Nuform Construction Pty Ltd v Delegate Holdings Pty Ltd - [2000] WADC 194

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: NUFORM CONSTRUCTION PTY LTD -v- DELEGATE HOLDINGS PTY LTD & ANOR [2000] WADC 194

CORAM: WILLIAMS DCJ

HEARD: 10-11 JULY 2000

DELIVERED : 28 JULY 2000

FILE NO/S: CIV 1091 of 1999

BETWEEN: NUFORM CONSTRUCTION PTY LTD
Plaintiff
AND
DELEGATE HOLDINGS PTY LTD
First Defendant
MERVON PTY LTD
Second Defendant

Catchwords:

Contracts - Construction and interpretation of contracts - Subcontract agreement between builder and subcontractor - Whether proprietor a party to contract - Preliminary question of law

Legislation:

Nil

Result:

Proprietor a party to subcontract agreement between builder and subcontractor

Representation:

Counsel:

Plaintiff:     Mr P Fyfe
First Defendant             :     Mr R Ainslie
Second Defendant         :     No Appearance

Solicitors:

Plaintiff:     Jackson McDonald
First Defendant             :     Mallesons Stephen Jaques
Second Defendant         :     Not Applicable

Case(s) referred to in judgment(s):

A Vigers Sons & Co, Limited v Swindell [1939] 3 ALL ER 590
Analogy Pty Ltd (in Liq) v Bell Basic Industries Limited, unreported; SCt of WA; Library No 950437; 23 August 1995
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales 41 ALR 367
Robson v Bell Basic Industries Limited and Others, unreported; SCt of WA, Library No 950437; 23 August 1995
Victorian Railways Commissioners v James L Williams Pty Ltd (1969) 44 ALJR 32

Case(s) also cited:

Nil

WILLIAMS DCJ: This matter comes before the court for the determination between the plaintiff ("Nuform") and the first defendant ("Delegate") of the following preliminary questions of law:
"1.Upon the proper construction of the Subcontract pleaded at paragraph 3 of the Statement of Claim ("the Subcontract"):
(a)If the Second Defendant instructed the Plaintiff, pursuant to Clause 6.11 of the subcontract to carry out Variations which the Plaintiff carried out is the First Defendant liable to pay the value of those Variations calculated in accordance with Clause 10.17, 10.18 or 10.19 of the Subcontract to the Plaintiff;
(b)If the Plaintiff is entitled to damages sustained and incurred by it under Clause 10.08 of the Subcontract as a result of any breach of the Subcontract by the Second Defendant is the First Defendant liable to pay the Plaintiff such damages.
2.If the answer to question 1(a) is No, is the First Defendant liable under the terms of the Subcontract to make further payment of the original Subcontract Sum of $1,130,000.00 to the Plaintiff and if so how much."
The relevant facts arise from the agreed schedule of facts (exhibit 1) or the evidence of Mr Smith, a director of Nuform.
Nuform alleges that by an agreement in writing dated 3 July 1996 ("the subcontract") made between Nuform as the subcontractor, the second defendant ("Mervon") as builder and Delegate as proprietor, Nuform agreed to carry out form work and concrete work for a cinema complex and any Variations Nuform may have been directed by Mervon to carry out (which work was defined in par 1.02.04 of the subcontract agreement as the subcontract works) ("the subcontract works") being constructed by Mervon for Delegate at 500 Hay Street, in consideration of payment in the sum of $1,130,000 and otherwise upon the terms and conditions set out in the subcontract.
It is common ground between the parties that the documents comprising the subcontract were:
(a)SC.JCC-D 1994 Sub-Contract No 1333 dated 3 July 1996 ("the Sub-Contract Agreement") (document number 1 in agreed bundle of documents);
(b)the drawings referred to at Item B.7.03 of the Appendix to the Sub-Contract Agreement;
(c)Nuform's letter of quotation to Delegate dated 16 July 1996 Ref NUF 132/B15, as amended by handwritten amendments on 17 July 1996 ("Nuform's quotation") (document number 5 in the agreed bundle of documents).
The date for commencement of the subcontract works was 4 July 1996. The date for substantial completion of the subcontract works was 21 February 1997.
Express terms of the contract were that:
1.Mervon would pay Nuform the subcontract sum as defined at par 1.02.07 of the subcontract agreement ('the subcontract sum') and would pay Nuform's claims for payment for the subcontract works within seven days of receipt of Nuform's claim for payment: Clause 1.04 and s 10 of the subcontract agreement.
2.Nuform would carry out the subcontract works in accordance with Mervon's construction programme prepared by D W Kolagow and Associates ('the construction programme'): Clause 16.03 of the subcontract agreement and the penultimate paragraph of Nuform's quotation.
3.(a) Mervon could instruct Nuform to carry out variations, as defined at par 1.02.11 of the subcontract agreement, to the subcontract works ('the variations').
(b)The subcontract sum would be adjusted to take into account the value of the variations.
(c)The variations would be valued in accordance with the provisions of clause 10.17, 10.18 or 10.19 of the subcontract agreement: Clause 6.11 of the subcontract agreement.
Nuform commenced work on or about 4 July 1996 initially under an arrangement that it would be reimbursed any cost incurred by it in carrying out the work if the parties were unable to agree the terms and conditions of a subcontract agreement.
After the execution of the subcontract agreement shortly after 17 July 1996 the work carried out by Nuform between 4 July 1996 and the date of signing of the contract became a part of the subcontract work and the subcontract agreement operated effectively from the date Nuform commenced work on the site.
Nuform relies on the special conditions of the subcontract agreement set out at s 15 (p52) of the subcontract agreement which provide:
"1.Payment to be submitted to the builder and payment to be made direct by Delegate Holdings Pty Ltd.
2.Retention to be five per cent to five per cent maximum reducing to two and a half per cent on practical completion. Final release to be 30 days after practical completion and completion of any defects at that time.
3.Retention to be held in joint bank accounts between Delegate Holdings and Nuform Construction."
It is not in dispute that the subcontract agreement was signed by Mr Horawicz on behalf of Delegate shortly after the subcontract agreement had been signed by Mr Smith on behalf of Nuform and Mr Halpin on behalf of Mervon.
Mr Smith gave evidence to the effect that he had advised Mr Halpin that Nuform would not enter into the subcontract agreement unless it included the special conditions set out at s 15 page 52 of the subcontract agreement.
Mr Smith gave evidence to the effect that Mr Halpin (who was at that stage apparently acting in two roles, one as project manager for Delegate and the other in his capacity as a director of Mervon) told Mr Smith that he would arrange for Mr Horawicz of Delegate to sign the subcontract agreement.
It is Nuform's position that contrary to the situation in:
(a)Victorian Railways Commissioners v James L Williams Pty Ltd (1969) 44 ALJR 32;
(b)A Vigers Sons & Co, Limited v Swindell [1939] 3 ALL ER 590;
two cases in which the contractual relationship between a contractor, subcontractor and a proprietor were considered and which was decided on the facts of those cases that there was no privity of contract between a subcontractor and a proprietor that in the present case there can be no doubt that there was a contractual relationship between Delegate as the proprietor and Nuform as the subcontractor.
Nuform refers to the unreported decisions of the Supreme Court of WA; Analogy Pty Ltd (in Liq) v Bell Basic Industries Ltd, unreported; SCt of WA; Library No 950437; 23 August 1995; Robson v Bell Basic Industries Limited and Others, unreported; SCt of WA, Library No 950437; 23 August 1995 as a case which is authority for the proposition that by a tripartite agreement a head contractor, a subcontractor and a lower tier subcontractor can contract to the effect that the head contractor becomes liable to pay the lower tier subcontractor monies which the head contractor would otherwise have owed to its subcontractor and that such an arrangement was enforceable by the lower tier subcontractor against the head contractor and for that matter a receiver/manager and/or liquidator of the subcontractor.
In par 2(c) of Delegate's defence (p12) of the papers for the Judge, Delegate claims that:
"It agreed with the second defendant to make payments direct to the plaintiff in the sum of $1,130,000 being monies due from it to the second defendant for such subcontracted works."
It is Nuform's submission that the correct interpretation of the arrangement documented in the subcontract agreement is that Delegate agreed with both Mervon and, more importantly, with Nuform to make payment direct to Nuform of the subcontract sums. It poses the question what substantive benefit would be achieved for Mervon by Delegate agreeing with Mervon to make payments of monies otherwise due and payable by Mervon to Nuform under the terms of the subcontract agreement direct to Nuform? What possible interest could Mervon have in ensuring that the money was paid directly to Nuform rather than to Mervon itself? The only party with any real interest in ensuring that it was Delegate that was obliged to pay money owed under the subcontract agreement to it directly was Nuform.
Nuform further submits that although it is correct that at the time the subcontract agreement was entered into the subcontract sum was $1,130,000 the terms of the subcontract agreement make it clear that there are various ways that the amount payable under the subcontract agreement being "the subcontract sum" can be varied up or down.
Clause 1.02.07 defines The Sub-Contract sum as (emphasis added):
".01In respect of a lump sum Contract the sum stated in Item B.8 of the Appendix ($1,130,000.00) or such other sum as shall be determined from time to time in accordance with the provisions of this Agreement."
The relevant provisions of the Sub-Contract Agreement are Clauses 6.11 (p13) "Variations" which provides in effect that "the builder may instruct Variations and the Sub-Contractor shall carry out the same …" and Clauses 10.17 "Valuation of Variations by Agreement", Clause 10.18 "Valuation of Variations applying Schedule of Rates" and Clause 10.19 "Valuation of Variations otherwise".
Clause 10.17 provides:
"All Variations instructed or sanctioned by the Builder or required by the terms of this Agreement … shall be valued …according to the following provisions of this clause 10.17 and the valuation thereof added to or deducted from the Sub‑Contract Sum as the case may require."
Clauses 10.18 and 10.19 simply provide alternative methods of valuing the variation but do not change the requirement that:
"The valuation thereof" shall be "added to or deducted from the Sub-Contract Sum."
It is the submission of counsel for Nuform that the validity of Delegate's argument that it was and is only liable to pay Nuform the original subcontract sum of $1,130,000 can be tested very simply by asking whether Nuform would be entitled to payment of that amount if Mervon had directed Nuform to substantially decrease the quantity of the work involved in the subcontract works which resulted in the subcontract works being valued at $400,000 less than the original subcontract sum. He submitted that the answer in those circumstances can only be that Nuform would only be entitled to payment from Delegate of the reduced subcontract sum. It would be inconceivable that Nuform would in those circumstances still be entitled to payment from Delegate of $1,130,000 being the original contract sum.
The evidence on the agreed statement of facts (par 38) is that of the total amount of $1,316,169.40 paid to Nuform by Delegate and Mervon in relation to the subcontract agreement, the sum of $900,856.90 was paid to Nuform (as required under the terms of the subcontract agreement) "directly" by Delegate and the sum of $415,312.50 was paid to Nuform by Mervon.
It is the submission of counsel for Nuform that on a proper interpretation of the subcontract agreement Delegate was and is liable to Nuform, not only for the original subcontract sum of $1,130,000 but for any other amount which became payable under the terms of the subcontract agreement and which became part of the subcontract sum as that term is defined in cl 1.02.07 of the subcontract agreement.
It is the submission of counsel for Delegate that the agreement is a subcontract for building works. The parties are identified. Clause 1.01 provides:
"This agreement is made between the builder and the subcontractor".
Clauses 1.02.01 and 1.02.02 define The Builder and The Subcontractor as the parties named in Items B.1 and B.2 of the Appendix respectively. The parties named in the items are Mervon Pty Ltd and Nuform Pty Ltd. Although the proprietor is also named in the Appendix, the proprietor is not a party to the contract. The fact that the proprietor has signed the Agreement cannot change that fact.
It is the submission of counsel for Delegate that there is no privity of contract between Delegate and Nuform.
It is a further submission of counsel for Delegate that payment of the subcontract sum is dealt with in cl 1.04 and s 10 of the agreement. Special condition (1) does not change that other than it gets rid of the "middle man". Instead of the builder receiving payment from the proprietor and then paying that to the subcontractor, payment is to be made direct.
It is further submitted by counsel on behalf of Delegate that according to Smith's evidence he did not want the payments to go through Mervon but wanted to be paid direct. However, in my view, it is a question of construction of the subcontract agreement.
It is further submitted on behalf of counsel for Delegate that a further insurmountable problem for Nuform is that its case is further contrary to the written agreement in that the written agreement provides that payment is to be made by the builder. Clause 1.04 and s 10 are not in any way equivocal. The obligation for payment is on the builder – the builder being Mervon. On Nuform's own case liability for payment rests with Mervon except payment would be affected by Delegate making payments direct. Section 15 – Special Conditions has been signed by the parties to the agreement Halpin (Mervon) and Smith (Nuform) but not Delegate. Although Delegate has signed the agreement it has clearly signed as the proprietor. It does not create any privity of contract.
Nuform does not suggest that "dehors the agreement … there is to be found a term actually agreed upon by the parties which together with the contract document stands as the true contract or which stands in its own right as a collateral contract." Nor does Nuform suggest that "there is a case for rectification arising from the existence of such a term on the footing that it was inadvertently omitted from the contract documents". Nor does Nuform suggest that "a term has to be implied in the contract to give it business efficacy, to make it workable". See Codelfa Construction Pty Ltd v State Rail Authority of New South Wales 41 ALR 367 at 369 per Mason J.
In those circumstances, in my view the question turns on the construction of the document itself.
In my view, on a proper construction of the documentation, Delegate has bound itself to make payments due under the subcontract agreement to Nuform.
Delegate has signed alongside the builder on p 64 of the subcontract. Page 64 is the page dealing with attestation. Why else would Delegate sign the contract if it did not intend to bind itself to make payments due under the subcontract agreement to Nuform? In my view that is particularly the case when looking at s 15 – Special Conditions. Paragraph 1 provides:
"Payment to be submitted to the builder and payment to be made direct by Delegate Holdings Pty Ltd."
Paragraph 3 provides that retention is to be held in a joint bank account between Delegate and Nuform.
It is accepted by both counsel that "payment to be submitted" means "requests for payment to be submitted". The submission of counsel for Delegate that special condition (1) does not change the method for payment set out in the subcontract in cl 1.04 and s 10 of the agreement that other than it gets rid of the "middle man" cannot be the case. In my view it only makes sense if it is interpreted to mean that Delegate is undertaking to make payments due under the subcontract to Nuform.
In my view there is no ambiguity in the contract document. If I am wrong in that respect and there is an ambiguity in the contract documents, I then become entitled to look at the parol evidence in relation to the documents. In that respect I accept the evidence of Smith when he told me that he had insisted to Halpin that Delegate had to pay Nuform.
I see no difference between monies due under the contract and variations.
In the circumstances I would answer question 1(a) "Yes".
It is the submission of counsel for Nuform that the subcontract sum as that term is defined also includes any damages or costs and expenses caused by delay caused by Mervon. Nuform relies in this context on cl 10.13 "Payment of Damages or Costs and Expenses" which provides:
"Subject to the provisions of clause 10.11 and to compliance to the extent necessary by the subcontract with the provisions of clause10.12 the amount of any damages and/or costs and expenses incurred by the subcontractor and paid to or payable by the builder as part of the damages and or costs and expenses incurred by him shall be added to the subcontract sum."
For the reasons stated in answering question 1(a), Yes, I would also answer question 1(b) in the same manner namely "Yes".
I am told that question 2 only needs to be answered if I determine the question of law 1(a) in the negative. As I have answered in the affirmative there is no need for me to deal with question 2.
I would therefore answer the questions posed as follows:
Question 1(a) Yes
Question 1(b) Yes
Question 2Unnecessary to answer.