Shand, Alexander George t/as Turf Machinery & Tractors v The Commonwealth of Australia
[1996] FCA 359
•19 APRIL 1996
C A T C H W O R D S
CONTRACT - Interpretation - Contract to make available for hire ten items of plant and equipment - Special condition that "Contractor will be offered not less than 1,000 hours of work" - Whether this obligation extends to each individual item of equipment or only the equipment considered as a whole.
ALEXANDER GEORGE SHAND trading as TURF MACHINERY AND TRACTORS v THE COMMONWEALTH OF AUSTRALIA
NO. ACT.G84 of 1995
CORAM: WILCOX, HIGGINS and FINN JJ
PLACE: CANBERRA
DATE: 19 APRIL 1996
IN THE FEDERAL COURT OF AUSTRALIA)
AUSTRALIAN CAPITAL TERRITORY ) NO. ACT.G84 of 1995
DISTRICT REGISTRY )
GENERAL DIVISION )
ON APPEAL FROM THE HONOURABLE CHIEF JUSTICE MILES
A JUDGE OF THE SUPREME COURT
OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ALEXANDER GEORGE SHAND trading as TURF MACHINERY AND TRACTORS
Appellant
AND:THE COMMONWEALTH OF AUSTRALIA
Respondent
CORAM: WILCOX, HIGGINS AND FINN JJ
PLACE: CANBERRA
DATE: 19 APRIL 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
The appeal be allowed.
The order made by Miles CJ on 13 December 1995 be set aside and, in lieu thereof, it be ordered that judgment be entered in favour of the plaintiff, Alexander George Shand trading as Turf Machinery and Tractors, against the defendant, the Commonwealth of Australia, in the sum of two hundred and twenty-seven thousand three hundred and fourteen dollars and sixty one cents ($227,314.61).
The respondent pay to the appellant his costs of the proceeding in the Supreme Court of the Australian Capital Territory and of this appeal.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
AUSTRALIAN CAPITAL TERRITORY ) NO. ACT.G84 of 1995
DISTRICT REGISTRY )
GENERAL DIVISION )
ON APPEAL FROM THE HONOURABLE CHIEF JUSTICE MILES
A JUDGE OF THE SUPREME COURT
OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ALEXANDER GEORGE SHAND trading as TURF MACHINERY AND TRACTORS
Appellant
AND:THE COMMONWEALTH OF AUSTRALIA
Respondent
CORAM: WILCOX, HIGGINS AND FINN JJ
PLACE: CANBERRA
DATE: 19 APRIL 1996
REASONS FOR JUDGMENT
THE COURT: This is an appeal against a judgment of Miles CJ in the Supreme Court of the Australian Capital Territory dismissing a claim for breach of contract brought by the appellant, Alexander George Shand, against the respondent, the Commonwealth of Australia. The facts are not in dispute. The issue between the parties concerns the proper interpretation of contractual documents.
In 1985 the Land Management Branch of the Commonwealth Department of Territories invited tenders for the hire of plant (tractors and mowers). Tender documents were issued. They included a form called "Tenderer's Offer", a
document called "Special Conditions of Plant Hire" and a document containing general conditions of the tender and contract. Mr Shand carried on a business called "Turf Machinery and Tractors" and he responded to the invitation by lodging a completed tender document. This document showed hourly hire rates for three items of plant and equipment detailed on the printed form: tractor with rotary mowers (5 units), front-end mounted ride-on rotary mowers (8 units) and ride-on cylinder mower with vehicle and tractor (1 unit). He also completed a section of the form headed "Other available equipment" in which tenderers were asked to identify, and quote hourly rates for, other relevant items of plant. One of the items he identified in this section was a piece of equipment called "Bomford Brigand hammer flail". In an accompanying letter, Mr Shand set out some information concerning the plant offered by him. His letter included this comment on the Bomford hammer flail:
"The Outrigger is a Bomford Hammer Flail which has a mechanical arm which extends the flail out from the tractor 27 ft. This mechanical concept is excellent for material such as grass, heavy reeds and suckers up to 2" thick. For stability the flail is attached to a 100 hp tractor. The machine is in as new condition. T.M.T. is not looking for constant hire but would suggest it be called in for specific requirements. A yield of three to four hundred hours per year will keep this machine in the A.C.T. Suggested applications:- creeks, wet drains, steep banks, hedges or any over-growth needing to be reduced. Because of the application, hire would commence from depot to depot."
The Department accepted Mr Shand's tender in respect of some, but not all, the offered items. Its letter of acceptance, dated 9 September 1985, contained the following passages:
"I am pleased to advise you that you are one of several successful tenderers for the Hire of Plant (tractors and mowers) for a period of three (3) years from this date. Your contract is for the hire to the Department of:
.one tractor with rotary mower, 1.71-1.9m, @ $26.00 per hour;
.three front mounted ride-on rotary mowers, 1.5-2.1m, @ $28.00 per hour;
.one Ransome front end mounted ride-on rotary mower, 1.5-2.1m, @ $28.00 per hour;
.one ride-on cylinder mower with vehicle and trailer, 1.8-2.2m, @ $45.00 per hour;
.one self propelled hydraulic ladder, @ $17.00 per hour;
.one hammer flail with outrigger, @ $34.00 per hour;
.one 20ft flail mower, @ $38.00 per hour; and
.one Toro cyliner [sic] 7 gang mower, @ $44.00 per hour.
The acceptance of your tendered price is made in accordance with Clause A.3 of the Request for Tender. There is no fixed volume of work under this contract. The provision of services will be authorised as required.
The Department will not execute a formal contract. Your tender (dated 7.8.85), this acceptance, the specifications, the Special and General Conditions of Tender and Contract and official orders placed, shall be construed to form one instrument of contract.
...
Please complete and return the enclosed acknowledgement form promptly."
Mr Shand completed and returned the acknowledgment form. By that form he acknowledged his receipt of the letter of acceptance and confirmed his agreement "to satisfy orders placed in accordance with the terms and conditions of the contract acceptance".
Over the ensuing three years, from time to time the Department placed orders with Mr Shand for the hire of particular items of the equipment listed in the letter of acceptance. The Department paid hire fees at the agreed rates. In the case of some items, total hire exceeded 1,000 hours; in other cases it did not. This deficiency gave rise to the present dispute between the parties. Mr Shand contended that the Special Conditions of Tender required the Department to take each item of plant for not less than 1,000 hours and claimed damages for the shortfall. The Department argued that the Special Conditions only obliged it to offer Mr Shand a total of 1,000 hours' hiring, of any one or more of the items; as total hirings well exceeded 1,000 hours, it was not in breach of its contractual obligation.
The Special Conditions document is lengthy. We will set out only the provisions discussed in argument:
"A.1The Contractor shall make available to the Commonwealth plant and equipment in good order, and manned by an experienced operator.
A.2The Commonwealth shall give the Contractor seven (7) days notice of the required starting date.
A.3The Contractor shall make available to the Commonwealth plant and equipment in good order and condition manned by an experienced operator.
The Contractor will be offered not less than 1,000 hours of work subject to the following:
a)Where the Contractor is ordered by an Inspecting Officer to stop work due to the unsafe condition of plant or equipment, the time lost will be deducted from the 1,000 hours.
b)Time, in excess of twelve hours in each year of the contract, will be deducted from the 1,000 hours where breakdowns occur between 7.30am and 4.00pm on working days.
c)Where the Contractor does not start work after the initial seven days notice, the contract may be cancelled or time may be deducted from the 1,000 hours.
d)Time lost will be deducted from the 1,000 hours where the Contractor does not start work at a designated time and place or leaves work, without prior notice, during a working day.
e)Time will not be deducted from the 1,000 hours due to sickness or unusual circumstances if adequate notice is given to the Inspecting Officer.
...
A.6The Commonwealth shall pay the Contractor for the supply and operation of the plant, for each hour actually worked.
A.7No payment will be made for any period the plant is not working, due to mechanical breakdown, fueling, servicing, adjusting, fitting, maintaining, repairing or any similar interruption to the continued satisfactory operation of the plant.
A.8No payment will be made for any period the plant is not working, if in the opinion of the Inspecting Officer, weather, soil or other
conditions are adverse to the satisfactory or required operation of the plant.
...
A.29Subject to A.14, the Contract may be terminated by the Commonwealth by giving fourteen (14) days notice to the Contractor. The contract hire may be interrupted by the Commonwealth for reasons different from the ones mentioned in Clauses A.8 and A.12 by giving eight (8) days notice to the Contractor.
A.30The Contractor may terminate the Contract in the event of his medically certified incapacity upon two (2) weeks notice and in any other event upon two (2) months notice in writing to the Secretary."
The critical provision is cl. A.3. The learned Chief Justice accepted a submission of the respondent's counsel, Mr R Arthur, that, in their ordinary meaning, the words in this clause "not less than 1,000 hours of work" meant "at least 1,000 hours of work for all or any of the items of plant the subject of the contract, such work to be carried out at any time during the three year period, but subject to direction from time to time by the defendant's officers and in particular, subject to such directions in relation to particular times required for work during the contract period."
He explained:"The description of the agreement as a contract for 'hire of plant' is somewhat misleading or incomplete except in a very general sense. The agreement is more accurately described as an agreement on the part of a plaintiff to provide plant on hire from time to time and an agreement on the part of the defendant to take the plant on hire for at least 1,000 hours during the term fixed by the contract. There is no obligation cast upon the defendant to take plant on hire at any particular time during the term so long as 1,000 hours are taken before the expiry of the term.
The agreement clearly contemplates that the mutual obligations of the parties are to be enlivened from time to time by the defendant notifying the plaintiff of its requirement. Such notification and requirements are variously referred to in the documents.
...
In the light of the above, the defendant retained considerable flexibility in deciding what items of the plant it required for hire from the plaintiff from time to time and for what periods during the term of the contract any such hire should be required. The defendant also retained the power to choose which of the several contractors it would require to provide the plant at any particular time. The plaintiff, as one of the contractors, was free to hire its plant out to other customers, subject to its liability as it might be at any time to the defendant. The contract permitted interruption of the contract and other provisions allowed for the plaintiff's inability to supply particular items at particular times (presumably of high demand) and for the defendant's lack of need at particular times.
I find little difficulty in concluding that on the ordinary meaning of the words, the contract provided that the defendant was obliged to offer to the plaintiff 1,000 hours of work for whatever items of plant were involved and not obliged to offer 1,000 hours per item of plant."
The Chief Justice said that he found no ambiguity in the words requiring him to turn to any test based on fairness or reasonableness. However, he thought that his interpretation did not involve any unfairness to Mr Shand. He commented:
"It is possible, of course, that on what I consider to be the true construction of the contract, the defendant could have placed orders for the hire of one plant only for a period of not less than 1,000 hours without infringing its obligations. But at the same
time the plaintiff was free to hire its plant out to other customers, as I have indicated, except to the extent that there was an expectation on the part of the plaintiff that 300 to 400 hours a year would be provided for a particular item of plant and that the plaintiff would keep that item in the ACT during the contract period."
Upon the construction of the contract documents favoured by the Chief Justice, there was no breach of contract by the respondent. His Honour therefore dismissed the appellant's claim. He did not deal with damages although he noted that the parties had agreed upon the amount of damages that would be payable if the appellant were entitled to succeed. We have been informed that the agreed amount is $110,000. The parties have also agreed that interest on that sum, at the rates prescribed by the Supreme Court rules until the date of the hearing before us, 15 June 1996, amounted to $117,193.69. The daily rate is $30.13.
The argument before us ranged widely. As we see the position, however, the critical question is whether cl. A.3 should, or should not, be read distributively, so as to apply to each separate item of plant and equipment. We are of the opinion that it should be read distributively. Therefore, respectfully differing from the learned Chief Justice, we interpret the words "will be offered not less than 1,000 hours of work" as a promise applicable to each accepted item of plant and equipment, and not to the whole plant and equipment.
There are a number of reasons for our view. First, the tender documents make clear that a tenderer was not obliged to submit a tender in respect of more than one item of plant and equipment. The opening words of the Tenderer's Offer document contained the instruction "if any part is not applicable to the item/s offered then N/A is to be written in that section". If a person tendered in respect of only one item of equipment, or if a person's tender was accepted in respect of only one item, cl. A.3 would clearly require the Commonwealth to hire that particular item for not less than 1,000 hours. If a person submitted ten separate tenders, each for one item, and all were accepted, the Commonwealth would acquire an obligation to pay for ten times 1,000 hours; that is, 10,000 hours. It would be odd if its obligation was diminished by the fact that the tenderer offered more than one piece of equipment in a single tender. The construction of the contract contended for by counsel for the Commonwealth would act as a disincentive for tenderers to give the Commonwealth a wide choice of equipment in a single transaction.
Second, the letter accompanying the tender suggests that Mr Shand believed that the 1,000 hours minimum applied to each individual item of equipment. He wished to make the point that it would be worthwhile for him to keep the Bomford hammer flail in the Australian Capital Territory only if he could depend upon "three to four hundred hours per year"; that is, about 1,000 hours over three years. If the respondent's present argument is correct, he could not have depended on that; the full 1,000 hours might have been expended on other items of equipment, leaving the Bomford flail unused. But the Department did not say that at the time. There was nothing in its letter of acceptance to suggest that Mr Shand was proceeding on a false assumption in respect of the Bomford flail. As it is unthinkable that the Department was engaged in deliberate duplicity, this is some indication that the relevant officer shared his understanding of the position.
Thirdly, there are numerous Special Conditions that make sense only if they are read distributively, so as to apply to each individual item of hired equipment. This statement is true of the opening sentence in cl. A.3 itself, with its reference to "plant and equipment ... manned by an experienced operator". If several items of equipment were supplied, it surely would not have been intended by the parties that this obligation could be satisfied by providing an experienced operator for one item but no operator, or only inexperienced operators, for the remainder of them. Similarly, the contingencies referred to in subparas. (a) to (e) are contingencies likely to relate only to a single item of equipment. The same comment may be made about clauses A.6, A.7 and A.8. Clause A.7 is a particularly telling example; the reference to "the plant ... not working, due to mechanical breakdown" etc must be a reference to a particular item of plant; not a reference to all the items the subject of the agreement.
Fourthly, if the respondent's argument is correct, an assessment of damages would be strewn with difficulties. The agreed rates for particular items of equipment varied from $17 per hour for the self-propelled hydraulic ladder to $45 per hour for the ride-on cylinder mower with vehicle and tractor. If less than 1,000 hours was offered overall, at what rate should the shortfall be compensated?
Fifthly, there is no discernible reason for the respondent preferring to contract on the basis of a minimum overall number of hours. The respondent was interested to obtain guaranteed access to a fleet of equipment suitable in type and sufficient in quantity for its operations. A minimum of 1,000 hours per item over three years left ample scope for increases to meet any unexpected demand. If the Department's cumulative commitment, at the rate of 1,000 hours per item, proved excessive, cl. A29 gave it the right to terminate the agreement on 14 days notice. On any view, the contract provided the Department with considerable flexibility. The identity of the contractor was irrelevant to the task of maintaining a proper balance between supply and demand. The major effects of the interpretation suggested by counsel for the respondent would tend to be negative. As tenderers would not know which items of their equipment would in fact be used, they could not know how to distribute their fixed costs. In order to minimise risk, they might be tempted to insert figures that erred on the high side. Moreover, administration of the contract would be complicated by the necessity for officers of the Department to consider, not only what equipment was most suitable for a particular job and its cost, but also the progressive total of hours offered to a particular contractor.
Finally, a construction of the contract in such a way that it could result in the appellant receiving no more than $17,000 (1,000 hours hire of the hydraulic ladder) as recompense for keeping ten expensive items of equipment available to the Commonwealth for three years, with experienced operators for each item, seems so unreasonable in result as to cause us to doubt that it could have been intended by responsible commercial people.
The only argument that can be put against these considerations is that which attracted Miles CJ: the relevant words are "(t)he Contractor will be offered not less than 1,000 hours of work". The reference is to the Contractor - that is, Mr Shand - personally. We see the force of this consideration. But, of course, it was not intended that the Contractor would be offered work in isolation from his equipment; the offer would be for work involving the use of his plant and equipment. This consideration necessarily raises the question: what plant and equipment? The answer to that question involves all the considerations we have mentioned.
In our opinion the appeal should be allowed and the order made by Miles CJ on 13 December 1995 set aside. In lieu thereof we will order that judgment be entered in favour of the appellant against the respondent in the sum of $227,314.61. This sum comprises the agreed damages of $110,000 and $117,314.61 for interest.
The respondent must pay the costs of the appellant both here and below.
I certify that this and the preceding thirteen (13) pages are a true copy of the reasons for judgment of the Court.
Associate:
Dated: 19 April 1996
APPEARANCES
Counsel for the Appellant: B Collins QC and B Meagher
Solicitors for the Appellant: Worth & Co
Counsel for the Respondent: R J Arthur
Solicitors for the Respondent: ACT Government Solicitor
Date of hearing: 15 April 1996
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