Minister for Public Works v Renard Constructions (Me) Pty Limited

[1992] HCATrans 288

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S44 of 1992

B e t w e e n -

THE MINISTER FOR PUBLIC WORKS

Applicant

and

RENARD CONSTRUCTIONS (M.E.)

PTY LIMITED

Respondent

Application for special leave

to appeal

DEANE J
DAWSON J

McHUGH J

Renard 1 2/10/92

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 2 OCTOBER 1992, AT 9.43 AM

Copyright in the High Court of Australia

MR K. MASON, OC, Solicitor-General for New South Wales: If

the Court pleases, I appear with my learned friend,

MR J. WILSON, for the applicant. (instructed by

the Crown Solicitor for the State of New South

Wales)

MR B.W. WALKER:  May it please the Court, I appear with my

learned friend, MR M. CHRISTIE, for the respondent.

(instructed by Allen Allen & Hemsley)

DEANE J:  Mr Solicitor.

MR MASON:  Your Honours, there are two matters which the applicant would seek special leave to argue. They

are separate matters. One of them has a problem

with respect to this being a proper vehicle to

agitate it. The first matter can be described as

quantum meruit ceiling point and the second is the

proper construction of the standard clause 44.

This was a schedule of rates contract with an

estimated final value of $208,000. The contractor

was in breach but not a breach bad enough to

justify termination at common law.

DEANE J: Are you going to try and go through all you

submissions without mentioning building contract or

building case, Mr Solicitor?

MR MASON:  Your Honour has done it for me. It was a losing

building contract, the work was well advanced, and
the contractor had been paid $74,000 at the time of

the termination.

If the contract had been completed the

contractor would have received the final value

which, as I say, was estimated at $208,000 less

liquidated damages. In fact, the award gave the

contractor $285,000.

The question at issue is whether, when there

has been a wrongful repudiation by a building

owner, which is accepted by the contractor and made

the contractor, when suing for quantum meruit,

recover an award higher than the price it would

have got had the contract been completed, or does

the contract or the rates of the contract provide a

ceiling to quantum meruit recovery.

The Court of Appeal unanimously held that

there was no ceiling, the judgment being that of

Mr Justice Meagher on this point, page 140 of the

application book.	The other judges agreed with his
reasoning.	Your Honours, he referred to the fact

that the existing authority consisted of a

Court of Appeal decision in New Zealand, approved

Renard 2 2/10/92

by the Privy Council in Slowey v Ladder and there

was American authority either way on the

proposition. His Honour, in effect, said that the

law provided the innocent party with an election

and that election meant that if he elected for

quantum meruit, then whatever the reasonable value

of the work done, that was it.

We would submit that special leave should be

granted to examine the correctness of that for the

following reasons. Firstly, it is an issue capable

of occurring universally which cannot be covered by

redrawing contracts. We are talking of a remedy that is described as an off the contract remedy.

Secondly - - -

DAWSON J:  I do not want you to develop it, but surely

ingenuity could develop some sort of contractual

limit. But do not stay - - -

MR MASON: Well, if the contract has come to an end through

repudiation and the contract was then to be

ignored, the question is by definition.

Secondly, there appears to be only two

Australasian cases dealing with the matter,

Slowey v Ladder as I mentioned, and a Victorian

case of Brooks Robinson v Rothfield of 1951, each of which state the election as Mr Justice Meagher did, and each of which pre-dates the modern law of

restitution.

DAWSON J: Yes.

MR MASON: Thirdly, Your Honours - - -

DEANE J:  Mr Solicitor, could you excuse me a moment? We

question whether the decision of the court below is

agree with you that the point is an important one.

attended by sufficient doubt.

MR MASON:  Yes. Your Honours that is the stage I was about

to come to. There is a bundle of additional

documents I have just handed earlier on, and they

include a set of extracts from academic writings.

Can I just summarize by saying that the arguments I

am about to put in point form, are drawn from Goff

and Jones who express the view that the principle

found by the Court of Appeal is not, or at least

should not be the law. Greig and Davis, Law of

Contract, there is an article in a recent journal
of contract law of Hunter and Professor Carter and

Professor Palmer, the author of the American text

on restitution, there is an article by him. Each

of them saying, in effect, there should be a

ceiling.

Renard 2/10/92

Now the reasons why, in our submission, the

decision is attended by doubt is that the earlier cases upon which reliance was placed smack of the

notion of rescission ab initio and the American law

turns very much upon that. It says - - -

McHUGH J:  I was going to ask you that. Is that the basis

of Professor Palmer's criticism?

MR MASON:  It is part of the basis of it, yes. The leading

American cases, because America have not followed

McDonald v Dennys Lascelles, they say contracts rescinded ab initio for that reason, it can be ignored, and there are suggestions, although only perhaps passing, in the Australasian cases that

rescission is part of the reasoning.

Secondly, particularly as Professor Carter points out at page 8 of the bundle, the American

cases seem to turn upon notions of fault. The

defendant broke the contract, so you cannot point

to it as being a relevant factor. In our

submission, that fault based analysis is at odds
with the current restitutionary approach which
focuses upon unjust enrichment, not necessarily

confined to that.

DAWSON J: That is the basis on which you put it?

MR MASON:	No, I do not. There is an argument that restitutionary remedies are not confined to unjust
enrichment, they include unjust sacrifice, but the
stress on fault ignores the injustice aspect.

DAWSON J: But you, as it were, import the schedule of rates

but not in a contractual context, but in some other

context.

MR MASON:  The schedule of rates would fix a maximum if the

contract were performed.

DAWSON J: That is true.
MR MASON:	And that is the ceiling that we submit - - -

DAWSON J: But why is it a ceiling? Because it would be

unjust if- - -

MR MASON:  Because it would be unjust for, and this moves on

to the next couple of reasons, there is an

illogicality - - -

DAWSON J: All I am trying to say is, but not for

contractual reasons, the contract has gone, you

say?

Renard	2/10/92
MR MASON:	The contract has gone, the remedy is off the

contract in restitution, I accept.

DAWSON J: But you have reference to the contract to

determine what is - - -

MR MASON:	What are the rates, but more importantly, for the present rule, there is a contract price fixed as a
ceiling to what is a fair recovery on a quantum
meruit.

DAWSON J: It fixes a ceiling whilst there is a contract,

and it fixes a ceiling, you say, even if the

contract is gone.

McHUGH J: What is the source of this limitation? Where

does it come from in ..... quantum meruit?

MR MASON:  It comes from the fact that the quantum meruit

remedy turns upon ultimately, issues of justice and

in part, allocation of risk.

DEANE J:  I can follow how that could be so in the

circumstances of a particular case, but your

argument is, it is so as a matter of law. Now, why

for example, if you had a lost contract in which

the builder saw advantages arising to its

reputation from a successful completion of the
building, and the owner repudiates the contract

thereby depriving him of those intangible benefits,

should justice say that he loses the benefits, he

loses the contract, and does not get paid the fair

value of his work.

MR MASON:  Not necessarily, although the evil may be in the

doubt that attends a contractual remedy which is
the election of the builder and whether a

contractual remedy would cover those losses to

reputation, but if one is looking at a fair

recompense for the work done, one would not, in my

DEANE J: Or, another example, the builder who takes on a	has mentioned. submission, be driven by the fact that Your Honour
contract because, in the kindness of his heart, he
does not want to sack his employees. The building
owner repudiates the contract. Why in those
circumstances should the owner get the benefit of work under the contract for a less amount than it
is really worth.

MR MASON: Well because the price that was fixed in the

contract allocated the risk. Had the plaintiff

completed the contract, the defendant's obligation

would have been to pay the price and no more. Why

does it become unjust if the repudiation occurs a

day before the completion of the contract.

Renard 2/10/92

DAWSON J: It is just that it is never unjust to get what

your work is worth.

McHUGH J: Market price and justice are not the same always,

notwithstanding - - -

DAWSON J:  You see, you must give the same answer even in

the difficult case that was put to you by the

presiding judge and any other case he put to you.

MR MASON: Well, not necessarily

DAWSON J: Because really he is saying, well look the

contract sets what is just, not other

circumstances, but the contract is gone.

MR MASON:  These hard cases that Your Honours are putting to

me may, perhaps, suggest that the absolute rule of
law that I am suggesting should be a rule that

would look at the facts of the particular

situation. We are met by an absolute rule the

other way that says you ignore, as a potentially

limiting factor, the contract price.

DEANE J:  Was it said you must ignore as a relevant factor?

MR MASON:  I cannot put it as high as that. Clearly the

moving over the ultimate contract price was treated

rates are relevant in determining what is fair, but

as entirely an irrelevant factor.

McHUGH J: What is your answer to what Mr Justice Meagher

said at page 142, line 23:

The most one can say is that the amount

contractually agreed is evidence of the

reasonableness of the remuneration claimed on

a quantum meruit; strong evidence perhaps, but

certainly not conclusive evidence.

Now, is that not an accurate statement? I suppose

you would not accept that.

MR MASON:  It is an accurate statement of the rule that he

has stated and, with respect, the rule which we are

contending against has an element of circularity

about it. The plaintiff may elect between the two

remedies, therefore the contractual ceiling has got
nothing to say with respect to the quantum meruit

election if that is the way the plaintiff goes, and

with respect, that does not really advance the

matter very far.

I have referred to the illogicality from the

person who completes the contract. I submit that

the no ceiling rule ignores the party's allocation

Renard 6 2/10/92

of risks at the time of the contract. I submit it

creates an asymmetry because if the tables were

turned and the repudiation was that of the

contractor, the proprietor's remedies would be on

the facts solely contractual and would be solely

limited to recovery of what the contract would have

promised.

And finally, by ignoring considerations of

fairness, in my submission, it converts the
defendant's remedy into its source of unjust
enrichment. So, at the end of the day the
defendant has received what the strict letter of
the law would provide but, as in some of the
unconscionability cases, at the end of the day

there seems to be some lack of fit in the remedy

that has come about.

McHUGH J: What happens if the contract is nowhere near

complete but a reasonable figure for the work so

far done far exceeds what the contractual figure

would have been at that stage.

MR MASON:  No problem about that, because it may well have

been that the hard work was done in the early

stages of the contract and one would assume that

that risk allocation was taken into account.	It is
only when the quantum meruit reward passes the

contractual ceiling that these factors come into

play.

Without taking Your Honours through the more

detailed argument, the classical American case is

called Boomer v Muir, it is referred to on page 8,

where the plaintiff's damages claim would have

amounted to about $20,000, on quantum meruit he got

$250,000, and one can obviously see cases

where - - -

McHUGH J: But that springs from the American doctrine that

a contract repudiated is a contract void ab initio,

is it not.

MR MASON:  That is true, but that is an example of the sort

of situation that can come about from even the rule
of the Court of Appeal in this case.

May I turn then to the second matter, and it

is the construction of clause 44 of the contract.

There is a separate piece of paper that was taken

from the judgment which has clause 44 conveniently

set out. It is on page 61 of the application book.

Mr Justice Cole at page 37 and

Mr Justice Meagher at pages 137-8 said that the

contractor was, in effect, not subject to an

objective test of reasonableness in the exercise of

Renard 2/10/92

a contractor's decision to terminate or take over

the contract. We are really concerned, not with

the obligation when giving the notice to show
cause, but the rights of the proprietor when the

show cause notice has been answered, but not to the

satisfaction of the proprietor. If the proprietor

remains unsatisfied and bona fide so, is that not

sufficient? We would contend it is.

Mr Justice Priestley and Mr Justice Handley

said no and construed this clause as including an

obligation of objective reasonableness and they

said there was an implied term to that effect to be

read into the clause. Now, Mr Justice Priestley's

judgments, as Your Honour would have seen on the

point, covers a wide range of matters from 93 to

125. Could I just endeavour to summarize what we

would submit are the difficulties with the approach

His Honour took.

The first, if one looks at the top of page 96

where the standard requirements of implication

ad hoc are stated, what His Honour has done, in

effect, has ignored the requirement of necessity.

He has conflated necessity and reasonableness to

come up with the implied term in this particular

case and he has conflated two separate

propositions. If one goes to page 100 at the very

bottom, one can see an example of that conflation.

Two separate propositions are, is it

reasonable to imply this term, and we do not

dispute that that is a fair question to ask; it is

not the only one but is it reasonable, but the

second proposition is the term should be that the

principal act reasonably, and they are quite

different situations, and His Honour, in effect,

has said that because it is reasonable to imply

this, the consequence is that the clause is read

that way. So there is a difficulty with - - -

DAWSON J: What two quite different things, the test for

implying the term and the term to be implied?

MR MASON:	The term to be implied.
DAWSON J:	You seem to say it was not incorrect to imply a

term but - - -

MR MASON:  We dispute the process whereby he did it, and

part of the disputing of the process is that he

seems to have allieded these two propositions, and

in doing so has ignored the requirement of

necessity as part of business efficacy.

DAWSON J: That is what I am not quite following. That is

one test, you say, whether it is reasonable to

Renard 2/10/92

imply a term, but that does not follow that then

you imply a term of reasonableness. Is that what

you are saying?

MR MASON:	Yes.
McHUGH J:	Mr Solicitor, accepting that you have an arguable case about the question of reasonableness, what do
you say about Mr Justice Meagher's answer to your argument, and he accepted that it could not imply
reasonableness, that the arbitrator's findings were
so distorted by prejudice and misinformation that
he was unable to comprehend the facts in respect of which he had to pass judgment, and therefore he was
not satisfied.
MR MASON:	I think you mean the proprietor's decision was so

distorted?

DAWSON J: Yes.

MR MASON:	I am happy to, for the purpose of argument for the moment, make that acceptance that there is -
this really comes straight to the problem of special leave with respect to this arm of my
argument, and what is proposed to the Court relates
to what Mr Justice Priestley said at page 93.
There were a number of reasons why the Minister
failed in the appeal.  Some of them were because
the court said that leave should not have been granted because the point was not fully enough pressed below. In Mr Justice Meagher's reasoning,
we failed on the facts, as Your Honour has just
pointed out, and those two factors, we accept,
would create difficulty about this being a suitable
vehicle to test the - - -
DAWSON J:	Did the other two find bona fides?
MR MASON:	The other two said the test was reasonableness,

and on that we lost, although I think that

Mr Justice Priestley also said that even on

Mr Justice Cole's test, slightly reworked, he would

find that we failed.

DAWSON J:	On bona £ides?
MR MASON:	On a slightly reworked bona fides approach.

DAWSON J: Yes.

MR MASON:	So, it is accepted that the prospects of getting special leave to examine the particular
determination have difficulties. But if one looks at page 93, what Mr Justice Priestley did, he had
upheld the appeal for all of those, what I will
call discretionary factors, but at page 93 he said
Renard	2/10/92

well that is not really going to go far enough

because the contractor was responsible for all of
these difficulties and if we are going to give the

contractor the costs of the proceedings before

Mr Justice Cole, and some of those before the

Court of Appeal, we have to find the point in

substance, and he went on to do so and having done

so, he did make the fuller costs order.

It is clear that when the other judges agreed

with the costs order proposed by Mr Justice Meagher

at page 143, they were, in effect, for their

different reasons, and as Your Honours know,

Mr Justice Handley came by a completely different

path, deciding that on the substantive point the

Minister would lose in any event.

Your Honours, what is proposed, if the Court

were minded otherwise to grant special leave on

this point, is that the judgment as to the
correctness of the award stand, but that special
leave be granted to determine the question of
construction of this standard form contract, and

lest it be said that the issue was moot, we say, no

look at what Mr Justice Priestley did at page 93.

In other words, what strictly speaking turns in point of form upon the matter is the additional costs order. But, we are prepared, with respect,
to say that the matter is of a nature that the
applicant, if granted special leave on the
construction point, is prepared to make an
appropriate undertaking with respect to the costs

of the matter in any event.

McHUGH J:  You obviously do not agree with the affidavit

evidence that these contracts are going out - - -

MR MASON:	No, we do not.
MCHUGH J:	Do you not?

MR MASON:  And there is an affidavit also in, the final one

in the bundle that Your Honours have. We got that

affidavit I think late last week and the registrar

suggested that our affidavit in reply should be

handed up rather than filed. I have taken the

liberty of just tabbing the three points to draw

attention. Paragraph 8 of the affidavit, he says

he is aware from his involvement:

that all other Public Works Authorities in

each other state and territory commenced using

..... NPWC3 in 1981 and continue to use it -

in paragraph 10, he refers to the schedule DMJ3

which is almost the last page of the document, and

Your Honours will see that there are billions of

Renard 10 2/10/92

dollars of outstanding contracts using this clause

and he disputes the thrust of the affidavit.

Can I endeavour to encapsulate it in one

sense. Even if the respondent's affidavit were

correct, and that the use of this contract were on

the wane, the Roman empire is still not far from
its height. We are still really about the year
3 A.O. and there are a lot of contracts which are

out there already and cannot be recalled or redrawn which depend now, according to the judgment of this

Court, upon this construction.

Your Honours, I, in effect, was stopped when Your Honour Justice McHugh asked me, and I am

certainly prepared to go back and would wish to, to

develop if the Court wishes, the reasons why, in

our submission, Mr Justice Priestley and

Mr Justice Meagher were arguably wrong in their

construction and in their approach.

McHUGH:  You mean Mr Justice Handley?

MR MASON:  Handley, thank you, yes. I will do that unless

the Court indicates they do not wish me to.

With Mr Justice Priestley, the problem is in

the process he came at his conclusion. I have

mentioned two matters, the third matter is at page

106-7 when he turned to implication by law, and he

held that this term would be implied by law, and if

one reads the passage in the middle of page 106,

what His Honour appears to be saying is that,

because this is a standard form contract which is

an example of a wider and common class of contract,

therefore it seems one implies by law, even if one

would not imply in fact. Now with respect, - - -

DAWSON J:  Do you draw that distinction between implications

by law and implications by fact?

MR MASON: Well, we accept that there can exist in some

classes of case that some terms such as the right

to terminate a contract of employment of indefinite
duration on reasonable notice have been so much
part and parcel of the state of things that they
are treated as part of the contract just because of

the nature of the contracts.

McHUGH J:  The distinction has been accepted by the

House of Lords.

MR MASON:	It has a consequence in terms of the onus of negating the implications but His Honour here gets
to an implication by law, which is a much more serious thing than by fact, by this improper
process of reasoning, and to compound the matter,

Renard 11 2/10/92

when one looks at the passage at the bottom of 107,

top of 108, His Honour seems to be saying that the

test for implication in law is easier than the test

for implication in fact, because at line 19:

But if I am wrong in that opinion, and

necessity in an absolute sense does not

require the implication of the terms presently

in question in contracts of the class being

discussed, then the question arises whether it

is right to say those terms will only be

implied if it is necessary, ..... to do so.

Then, in the next paragraph His Honour in effects says no, you do not have to have a

necessity test, about line 10 on 108, he talks

about reasonableness, appropriateness, contemporary

thinking of judges and parties, felt necessities of

the time.

DAWSON J: Well, what do you say the test for implication by

law is?

MR MASON:	The test of implication in law is something that really descends upon the contract by virtue of the
nature of the contract itself, and without really
having to look at its terms, and something which of
necessity is part and parcel of the very contract. One may have found in old cases actually spelt out,
but it has become so much part and parcel of it
that one does not even bother to do so, and one
looks at text books and sees - - -
DAWSON J:	So you say it is so common that you do not have

to go through the processes you otherwise would

have to go through.

MR MASON:  Yes, but the test is higher - - -

McHUGH J: Before the Sale of Goods Act or the

Bills of Exchange Act, all those terms were implied

by law.

MR MASON:	Yes, but arising probably out of a process of implication by fact and then acceptance by the text
writers flowing from the nature of the contract
itself, and its legal incidence, so you do not even have to open the contract, you just say Bill of
Sale, well I least I know A, Band C.

DAWSON J: Yes, but that means that when you come to a new

implication, it cannot be an implication by law,

you have to go through some other process.

MR MASON: Well, yes, if it is not an existing category, you

have to go through implication by facts, but I am

not saying that over time - - -

Renard 12 2/10/92

DAWSON J: Exactly, but you say this is not an existing

category.

MR MASON: This is not, and certainly not by the process

that His Honour has exposed in his reasons here,

and that is a matter of general importance in our

submission.

Mr Justice Handley arrived at his concurrence

essentially by a different route. At page 146 he

said that and the problems with that alternative

route are, firstly, as he acknowledged at 146, it

depends upon a whole lot of cases which were not

cited nor discussed by the parties, I know that is

not a killer point in itself, but it is a factor

which he admits.

Secondly, he says about line 20 that the

express power in this contract:

covers many cases where the Principal would

have no power to rescind the contract for

breach under the general law.

With respect we say, so what. Why does that

mean that reasonableness gets read in as a matter

of implication if one can envisage a contract

working quite satisfactorily and a risk being

allocated, to get back to another theme, quite

satisfactorily on the basis that the cards are stacked in favour of one party rather than the

other.

And the third strand of His Honour's reasoning

is at 149 and following when he speaks about the

arbitration clause which is set out near the top of
that page, and His Honour says in effect that that

arbitration clause allows the arbitrator to second

guess the proprietor with respect to this issue and

therefore obviously, there must be an objective

misconstrues the clause, but it brings about a very	test. With respect, that is question begging and
curious consequence. On His Honour's approach, the arbitrator, by substituting his or her view for that of the proprietor, brings about the situation
that the proprietor is in a repudiatory breach.
Now, cases where arbitrators have second guessed certifiers is one thing, but cases where they have
second guessed a party with that consequence, with
respect, is a totally different thing.

So, we rely in one sense upon the fact that

they had to go down different paths to reach this

conclusion and the significance of the matter to

this very broadly used contract.

Renard 13 2/10/92

DEANE J: Thank you, Mr Solicitor. Yes, Mr Walker?

MR WALKER:  Your Honours, the objection which we would urge

on Your Honours to a grant a special leave, we

start by conceding that there were important

principles of law invoked in the arguments below
and including in the Court of Appeal, but at that

point we part company with the applicant. Those

important principles are not principles which, with

respect, are presently in controversy, or would be

entertained as controversial in this Court.

Starting with the last substantive topic

addressed by my learned friend, the question of how

terms ought to be implied ad hoc or as a matter of

fact is, of course, of vital importance in contract

law but is not in doubt. The question of how terms

ought to be deemed or held to be terms to be

implied by law is equally, with respect, not in

doubt, and the difficulty the learned Solicitor has

raised concerning Mr Justice Priestley's concept of

necessity is one which, in our submission, vanishes

on scrutiny of His Honour's reasons.

His Honour clearly had in mind, and we refer

in particular to using the machine printed numbers,

folios 108 and 109 of the application book,

His Honour clearly had in mind around about

lines 15 to 20 that in an Orwellian sense, some

things were more necessary than others. There were
things which were necessary in a topical sense,
there were things which were necessary in an

absolute sense, and it is only in the latter, we

would suggest, theoretical way that His Honour

departed from any real feeling for necessity as a

touchstone for implication. It would make no sense

at all for His Honour to have referred to

Mr Justice Holme's phrase:

The felt necessities of the time -

as he does, if His Honour were departing entirely

from necessity as ordinarily understood in the law

of contract and the implication of terms - - -

McHUGH J: But accepting, sorry, not accepting it, but does

not what His Honour said there at line 15 to 20

indicate misdirection. The test is not, so far as

implication of law concerned, whether it is

necessity in the sense of something required in

accordance with current standards or what ought to

be the case - - -

MR WALKER:  Your Honour, with great respect, if it were put

in a purely normative way, which if I could put it

vulgarly, reduces it to what particular judges in

particular cases think they would like as

Renard 14 2/10/92

contracting parties themselves, then of course,

with respect, that would be misdirection.

McHUGH J: But that is what His Honour is saying, is it not?

MR WALKER: Well, with respect, no.

McHUGH J:  He is not looking back as the cases would

indicate you should be, he is looking to the

present.

MR WALKER:  He is looking to the contractual present, not to

the adjudication present, and in the contractual present he is referring to the balance of powers

and obligations in this particular form of standard

contract. In my submission, however, taken as a

whole, His Honour is certainly not enshrining some

idiosyncratic judicial preference as approaching

what His Honour then describes as:

The felt necessities of the time -

in Mr Justice Holme's expression. That would - - -

DAWSON J: What is he doing, is he outlining a new

implication by law?

MR WALKER: It may be, Your Honour, that

Mr Justice Priestley has referred to the process,

as the Solicitor puts it, in divining whether a

term is implied by law in a way in which one will

not find an exact reflection anywhere else.

However, His Honour does not purport to be laying

down new principles, and indeed defers, for

example, to Mr Justice Hope's, we would submit,

orthodox explanation in Castlemaine Tooheys.

DAWSON J: What you are putting is that an implication by

law is an obvious necessity which has been

recognized by the courts and therefore renders

unnecessary any further investigation.

MR WALKER:  Yes. It is a category of term whether by

accretion of tradition, if one goes back to the law

of mercantile before more ordinarily reported

common law, or if one applies it in some other pre-

statutory sense, some accretion of tradition or

acceptance which dispenses in any particular case

with the need to go through, for example, the

Morcock hurdles.

DAWSON J:  An examination of the facts of the situation.

The categories are not closed.

MR WALKER:  The categories are not closed, although it may

be that parliamentary activity means that the need

for courts, mercantilistic in spirit or otherwise,

Renard 15 2/10/92

need not be as active as they were 200 years ago in

the field.

McHUGH J: But Mr Walker, look at line 12 where His Honour

says it is implied

because the court decided it would be better

or more appropriate or more reasonable in

accordance with the contemporary thinking

thinking of the judges and parties

concerned ..... that the term should be implied

than that it should not.

That does not describe the historical process, does

it, accurately?

MR WALKER:  Wwe do not embrace that as an accurate summary

of what we would say is the rather more painstaking

approach which is discernible in the authorities.

However, we do submit that this is not a case

that turned on the implication by law of the term

which Mr Justice Priestley and Mr Justice Handley

eventually held determined the case.

DAWSON J:  Why would you say it is a term to be implied in

the traditional way, and not by law?

MR WALKER:  We do not, we argued the case on a

constructionist approach, we did not -

DAWSON J: Did not rely on implications?

MR WALKER:  We did not, with respect, urge implication by

law -

DAWSON J:	Can you tell me shortly how you put it.
MR WALKER:	Yes, we sought to give what the Solicitor called

a variation of the expression bona fide in

interpreting the word "satisfaction", and took

great comfort from the finding of the arbitrator,

that by reason of his owri misunderstanding and the

feeding of prejudiced and misinformed material to

him by his underlings, the decision maker, to quote

the arbitrator, had no chance of coming to a just

decision. We took our stand - - -

DAWSON J: But there is a form of unreasonableness which

amounts to - - -

MR WALKER: Whether it be unreasonableness or a lack of

genuine satisfaction, not bona fide, that is real,

in the requisite sense. If anything, Your Honour,

it partakes more of the administrative law

Wednesbury notion than it does of the common law

Renard 16 2/10/92

contractual notion of reasonableness, for example,

as to length of time.

DAWSON J: This was sufficiently unreasonable for you to be

able to decide it is not bona fide?

MR WALKER:  Yes, and we argued it on that narrow point.

Mr Justice Meagher's reasons most closely reflect

the way in which we presented the case in the

Court of Appeal.

It is true that our notice of appeal in the

Court of Appeal directly presented questions of

reasonableness starkly and simply, however we

departed from that and argued more narrowly in

address in that court.

DEANE J:  Mr Walker, I think we are sufficiently appraised

of what is involved in that aspect of it and unless
you really think you can establi'sh that if the

Court were to get involved in it, an appeal would have no chance of success in relation to that

issue, I do not think there is much point in you

addressing that any more. What you might turn to

is a consideration of whether this is an

appropriate vehicle to examine that question when
at the forefront you have a decision of the

Court of Appeal that the question should never have been treated as open.

MR WALKER:  Yes. May it please Your Honours, the

conclusions of all three judges,

Mr Justice Priestley at 130, Mr Justice Meagher at

141 and Mr Justice Handley at 148, make it clear

that quite regardless of a term implied ad hoc or

by law, of reasonableness, so-called, this was a

case which fell to be decided as well for

Mr Justice Priestley and Mr Justice Handley, and solely for Mr Justice Meagher on the ground that there was not, in the sense, explained a bona fide

exercise of power in this case.

That means that the facts of this case were

held by the three judges below and they are not

challenged or sought to be challenged in this

application, that the facts do not present a test

on either side of the line which would be argued in

a debate concerning an implication of

reasonableness whether ad hoc or by law. The case

is not an appropriate vehicle, because we do not

have presented facts which, were

Mr Justice Priestley right, would result in victory

for the contractor, but if he were wrong, would

result in victory for the principal.

Without facts which permit that line to be

decisive, this Court would be, with great respect,

Renard 17 2/10/92

entertaining a debate and making a decision in the

abstract -

DAWSON J: Well, it goes to the question of costs?

MR WALKER: Well, Your Honour, it not only goes to the

question of - Your Honour refers to the learned

Solicitor's reduction of this whole application to

an application for special leave to appeal against

an order for costs. In our submission, there is

nothing so alarming about the exercise of

discretion as to costs in this case as to suggest

that, put simply as a question of costs, it would

be a fit case for special leave. It comes back to

the substantive question which the question of

costs would be the stalking horse for. The

substantive question is this line, whether there

was a term implied however it might be, one side of
which would be successful for one party, the other

side of which would be success for the other. And

that is precisely what the facts in this case will

not reveal, so that in arguing about a matter which, of all matters in contract law is fact driven, namely concepts of reasonableness, there

will not be before this Court any finding of facts

which will result in the difference between win or

loss for the Department, and that is conceded by

the Solicitor offering that the award stand, no

doubt in deference to the conclusions of all three

judges, that there was not a bona fide exercise of

power in this case.

The case therefore comes down, with respect,

not to a decision on this case, or a consideration of an important contractual principle by reference

to facts which could inform Your Honours'

assessment of what is reasonable or not, but it

comes down to an attempt to achieve judicial

advice, no doubt for extra curial negotiating

purposes, by a contractor, or a member of a

government which, taken as a whole, is a large

contracting party, demonstrated by the last

affidavit, for the purposes of asserting, no doubt

in such negotiations, that there is no need for the

exercise of such power to be objectively

reasonable. Or to put it another way, there is an

attempt to get judicial opinion in favour of a

negotiating assertion that says we may be

unreasonable in exercising this power.

Whereas, the narrow decision of the

Court of Appeal, taken at its common element, is

that this was not a bona fide exercise of power and

that it requires to be bona fide in the sense

explained, ultimately by all three judges, but

particularly by Mr Justice Meagher.

Renard 18 2/10/92

Your Honours, it is for those reasons that this is not an adequate vehicle, or an appropriate

vehicle for the consideration of the reasonableness
question. All one would have would be the text
book issue of the appropriate test or process for
the implication of terms by law, there being no

question about the appropriate process for the

implication of terms ad hoc.

Now this is not, with respect, a case where

that was explored in any of the judgments below the

Court of Appeal. It was taken up for the first

time in the Court of Appeal and in my submission,

it is a case where the facts are simply lacking to

enable the tight lines to be drawn and distinctions

observed which would determine victory or defeat

for the parties, depending on that issue.

Your Honours, if I could turn then to the separate issue which is the Slowey v Lodder

ceiling issue, there is a problem of vehicle in

that matter as well. For the arbitrator, pure

orthodoxy was urged on behalf of the Minister, and

this is recorded at page 15 of the book, using the

machine numbers down the bottom, just after line S,

the submission on behalf of the respondents

recorded that if there were a repudiation there

would be an entitlement to quantum meruit, but:

that the Contract price would provide evidence

of an appropriate remuneration -

a proposition which is plainly correct and one

which was not differed from by either party before

this Court. Nor with respect, is the next sentence

of the arbitrator in any way exceptionable:

While there is no doubt that, in appropriate circumstances, the Contract can be evidence of a proper remuneration, there is authority to the effect that the Contract is by no means

compelling evidence, nor does it place a

ceiling on what the Claimant may be entitled

to receive.

No one on this side of the bar table was below and
we have not found any trace in transcript which
would record that there was any attack on

Slowey v Lodder before the arbitrator, it seems

unlikely in the nature of things but, Your Honours,

whether or not there was an attack as a matter of

legal principle, there is no finding of fact as to

what the relevant sum would be as a matter of a

ceiling price.

My learned Solicitor opened by quoting in effect from the arbitrator's opening words of his

Renard 19 2/10/92

award, but with great respect, misunderstood what

that means in building contracts. On page 2 the

contract was a schedule of rates contract with an

estimated final value of $208,000. Being a schedule of rates contract, of course, that estimated final value is the estimate at the pre-

tender state oge of what is thought by extending

particular items, by particular quantities, in a
contract which obliges the contractor to carry out

the work regardless of quantities. So that that estimate is purely for the purpose, of course, of comparing tenders. It is of no binding contractual

force between the parties at all. One cannot say

that this was a contract under which the contractor

was to be paid $208,000. He was to be paid under a

schedule of rates for performing certain work,

complete with variations, and subject to claims on

both sides to damages for breach of contract.

We do not have a determination in this case.

When one turns to 15 and 16 of what the sums might

be, which would be the so-called ceiling - - -

DAWSON J: But you do have - I do not know that it is a

finding, close to a finding that they would not be

enough, the schedule of rates, that it was a lost

contract.

MR WALKER:  It is referred to as a losing contract but there

is no finding of fact, Your Honour, as to by what

measure that might be, and indeed, importantly
there is, because my client elected for quantum

meruit, there is no collection of contract breach

claims sounding in damages. The arbitrator was

never seized of them, and did not consider them, so

that the true ceiling price was never the subject

of factual investigation.

If the Minister had been intent at trial where

the facts were being explored on raising the

ceiling question, one would have imagined that the

case required the Minister to prove what that
ceiling would be.	It cannot possibly be suggested

that the mere extension of the schedule of rates at

the pre-tender stage could amount to that ceiling.

So, for those reasons in our submission, this is a most inappropriate vehicle to consider the

difficult questions of justice or conscience or

whatever other value would be relied upon to

support the ceiling notion in this particular case,

and I do not understand the learned Solicitor to be

saying that the facts of any particular case are
irrelevant to the question of ceiling or no.

Indeed, the academic writings to which my learned friend refer do not distinguish, with great respect

to them, between the difficulties of an entire

Renard 20 2/10/92

contract, and the scheduled rates contracts is an

entire contract, and the problems which are raised

by the pro rata-ing which many of those

commentators believe to be the appropriate way of

applying the ceiling. Pro rata-ing, as my learned

friend recognized, would work enormous injustice to

a contractor interrupted from performing an entire

contract by repudiation early in the piece where he

still had a long way to go to recover his heavy

preliminary overheads.

In order to overcome that difficulty, my

learned friend implicitly abandons the pro rata-ing

idea which is behind an enormous amount of the

commentary on Lodder v Slowey to say that there is

simply one figure that is the ultimate contractual

recovery had you completed the contract which

provides a ceiling. As such, of course, it is a

rule which would have practical application only in

cases where there was a sufficient case for

reasonable recovery in quantum meruit at a

sufficiently late stage in a contract or after a

sufficiently beneficial advantage given to the

repudiating party for there to be any prospect of

touching or exceeding that supposed contractual

final price.

In my submission, that is not a principle

which resembles that which is being urged by the

academics who are clearly in favour of a pro rata

notion. The pro rata notion, in my submission, is

one which flies in the face of all the commercial

considerations that, for example, Your Honour

Justice Deane has referred to.

In Pavey & Matthews v Paul, 162 CLR at

page 257, Your Honour Justice Deane referred to the

entirely orthodox approach, with great respect, to

the use of the contract price which was exactly

that referred to and applied by the arbitrator at

page 15 of his award.

So, in this case it would be critical to know,

for the special way in which the Solicitor puts the

ceiling argument, what the final contract price

would be: all work at schedule of rates, ..... off

liquidated damages, fighting the prevention of

performance case which would, of course, avoid

liquidated damages, fighting all other breach of

contract cases on both sides to work out damages,

the very exercise which was not done because of the

election to quantum meruit and because the Minister

clearly determined not to put into contest the
facts which would have established this so-called

ceiling.

Renard 21 2/10/92

For those reasons, in our submission, this

case is certainly an unsuitable vehicle for testing
the topic which, we concede, has been the subject

of academic commentary for a long time.

Two matters on the merits of that contention

in any event: first, in our submission, the

American jurisprudence does not assist on the

question for the reasons which have already been

referred to and it is, for example, not appropriate

to call Boomer v Muir, beloved of all the article

writers, as a classical authority. It is simply a

surprising financial result which is constantly

exemplified by that decision. In our submission,

there is no classical source of jurisprudence which

would assist in the American cases.

There is the learning in Lodder v Slowey which

has stood for a long time. There is the undoubted

availability of quantum meruit - undoubted by the
applicant, that is - there is the undoubted measure
of quantum meruit recovery by reference to

"reasonableness", again, undoubted by the

applicant. The question is whether the orthodox

rule that contract price is evidence but not a

ceiling should apply in the very specialized sense

the Solicitor has put.

The academic writing is not all one way. We

should mention - I cannot give Your Honours the

page references - - -

DEANE J:  Mr Walker, I do not think there is much point in

going off on the side issue in that if the Court

thinks that the point is good or may be good, it is

not really going to help to show that there are

academics who think that the point is bad.

MR WALKER: With respect, Your Honour, I was raising it only

in deference to Your Honour's question to my

learned friend as to whether there was sufficient

doubt and we would wish to scotch the notion that	there is no disparity of view, there is a disparity
view ..

Your Honours, might I conclude by reminding

Your Honours of the power which has nothing

directly to do with this Court at all. The power

of the court, that is the supreme court, when the

question of the first stage of this multi-stage

litigation was being considered - this after all is

an arbitration which was heard and concluded in

1989 about a 1986 contract.

In order for there to be leave to appeal at

that stage, there were the requirements to be met

which are set out in section 38 of the Commercial

Renard 22 2/10/92

Arbitration Act. They include the requirement that

there be a demonstrated prospect of a substantial

difference in the rights of the parties as a result

of a successful appeal granted leave. We accept

that that does not in any way trammel this Court's

discretion but, in my submission, when one allies

that with the Solicitor's approach, this is a case

about costs on the question - and one allies it

with the entire absence of evidence for the

Minister about this so-called ceiling, this is not

a case which, had those been the two stark issues

alone raised, this Court would regard as an

appropriate entrenchment on the intended finality

of arbitral proceedings.	May it please Your
Honours.

DEANE J: Thank you, Mr Walker. Yes, Mr Solicitor.

MR MASON:  Just four matters in reply. The offer to have

the award stand is not an acceptance of the facts
but of the principles relating to special leave.

This was a case where bad facts, in our

submission, led to bad law and the High Court
should not allow the bad law to remain if it can

correct it consistent with the principles for

special leave.

Thirdly, the Court of Appeal has stamped its

interpretation on this standard form contract and

that will be followed regardless of the facts in

other cases unless this High Court intervenes.	We
are not seeking to quibble about the costs order,

we are merely relying upon that as a means to show

that the matter was not moot.

Finally, the absence of attack on Lodder v

Slowey would have been pointless before the

arbitrator. He was bound by the Privy Council

decisions; the parties were not represented by

lawyers and if the High Court were to determine the

correct principle and the parties could not agree

on the recalculation, well, it is not a big for it

to be done.

DEANE J:  The Court will take a short adjournment to

consider this matter.

AT 10.43 AM SHORT ADJOURNMENT

Renard	23	2/10/92
UPON RESUMING AT 10.52 AM:

DEANE J:  An appeal in this case would give rise to the

question whether the Court of Appeal was in error

in failing to hold that, as a matter of law, it was

simply not open to the arbitrator to award an amount to the respondent which, when added to

amounts paid under the contract, resulted in the
respondent being paid more than if it had carried
out the contract.

In a context where the conclusion had been reached that the contract had been repudiated by

the applicant and that that repudiation had been

accepted by the respondent, the Court does not

think that the decision of the Court of Appeal on

that particular question of law is attended by

sufficient doubt to warrant a grant of special

leave to appeal to this Court. In that regard, we

are conscious of the fact that Justice Meagher

recognized in the Court of Appeal:

that the amount contractually agreed is

evidence of the reasonableness of the

remuneration claimed on a quantum meruit;

strong evidence perhaps, but certainly not

conclusive evidence.

As regards the other point which the applicant

would wish to raise on an appeal, we are conscious

of the force of what has been said by the

Solicitor-General. We do not think, however, that

the case provides an appropriate vehicle for the

examination of that point.

Accordingly, special leave to appeal is

refused.

MR WALKER:  I seek costs, may it please Your Honour.

DEANE J: Yes, refused with costs.

AT 10.52 AM THE MATTER WAS ADJOURNED SINE DIE

Renard 2/10/92