The Trustees of the Roman Catholic Church for the Diocese of Sydney v Hughes Bros Pty Ltd

[2000] NSWCA 296

CITATION:	The Trustees of the Roman Catholic Church for the Diocese of Sydney v Hughes Bros Pty Ltd & Ors [2000] NSWCA 296
FILE NUMBER(S):	CA 41072/98
HEARING DATE(S):	13 July 2000
JUDGMENT DATE:	27 October 2000
PARTIES :	The Trustees of the Roman Catholic Church for the Diocese of Sydney v Hughes Bros Pty Ltd, Kevin J Curtin & Partners (Architects) Pty Ltd, Morrison Whitten & Nicey Pty Ltd
JUDGMENT OF:	Priestley JA at 1; Sheller JA at 55; Stein JA at 56

LOWER COURT JURISDICTION :	Supreme Court
LOWER COURT FILE NUMBER(S) :	CLD 55003/89
LOWER COURT JUDICIAL OFFICER :	Rolfe J

COUNSEL:	Appellant - B. Oslington QC, C. Stevens QC Respondent 1 - D.F. Jackson QC, F. Corsaro Respondent 2 - G. Ellis Respondent 3 - M.S. White
SOLICITORS:	Appellant - Makinson & d'Apice Respondent 1 - Clayton Utz Respondent 2 - Colin Biggers & Paisley Respondent 3 - Phillips Fox
CATCHWORDS:	Building contract - interpretation - estoppel
CASES CITED:	Hughes Bros v Trustees Roman Catholic Church (1993) 31 NSWLR 91
DECISION:	Appeals dismissed with costs - see par 54.

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 41072/98
CLD 12889/89

PRIESTLEY JA
SHELLER JA
STEIN JA

Friday, 27 October 2000

THE TRUSTEES OF THE ROMAN CATHOLIC CHURCH FOR THE ARCHDIOCESE OF SYDNEY v HUGHES BROS PTY LIMITED & ORS

BUILDING CONTRACT - INTERPRETATION - ESTOPPEL.
Principal in building contract exercises power under contract to exclude contractor from site, complete the works and charge the contractor for any “ difference ” in total cost - litigation decides principal’s exercise of power valid - in later litigation contractor succeeds in establishing principal in various breaches of contract at time when exclusion etc power exercised - principal in cross action establishes entitlement to and amount of “ difference ” - question in appeal whether contractor could recover amount of “ difference ” as part of its damages - Held : as a matter of construction, contractor not disentitled by any contractual provision from showing that its liability to pay “ difference ” was relevantly caused by principal’s breaches, and there was no basis for interfering with conclusion below that it had done so; further, the way in which the litigation about the validity of the exclusion was conducted meant that the contractor was not estopped from claiming the amount of the “ difference ” as part of its damages.
Hughes Bros v Trustees Roman Catholic Church (1993) 31 NSWLR 91.

ORDERS
1. Appeal against judgment of Giles J dismissed with costs.
2. Appeal against judgment of Rolfe J dismissed with costs.
3. Appeal against judgment of Foster AJ dismissed with costs.
4. (a) Orders 2 and 3 not to come into operation until fourteen days after the making of these orders.
(b) Liberty to apply in respect of orders 2 and 3 within fourteen days of the making of these orders.

THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 41072/98
CLD 12889/89

PRIESTLEY JA
SHELLER JA
STEIN JA

Friday, 27 October 2000

THE TRUSTEES OF THE ROMAN CATHOLIC CHURCH FOR THE ARCHDIOCESE OF SYDNEY v HUGHES BROS PTY LIMITED & ORS

1    PRIESTLEY JA:

General Background :
A building contract was made in 1988 for extensive works to be carried out on a site adjoining St Marys Cathedral in Sydney. The contract was made between the Trustees of the Roman Catholic Church for the Archdiocese of Sydney, (whom I will call STM following a convention adopted by the parties) as principal, and Hughes Bros Pty Limited (HBL) as contractor.

2    By August 1989 the parties were in dispute. On 9 August 1989 HBL commenced proceedings against STM claiming a declaration that it was obliged to suspend the works until STM remedied alleged breaches of contract (the non provision of plans and specifications and the like). At this time HBL was claiming entitlement to payment of about $3.6 million in round figures, pursuant to the contract. This claimed entitlement was disputed. At the same time, HBL’s formwork sub-contractor, Bimezi Constructions Pty Ltd, (Bimezi), claimed HBL owed it about $1.033 million. 3    On or about 5 September 1989 Bimezi instituted winding up proceedings against HBL. STM then had recourse to cl 44 of the contract. The parts of cl 44 of particular relevance to this case were as follows:

“ 44. default or bankruptcy of contractor
44.1 Procedure on Default of Contractor
If the Contractor defaults in the performance or observance of any covenant, condition or stipulation in the Contract or refuses or neglects to comply with any direction as defined in clause 23 but being one which either the Principal or the Superintendent is empowered to give, make, issue or serve under the Contract and which is issued or given to or served or made upon the Contractor by the Principal in writing or by the Superintendent in accordance with clause 23, the Principal may suspend payment under the Contract and may call upon the Contractor, by notice in writing, to show cause within a period specified in the notice why the powers hereinafter contained in this clause should not be exercised.
The notice in writing shall state that it is a notice under the provisions of this clause and shall specify the default, refusal or neglect on the part of the Contractor upon which it is based.
If the Contractor fails within the period specified in the notice in writing to show cause to the satisfaction of the Principal why the powers hereinafter contained should not be exercised the Principal, without prejudice to any other rights that he may have under the Contract against the Contractor, may -
(a) take over the whole or any part of the work remaining to be completed and for that purpose and in so far as it may be necessary exclude from the site the Contractor and any other person concerned in the performance of the work under the Contract; or
(b) cancel the Contract, and in that case exercise any of the powers of exclusion conferred by sub-paragraph (a) or sub-paragraph (b) of the last preceding paragraph, as he thinks fit.
.....
44.3 Engagement of Others
If the Principal elects to exercise the power conferred on him by sub-paragraph (a) of the third paragraph of sub-clause 44.1 he may complete the whole or any part of the work remaining to be completed and for that purpose may let a contract or contracts for the work remaining to be completed or, as the case may be, for any part of that work or may employ any person or persons other than the Contractor to carry out that work or, as the case may be, the part of that work.
The Principal may take possession of and permit other persons to use any materials, Constructional Plant and other things on or about the site which are owned by the Contractor and as are requisite and necessary for the purposes of any such contract or any such employment.
The Contractor shall have no right to any compensation or allowance for any action taken by the Principal pursuant to this sub-clause other than a right to require the Principal to maintain in good working order the Constructional Plant referred to in the preceding paragraph.
On completion of the work all Constructional Plant and the surplus of the materials and other things so taken possession of will be handed over to the Contractor, but without payment or allowances for the fair wear and tear they may have sustained in the meantime provided however , that if there is a deficiency as referred to in sub-clause 44.4 and if the Contractor fails to make good that deficiency, the Principal may retain in his possession the said Constructional Plant, materials and other things until the deficiency is made good pursuant to the provisions of sub-clause 44.4
44.4 Adjustment of Costs on Completion of the Works
On completion of the work in accordance with the Contract the Superintendent will ascertain the cost of the works to the Principal, comprising payments to the Contractor and all losses, costs, charges and expenses incurred by the Principal in carrying out the whole or any part of the Works completed by him pursuant to sub-clause 44.3 and any sum or sums payable or due to the Principal as liquidated damages under the Contract and he will certify such amount to the Principal. A certificate signed by the Superintendent stating the cost of the Works to the Principal shall be prima facie evidence of the matters stated in the certificate.
Should the amount so certified be greater than the amount which would have been paid to the Contractor if the whole of the Works had been completed by him, the difference between the two amounts shall be a debt due from the Contractor to the Principal which may be deducted or recovered by the Principal pursuant to clause 46.
.....
44.7 Bankruptcy of Contractor
If the Contractor -
(a) being a person, commits an act of bankruptcy or presents against himself or has presented against him a petition in bankruptcy or a sequestration order is made against him or he enters into any Scheme of Arrangement or any composition with his creditors or executes as a debtor a deed of arrangement or a deed of assignment; or
(b) being a company, takes or has taken or instituted against it any action or proceeding whether voluntary or compulsory which has an object or may result in the winding up of the company, other than a voluntary winding up by members for the purpose of reconstruction or amalgamation, or is placed under official management or enters into a compromise or other arrangement with its creditors or a Receiver or Receiver and Manager is appointed to carry on its business for the benefit of its creditors or any of them;
the Principal may exercise the power conferred on him by sub-paragraph (a) or (b) of sub-clause 44.1 as he may elect. ”

4    Pursuant to these provisions STM gave notice dated 7 September 1989 that it was taking over the whole of the works, and for that purpose was excluding HBL from the site on or about 7 September 1989. 5    HBL then amended the proceedings it had begun the month before by adding claims that the notice was invalid, and that STM had not been entitled to exclude HBL from the site. These added claims were heard by Giles J and dismissed by him on 21 September 1989. An appeal against the dismissal failed: see Hughes Bros v Trustees Roman Catholic Church (1993) 31 NSWLR 91. 6 STM completed the works, pursuant to cl 44.3. STM then claimed from HBL, pursuant to cl 44.4, the difference between the contract price and the amount which it cost STM to complete the works. I will call this amount simply “the difference”. The whole of the remaining proceedings, which, after a number of amendments, included many heads of claim by HBL against STM, as well as STM’s claim against HBL for “the difference”, were referred to a referee for inquiry and report. This did not get under way until October 1995. It took ninety hearing days. The referee delivered his report on 4 November 1996. He was of opinion that HBL was entitled to recover $2,169,934 from STM. 7 When the report came before Giles J pursuant to Supreme Court Rules Pt 72 r 13, HBL sought that it be adopted, with some exceptions. STM opposed its adoption on a number of grounds. Numerous matters were argued before Giles J. He concluded that, subject to a number of matters not now relevant, the report should be adopted. The issue about “the difference” was of particular importance to the parties. 8    HBL’s claims against STM included claims for payment for work actually done and also for damages for breach of contract. STM’s cross-claim included its claim for “the difference” This was established to be $4,876,932. It was not in dispute that HBL was obliged to pay this amount to STM. However, HBL claimed the same amount as part of its damages. When stated in this bare way, this claim by HBL may seem surprising. However, the referee came to the conclusion that HBL was indeed entitled to recover as damages the same amount that it was contractually obliged to pay as “the difference”. Further, Giles J adopted the referee’s report on this issue. This became the only matter argued in the present appeal. 9    The apparent anomaly of each party being able to recover the same amount from the other was the mainspring for all of STM’s contentions in the appeal. 10    Put simply, STM said that such a result was wrong. Put in legal form, the contention of wrongness was based on 1, the proper construction of the contract, 2, estoppel and 3, lack of causation. 11    HBL contended that the referee and Giles J had both been right on this matter, and submitted that there was nothing surprising in the result when the way in which the issue had arisen in the long course of the proceedings was understood. 12    In order to consider this aspect of the case it is necessary to go over the history in somewhat more detail than the summary statement of it I have so far made. In doing so I will be setting out much of the factual basis for the decision to be made on the estoppel question sought to be raised by STM. 13    Procedural history.

Prior to matters coming to a head between the parties in August and September 1989, HBL had been making claims upon STM which STM was disputing. In April 1989 HBL made a claim for sixty-one days extension of time together with payment of $1,916,904. In July 1989 it made further claims. (These were called prolongation claims.) At the time when HBL commenced its proceedings against STM on 9 August 1989 the total value of its prolongation claims upon STM was $3,579,983. Of this, only $2,000 had been paid. HBL was maintaining these claims when STM gave its cl 44 notice on 7 September 1989.

14    In his reasons for judgment of 21 September 1989, Giles J recorded that amendments which had been foreshadowed following the service of the notice were made on 20 September 1989. The principal claim raised by these amendments was that the notice was invalid. Giles J also recorded that it had been ordered that the question concerning the validity of the notice be determined separately from other questions in the proceedings and that the parties had “adopted a course whereby the validity of the notice was to be determined against the background” of the other disputes, “without any conclusion being reached or even attempted in relation to those other disputes”. 15    Later in the same reasons Giles J stated that whether HBL was entitled to the $3,579,983 claimed or any part of it was not a matter to be resolved in the course of his deciding the question about the validity of the notice. He continued:

“ The course adopted by the parties ... was that in relation to the questions of provision of the information and suspension arising in these proceedings, they agreed that the contractor had sought a suspension of work under the contract and the provision of the information and that the principal disputed the entitlement of the contractor to that suspension and disputed the need for the information. Similarly, in relation to the question of the prolongation claims, they agreed that the claims had been made, and that the principal disputed the factual basis on which they were made and the entitlement of the contractor to payment in respect thereof. ”

16    After HBL had begun proceedings against STM and then STM on 7 September 1989 had given its cl 44 notice stating its entitlement to take over the whole of the work remaining to be completed and for that purpose to exclude HBL from the site, which was later held by the court to have been effectively given, HBL was anxious to dispute the validity of the notice and to assert its own entitlement to carry out the remaining work under the contract. It was urgent for both parties to know whether the notice was valid, and in order to obtain a speedy hearing on this issue they agreed to a procedure pursuant to which the other disputes between them would not be decided at that stage. On this basis, Giles J gave the parties a quick hearing on the validity issue and delivered judgment on it on 21 September 1989. 17    Full details of how this first judgment came to be given, what the precise dispute was that Giles J then decided, the way in which it was dealt with in the Court of Appeal in its decision in 1993 dismissing the appeal against Giles J’s judgment, and the amendments made to the pleadings after the Court of Appeal decision, are clearly set out in Giles J’s reasons of 21 September 1989 and in further reasons delivered by him on 30 March 1995 when (inter alia) he refused to strike out so much of HBL’s pleadings as claimed “the difference” as part of its damages. The “difference” at that time (30 March 1995) was claimed by STM to be $16,326,201. In particulars which HBL supplied of its overall claim for loss and damage, that same amount was claimed “on the basis that if [STM] had not breached or misrepresented, as pleaded [Hughes] would not be liable (which it denies it is) for the amount claimed ...”. 18    In short, it is clear from Giles J’s reasons of 21 September 1989 and 30 March 1995 (and from other materials in the case) that when the parties agreed in September 1989 to have the question of the validity of the exclusion notice decided urgently, they agreed to put on one side HBL’s claims for payment and for loss and damage, leaving them to be decided at a later time. The question of the validity of the exclusion notice was then argued before Giles J on three grounds. 19    The first ground raised a question of construction. HBL contended that on the proper construction of cl 44, STM had not, in the circumstances stated by Giles J in the passage from his reasons set out above (par 8), been entitled to give its notice of 7 September 1989. Giles J found against HBL on this ground. 20    The second ground concerned HBL’s contention that qualifying words should be implied in cl 44. One branch of this argument was that STM could not rely on cl 44 because it was only available as a result of STM’s wrongful failure to accede to HBL’s prolongation claims. Giles J gave two reasons for not accepting this argument. The presently relevant one was the first, which Giles J expressed as follows:

“ Because of the course adopted by the parties I am not in a position to resolve whether or not the contractor is entitled to the amounts claimed and thus the contractor has not made out that the principal was in the wrong. ”

21    Giles J also held against HBL on the other parts of the second ground. 22    The third ground was, like the first, a question of construction, considered on the same factual basis as the other two grounds, and Giles J held against HBL on this ground also. 23    Giles J then dismissed HBL’s claims for relief on the invalidity of the notice and stood the balance of the proceedings over for directions for their future conduct. That was delayed by the appeal against Giles J’s decision, decided by this court on 12 March 1993. 24    The appeal was dismissed, for somewhat different reasons from those given by Giles J. The difference did not affect the factual basis on which the appeal was conducted, which was the same as that on which the trial judge had reached his conclusions. That basis was noted in this court’s decision, together with the possibly additional observation that HBL was not, in the argument about the validity of the notice, claiming that STM was not bona fide in disputing the prolongation claims. 25    Thus nothing in this court’s decision affected the position as it had been at the time of the first instance argument, namely that the merits of HBL’s prolongation and other claims remained to be litigated, irrespective of what happened in the litigation about the validity of the notice. 26    Grounds of appeal.

When the appeal came on for hearing, the amended notice of appeal then on foot against Giles J’s adoption of the referee’s report contained nine grounds. STM abandoned some of these and sought leave to add others. The grounds which it wished to pursue were:
“ 1. His Honour erred in his interpretation of the proper construction of NPWC3 General Conditions of Contract because, contrary to his Honour’s findings:
(a) Clauses 44.3 and 44.4 of the Contract are an agreed specification of the financial consequences to the parties of action lawfully taken under Clause 44:

· The Respondent has no right to compensation for action taken by the Appellant under Clause 44.3. · The Appellant may recover ‘the difference’ under Clause 44.4.

(b) If the Appellant lawfully proceeds under Clause 44, money which is payable to it by the Respondent pursuant to that Clause cannot found, or be the subject of, a claim for damages by the contractor. (To allow otherwise would be to nullify the express provisions of the contract as the agreed financial consequences of action taken under that Clause).
(c) The only qualification on the exercise of the Clause 44 power is that it should be exercised reasonably. This Court found in a separate determination that it was so exercised.
2. His Honour misapplied proper principles of causation:
(a) ...
(b) The breach, without more, was incapable of causing the particular loss, or loss of that character. That loss could only occur if lawful action was taken by the Appellant under clause 44. The issue of the clause 44 Notice was a consecutive event but for which the Appellant would not have suffered the loss claimed.
(c) As a matter of ordinary common sense and experience the breach was not a cause of the loss, or alternatively, the lawful exercise of the Clause 44 powers was a novus actus. The financial consequences of the exercise of a power reasonably and in good faith cannot be within the scope of the causation flowing from an earlier breach. A finding that the power was exercised reasonably negatives any conclusion that the exercise of the power resulted from a prior wrongful act.
3. His Honour erred in holding that if the breach was a cause of the Respondent’s liquidity problems then it was, in a legal sense, also a cause of the loss. A conclusion to that effect could only be drawn if the Respondent established that but for the breach of contract by the Appellant, a liability to pay the difference would not have arisen.
4. His Honour erred in determining the issue of causation by reference to a cause of the Respondent’s liquidity problems as distinct from a cause of the loss.”

27    The grounds which it sought to add were:

“ 9A. His Honour erred in not finding that the Respondent was estopped from contending that the exposure to liability under Clause 44.7 was caused by any breach of contract by the Appellant.
9B. His Honour erred in holding that the referee had found that any breach by the Appellant caused, or was a contributing cause, of the circumstances which arose under Clause 44.7.
9C. His Honour erred in holding that any breach by the Appellant caused or was a contributing cause of the circumstances which arose under Clause 44.7 . ”

28    HBL opposed the application to add the new grounds. In particular it was submitted that neither matter raised by grounds 9A and 9B had previously been argued; had those matters been in issue before, the conduct of the case and the evidence would have been differently handled. It was then agreed with counsel that in the circumstances of this appeal it would be convenient to hear argument on all grounds together, including argument on the proposed grounds and on the objection to their being raised, and for the court to deliver one judgment dealing with all the issues. I will however mention here that I would allow ground 9C to be added. In my opinion it does not permit anything to be argued which would not have been permissible to argue in its absence. It may be unnecessary, but it is not prejudicial. It is grounds 9A and 9B which will have to be mentioned later. 29    Counsel for the appellant said that he would group his submissions on the relied-on grounds under four headings. He would use grounds 1(c), 2(b), 2(c) and 9A in support of estoppel arguments; grounds 3, 4 and 9B in support of a submission of no relevant finding of breach; grounds 1(b) and (c), 2(b) and (c), and 9B and 9C in support of the proposition that causation as a matter of fact had not been established; and ground 1(a) to support the proposition that clause 44.4, on its proper interpretation precluded HBL from including “the difference” in its damages. 30    I think that the simplest order in which to deal with these will be 1. interpretation, 2. estoppel, 3. no finding of causation and 4. causation not established. 31    Interpretation.

The main argument under this head was a broad one. Counsel for STM said that to allow HBL to recover what STM was contractually entitled to under sub-cl 44.4 following the valid implementation of cl 44.1 had the effect of negativing the contractual intent of the parties which the provisions of cl 44 showed was to allocate to the contractor the risk of greater cost being incurred in completing the works following a valid cl 44 notice than the cost would have been if the contractor had completed the contract.

32    In somewhat varied form, counsel put the submission this way:

“ We put it that cl 44 is a complete contractual specification of the financial consequences to the parties after the giving of the notice. We don’t say that it prevents the builder from claiming for the cost of work he has performed before the notice was given or for variations or for any damage he might have suffered through delay before the notice was given. We say that after the notice was given cl 44 and in particular cl 44.3 and cl 44.4 is a complete specification of the financial consequence ... upon the giving of the valid notice. ”

33    These same submissions had been put to Giles J who did not accept them. He drew attention to the second last paragraph in cl 44.3 (par 3, p3 above) and the fact that it was directed to the consequences of “action taken by the Principal pursuant to this sub-clause”. Giles J was of the view that even if the words extended to action by way of completing the works by another contractor, the paragraph did not exclude compensation or allowance by way of damages for breach of contract by the Principal where action pursuant to cl 44.1 was part of the causal chain between the breach and the suffering of loss. In particular, in his view, the paragraph did not exclude the amount of “the difference” from the damages for breach of contract. This was because in a case in which the principal’s breach had caused the contractor to incur liability for “the difference”, the damages were not compensation or allowance for the principal’s action by way of completing the works by another contractor, but compensation or allowance for the principal’s breach of contract. 34    In this court, counsel for HBL submitted that the trial judge’s approach was correct. I agree. It was disputed by STM, but it seems to me that Giles J’s reasoning is sound, and does not require further exposition. Once the point is reached of reading the two sub-clauses together in this way, it follows that the general argument about agreed allocation of risk necessarily fails. It cannot prevail against the specificity of the sub-clauses. 35    Estoppel.

As earlier noted, HBL objected to the addition of ground 9A to the notice of appeal on the basis that it had not been argued before Giles J in his consideration of the referee’s report. Counsel for STM accepted “ that neither in the outline of submissions handed up to his Honour nor in the oral argument was the word estoppel used ... ”. However, in Giles J’s reasons of 30 March 1995 (par 17 above) the question whether HBL should be allowed to claim “ the difference ” as part of its damages before the referee had been dealt with on an interlocutory basis, in favour of HBL. From Giles J’s reasons it is clear that STM there relied on the same estoppel it seeks to raise in the present proceeding. Whether or not the point should now be allowed to be argued seems to me to be a matter of some difficulty. Having had the opportunity of considering full argument on the point, and having come to the conclusion that it would fail in any event, it seems to me to be simpler to deal directly with it, without further consideration of the question whether STM should be allowed to resurrect it in the appeal.

36    The estoppel argument was put in various ways. They all depended on the idea that Giles J’s conclusion of 1989, upheld by this court in 1993, that the exclusion notice given by STM to HBL under cl 44.4 was valid, necessarily involved decisions that any breaches of the contract by STM were not causative of STM’s giving of the notice, so that in the proceedings before the referee, HBL was precluded from making that assertion. STM then argued that since that assertion was essential to HBL’s claim to include “the difference” in its damages, that claim must fail. 37    As I remarked towards the beginning of these reasons, this is an idea which at first glance is attractive. However, it is fatally undermined, in my opinion, once the history that I have earlier summarised, of the way in which the validity issue came to be litigated in September 1989, is taken into account. The validity of the notice was contested on the basis that the dispute between the parties about HBL’s outstanding claims was on STM’s part a bona fide dispute, the merits of which were not to be decided in the litigation about the notice but were to be left until a later stage in the proceedings. This was a disadvantage for HBL in that hearing, as is shown by what I recorded in my reasons in that case for upholding the validity of the notice. I said that HBL submitted

“ that it was in difficulty because of its dispute with the principal, and the principal should not be treated as acting reasonably when, if the contractor eventually was found to be right in its claims against the principal, it would be the real cause of the situation of which it was taking advantage under cl 44.7. ” (31 NSWLR at 103)

but that the submission failed for two reasons:
“ There were two related problems with this. There was nothing in the materials upon which this Court could conclude even that it was more probable than not either that the contractor’s financial problems were the principal’s fault or that it would defeat the principal on the disputed matters, and Giles J was hearing the factual issue, on a final basis, on the footing that the principal was disputing the contractor’s claims. Since the contractor was not claiming (and produced to evidence to show) that the principal was not bona fide in disputing the contractor’s claims, I see no basis for finding the principal was not acting reasonably in using the power to give the notice. ” (at 104)

38    This made it quite clear that the question of the amount of HBL’s entitlements under its prolongation claims and other claims for alleged breaches of contract by STM was to be left for later determination. Whether or not any breaches of the contract by STM were causative of STM’s giving of the notice was neither being decided, nor necessary to be decided. The fact that the disputes were agreed to be bona fide was sufficient for the decision of the question of the validity of the notice. What the consequences of any breaches might turn out to be could not be determined until, or at the very least was deliberately left to be determined when, the merits of the bona fide disputes had been decided, that is, when it had been decided whether there had been breaches of contract by STM and if so what they were. 39    No matter in what shape the estoppel argument is put, the situation that had come about as just described in my opinion prevents any possibility of its success; there is no basis for saying that HBL could not in the course of the proceedings following the decision about the exclusion notice go ahead and present any evidence available to it in support of its non payment and damages claims against STM, including causation evidence. 40    No relevant finding of breach.

The main argument in support of this proposition was based on ground 9B for the addition of which to its notice of appeal STM had sought leave, and to which application HBL had objected on the ground that the point had not been raised before Giles J.

41    STM’s submission was that there was no finding by the referee that any breach by STM was a cause of Bimezi’s winding up proceedings. It was conceded that the referee had made a more general finding that STM’s breach was the cause of HBL’s lack of performance, but it was then submitted that that finding was not a finding that STM’s breaches of contract had brought about the situation that entitled STM to give its exclusion notice under cl 44.1. 42    HBL said that had this point been raised before Giles J, it would have relied on parts of the evidence from the reference, which in the event it did not do because there was no need to do so. HBL also said that it had been accepted in argument before Giles J that the referee had found that the breach of contract by STM was a contributing cause of HBL’s liquidity problems and thus its exclusion from the site. That this was accepted may be so, but I am not fully clear about it. 43    In his reasons Giles J said:

“ The referee’s reasons ... went as follows. STM was entitled to take over the works and exclude HBL from the site: so much has been determined ( Hughes Bros Pty Ltd v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (CA). It was entitled to do so, pursuant to cl 44 of the conditions, because Bimezi had applied to wind HBL up. Bimezi applied to wind HBL up because it was not being paid, and HBL did not pay because it was illiquid and did not have the funds to pay. The referee asked why HBL was in that position. He answered that there were two reasons, first a general liquidity problem existing at the time work was undertaken under the contract and exacerbated by the termination of the contract for another project, and secondly the unreadiness of the site and lack of the necessary documentation whereby HBL could not properly progress the works and receive cash flow from its performance of the contract. The unreadiness of the site and lack of the necessary documentation constituted breach of the contract by STM. STM’s breach of contract contributed to HBL’s illiquidity and, being a cause (although not the only cause) of the illiquidity, caused Bimezi’s application to wind HBL up and STM’s takeover. It followed that HBL’s damages for breach of contract by STM included compensation for the liability to pay the difference to which HBL was then exposed; it included the difference because STM’s breach of contract had caused HBL to incur the liability for the difference. Before me it was accepted, I think, that the referee reasoned in this way to inclusion in HBL’s damages of the difference, ... ”

44    However, on the materials before him, including the referee’s report, Giles J also said:

“ I consider that the referee made clear that he found, on the evidence and submissions before him, that the breach of contract causally contributed not only to HBL’s illiquidity but also to HBL’s liability to pay the difference (see in particular par BB18 referring to the need to get HBL off the site, par BB31 referring to failure to perform, and par CC33 referring to breach by STM being a contributing cause to the circumstances in which HBL was excluded from the site).

45    Thus Giles J clearly adopted reasoning, which he understood to be that of the referee, to the effect that it was STM’s non payment of moneys that should have been paid pursuant to the prolongation claims together with its other breaches of contract that caused the situation which, in commercial reality, spurred Bimezi into maintaining winding up proceedings against it which in turn gave STM a valid basis for exercising its power to give HBL the exclusion notice, and then to exclude HBL, and also, without terminating the contract, to prevent HBL from carrying out any further construction work pursuant to the contract and for then seeing to the completion of the works without further work from HBL. 46    For HBL, it was also submitted that if the ground of appeal were allowed to be added to the notice of appeal HBL would seek leave to file a notice of contention and to refer to passages of evidence before the referee which would have justified the finding now said by STM not to have been made by the referee. This notice of contention would have to proceed by reference to evidence not in the appeal books and not tendered before Giles J because, according to HBL, the point was not taken before him. 47    I might find it possible, if I were to make a more searching examination of all the appeal materials than I have done, to be reasonably satisfied, one way or the other, on the question whether the point, in the form in which it was sought to be argued in this court, was raised as an issue before Giles J. However, I do not think any purpose would be served by delving further into that question. This is because the reasons given by Giles J in the two passages set out in pars 43 and 44, persuade me that if the argument had been put, it would have failed. The sequence of steps set out by Giles J seems to me to have been open to the referee, and if not made explicit by him, then nevertheless to have been open to Giles J in reaching his conclusion that he would adopt the part of the referee’s report that deals with the difference. 48    I therefore think that STM’s arguments under this heading fail. 49    Causation not established.

The submission under this heading was based on the proposition that the only cause of HBL’s liability to pay “ the difference ” was the lawful exercise by STM of its right under clause 44 to give the exclusion notice with its resultant consequences. It was submitted that since the only cause of HBL’s liability was the lawful exercise of STM’s contractual right, any “ damage ” suffered by HBL could not be regarded in law as having been caused by STM. The idea was that, on this footing, anything flowing from the rightful use by STM of a contractual power, must itself likewise be rightful and not something of which HBL could legitimately complain.

50    HBL’s response to this argument was to the same effect as the sequence of steps set out by Giles J in the passage from his reasons reproduced in par 43 above. It takes the questions of fact one step further back than STM’s submission and asserts that one principal cause of the exercise of the cl 44 right to give an exclusion notice was STM’s resistance to payment of any part of HBL’s prolongation and other claims, which as a matter of fact caused the shortage of funds which materially contributed to the commencement and remaining on foot of the winding up proceedings against HBL. Although STM’s resistance to these payments was conceded in the proceedings of September 1989 to be bona fide, it turned out upon examination by the referee that that resistance although bona fide at the time, was wrong to a substantial extent. So, upon the referee’s findings, as adopted by Giles J, a considerable part of the moneys claimed under HBL’s claims should have been paid to HBL before the winding up proceedings were begun and, had they been, on the probabilities there would have been no basis for the bringing of those proceedings and no basis for giving a cl 44 notice. 51    Because of the way in which the non payment and damages issues had been left on one side while the litigation concerning the validity of the exclusion notice went ahead and was decided, STM, in acting on its bona fide use of cl 44 while HBL’s claims against it were not yet decided, was taking the chance, if HBL later made out its claims, that it would be found to have brought about the situation where it could exercise its cl 44 right, but to have done so in circumstances which permitted HBL to claim damages consequential upon that very act. 52    Conclusion.

In my opinion the appeal against the orders of Giles J fails, and should be dismissed with costs.

53    There were other appeals on foot at some stage, against orders later made by Rolfe J and Foster AJ, which were consequential upon Giles J’s orders. No oral argument was put to the court concerning those appeals and my understanding is that they were abandoned. However, in case there is some misunderstanding about that, I would propose that orders concerning those two appeals be suspended for fourteen days, with liberty to apply in the meantime, in case STM wishes to make some application to the court concerning them. 54    The orders I propose therefore are:

1. Appeal against judgment of Giles J dismissed with costs.
2. Appeal against judgment of Rolfe J dismissed with costs.
3. Appeal against judgment of Foster AJ dismissed with costs.
4. (a) Orders 2 and 3 not to come into operation until fourteen days after the making of these orders.
(b) Liberty to apply in respect of orders 2 and 3 within fourteen days of the making of these orders.

55    SHELLER JA: I agree with Priestley JA. 56    STEIN JA: I agree with Priestley JA.

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