends would have the consequence that an owner would be denied an entitlement to claim for damages for delays, for defective work, or for any other loss properly recoverable at common law. Thus a builder who had been guilty of extensive delays in the construction of the building and who might be liable to the owner for substantial damages would escape liability if the owner chose to proceed under clause 33. I do not think that this is the intention of the contract. The absence from clause 33 of any clear and unambiguous denial of the right of the owner to recover damages under the general law has the consequence that Mancorp is entitled to claim damages in addition to the cost of completion. 13. Given the conclusion I have reached, it is unnecessary to deal with the question whether Mancorp had to elect between proceeding pursuant to clause 33 or accepting Baulderstone's repudiation of the contract. 14. I therefore answer the preliminary question by declaring that, on the proper construction of the building contract and in the events that have happened, the plaintiff's claim for damages is not restricted by the terms of the contract.