Watermin Drillers Pty Limited v Michael Cooper

[2006] ACTSC 67

WATERMIN DRILLERS PTY LIMITED v MICHAEL COOPER
[2006] ACTSC 67 (7 July 2006)

APPEAL – contract – proper interpretation of rate of charge for bore work.

CodelfaConstructions Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337

ON APPEAL FROM THE MAGISTRATES COURT

No SCA 104 of 2005

Judge:     Connolly J
Supreme Court of the ACT

Date:      7 July 2006

IN THE SUPREME COURT OF THE     )
  )          No SCA 104 of 2005
AUSTRALIAN CAPITAL TERRITORY )

ON APPEAL FROM THE MAGISTRATES COURT

BETWEEN:WATERMIN DRILLERS PTY LIMITED   ACN 001313 499

Appellant

AND:MICHAEL COOPER

Respondent

ORDER

Judge:  Connolly J
Date:  7 July 2006
Place:  Canberra

THE COURT ORDERS THAT:

1. The appeal be upheld in part in that the order of the Magistrate giving judgment for the plaintiff in the amount of $8,520 be set aside, and in lieu thereof there be judgment for the plaintiff in the sum of $1,500. 

1. The Magistrate’s orders in respect of costs be set aside, and the parties be heard on the question of costs.

1. This is an appeal from a decision of a Magistrate concerning a claim for damages in a contractual dispute arising from the drilling of a water bore.  The appeal challenges a factual finding by the learned Magistrate concerning what was said to be a failure to properly line part of the bore, and the proper interpretation of the terms of the contract.

1. The dispute arose from the construction of a bore on a residential block in suburban Red Hill.  The plaintiff/respondent to this appeal had obtained the appropriate licensing approval from environmental authorities to construct and operate a bore on his property, and in February 2003 entered into an agreement with the defendant/appellant to perform drilling services to construct the bore.  The project was undertaken, water was found, and in April 2003 the defendant invoiced the plaintiff for the cost of services performed.  The invoice was paid in full.  It is common ground that the bore was able to supply and did in fact supply water continuously after construction.  In July 2004 the plaintiff issued a claim in the Magistrates Court asserting that the bore was not fit for the purposes for which it was constructed, and in August 2005 the plaintiff substantially amended that claim asserting that the defendant had overcharged for the drilling of the bore, and asserting that the defendant had failed to properly line parts of the bore that were drilled through unstable formations.  The learned Magistrate heard the claim on 25 November 2005 and adjourned briefly after taking evidence and submissions.  He then delivered a judgment for the plaintiff in the sum of $8,520.  This was based on both the failure to properly line claim for which the Magistrate awarded the sum of $1,500, and the overcharging claim for which he awarded the sum of $7,020.  The defendant appeals against both aspects of the judgment.

The Contract

1. The contract between the parties was set out in writing in a document entitled “Authority To Proceed With Drilling” signed by the parties and dated 17 February 2003.  It asserts that the owner requests the contractor to carry out drilling operations at the residential property.  The document is a printed form, with certain parts filled in by handwriting.  The part of the document dealing with costs states:

In respect of drilling carried out under this Authority the Owner shall pay the contractor drilling costs calculated in accordance with the following rates.

Test Hole drilling in rock & stable formations
(Dry hole)  $ 65.00/m

Water Production Hole air drilling with 125

PVC Casing in unstable formations only              ADD     $ 65.00/m
  $130.00/m

Test hole mud drilling in sand, gravel & unstable
formations  $

Production hole mud drilling with 125 PVC
Casing in unstable formations only  ADD     $

Drilling deeper than 80m, 262.40ft, above
rates plus 10%
125mm PVC Screens if required  $

Casing  $

Development, Reaming & Airlift testing of
approx. water supply, pressure cementing, handling
& welding casing, gravel packing, or work other
than drilling  $250.00/HR

Materials, screens, casing, casing shoes, gases,
welding rods, gravel, cement, drilling mud,
additives, chemicals, earth moving equipment,
water cartage, etc if required by the contractor
COST ON SITE plus 20%

Other ...................................................................                $

Location Charge  $650.00
PLUS GST @10%
Plus any costs to comply with EPA requirements.

This quotation/contract does not include any government fees, taxes or charges (including and goods & services taxes) that will be payable upon acceptance of this quotation/contract and invoicing of the works.  These amounts will be payable in addition to the amount quoted.

1. It was common ground that the bore was constructed, water was found and was able to be extracted, and that the bore was dug to a depth of 130 metres.  The contractor sent an invoice to the owner dated 15 April 2003.  This appears at appeal book page 95.  It shows that the owner was charged for rock drilling 80 metres at $130 per metre, hard drilling 50 metres at $143 per metre, 1 hour for reaming, developing, airlift testing at $250, and a charge for “other materials, sand bags, PVC liners, PVC tarps, & clean up, straw (illegible) $1123”, together with set up costs and GST.  The total amount came to $21,475, which has been paid in full.

The claimed failure to line

1. The contract provides for a price for a “Test Hole drilling in rock & stable formations (Dry hole)” of $65 per metre, and a price for “Water Production Hole air drilling with 125 PVC Casing in unstable formations only”.  The price for this, it seems to me, is $130 per metre, in that it is an additional $65 above the price for the “test hole”.

1. It was common ground that solid rock was found at 30 metres.  It was also common ground that in the area above 30 metres, there were only some 3.25 metres that had been lined with PVC casing.  The plaintiff claimed that he was due for rectification for 22 metres that should have been lined but was not.  At the hearing, indeed during the delivery of the extempore judgment, the plaintiff sought to amend this claim beyond 22 metres to the difference between the lined amount and 30 metres, but this was, properly, rejected.  The Magistrate had before him a report from an expert, Dr Lee, who had examined the bore hole for the plaintiff.  Dr Lee also gave oral evidence, in which he asserted that the whole of the area above 30 metres was in unstable rock, and ought to have been lined.  The defendant also filed an expert report, but it was apparent that when that expert attended to inspect the site the bore was operating, and the expert was not able to look down the bore or send down a camera or other apparatus.  No formal application was ever made for a proper inspection and the result was that the only person who had actually inspected the first 30 metres of the bore was Dr Lee.  It seems to me that, in these circumstances, the learned Magistrate’s decision to accept that evidence, and hold that additional lining should have been provided, was correct.  His Honour awarded $1500 in respect of this claim.  I note that the expert report from the contractor, Mr McKechnie, who was unable to inspect the bore hole, agreed that, if additional PVC casing was required, the rectification cost to remove the pump, install the casing and reinstall the pump, would be $15000.  This should stand.

The claimed overcharge

1. This aspect of the claim goes directly to the proper interpretation to be placed on the terms of the contract.  The approach to be adopted by an Australian court in relation to a disputed contractual term is that set out by the High Court in CodelfaConstructions Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337. The learned Magistrate accepted the submission from the plaintiff that the contract, on its proper construction, set a charge of $65 per metre for drilling, and the additional charge of $65 per metre only applied to areas that had been lined. As most of the bore was not lined, he accepted that there had been a substantial overcharge.

1. It seems to me that this is not the proper construction of the contract on its terms.  The construction advanced by the defendant/appellant on appeal and below was that the contract provided for a charge of $65 per metre for “Test Hole drilling in rock and stable formation (Dry Hole)”.  The contention was that, should the bore be drilled and no water found, the owner would be charged at this rate.  The contract provides, it seems to me, the additional (see use of ADD on the form contract) rate of $65 per metre for “Water Production Hole air drilling with 125 PVC Casing in unstable formations only”.  It seems to me that this means that the contract on its face provided that, should water be found and the bore brought up to being a water production hole, the rate would be $130 per hour, with the additional proviso that, for drilling below 80 metres, the contract provided for a 10% surcharge.

1. The evidence is that water was found, there was work done by way of air drilling (a process apparently to clean the walls of the bore) and a pump was installed that brought the bore into production.  It has remained a productive bore.  Accordingly, the owner was invoiced for, and paid, for drilling charges of 80 metres at the “water production hole” rate of $130 per hour, and 50 metres of “hard drilling”, which I take to be the drilling from the depths of 80 metres to 130 metres at the rate of $143 per metre, which matches the contractual 10% surcharge for drilling below 80 metres.

1. The learned Magistrate accepted the plaintiff’s contention based, it seems, on assertions by Dr Lee, that the rate of $130 per metre was only applicable if the hole was lined.  This, it seems to me, is contrary to other evidence of industry practice.  I note that during Dr Lee’s evidence objection was taken to statements by Dr Lee that purported to interpret the contract, and the learned Magistrate, correctly, upheld the objections, on the basis that Dr Lee was an expert on rock and soil and not on contractual terms.  His view, however, seems to have been adopted by the Magistrate in taking the view he did of the contract.

1. It seems to me that the contract is clear on its face that there is a basic charge of $65 per metre for “Test Hole drilling in rock and stable formation (Dry Hole)”.  It is equally clear that there is a charge of $130 per metre for “Water Production Hole air drilling with 125 PVC Casing in unstable formations only”.  The evidence clearly establishes that this was a water production bore, and that it had been air drilled.  It seems to me that, on the face of the contract, the driller properly charged at the water production hole rate, and at the surcharge rate for the drilling below 80 metres.

1. It seems to me that the interpretation placed on the contract by the Magistrate, that the additional rate is only applicable to those parts of the bore where PVC casing is inserted, is incorrect.  It seems to me also that this is further reinforced by the separate provision in the contract for “Materials, screens, casing …”, and the fact that, in the invoice, the owner was charged for materials, including “PVC casing” as a separate item.  If the additional charge was only triggered by the need for casing, in that the rate of $130 reflected only the additional cost of providing the PVC casing, the additional provision in the contract for materials including casing and the express additional invoice charge for PVC casing would be double charging.  The presence in the contract, and the invoice, of a separate charge item for PVC casing is, it seems to me, inconsistent with the construction of the contract adopted by the Magistrate and fully consistent with the defendant/appellant’s argument.

1. I note also that in the expert report filed for the contractor from Mr McKechnie, an expert water driller bore consultant, he said that the contract conditions and charges “are typical standard procedures in the water drilling industry”.  He goes on to note that at what he says is an “industry standard rate” of $350 per hour plus costs and GST, this bore, which the evidence shows took 77 hours to drill, would have been charged at $28,073 plus GST.  In fact, the defendant charged $20,475 inclusive of GST.  This, it seems to me, is quite inconsistent with the reading of the contract adopted by the Magistrate, which, by limiting the contractor to a test hole rate for the entire construction of a working production bore, would have resulted in the owner paying something less than half of what Mr McKechnie said was the industry standard rate for a project of this nature.

1. It seems to me that this merely reinforces the plain language of the contract.  As Mason J said in Codelfa Constructions Pty Ltd v State Rail Authority of NSW (at 352):

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning.  But it is not admissible to contradict the language of the contract when it has a plain meaning.

1. Here, the plain meaning of the contract, both in the express terms relating to one charge for a “test hole” and an additional charge for a “water production hole”, together with the contractual terms relating to additional charges for casing, and the extrinsic material, lead me to the view that the learned Magistrate has erred in the view he adopted of the contract.

1. It seems to me that the Magistrate erred in his interpretation and in finding on the basis of this erroneous construction that there had been an overcharge.  I allow the appeal in respect of this amount (being $7,020).

Order

1. The appeal is upheld in part in that the order of the Magistrate giving judgment for the plaintiff in the amount of $8,520 is set aside, and in lieu of this there will be judgment for the plaintiff in the sum of $1,500.  The Magistrate’s orders in respect of costs are set aside, and I will hear the parties as to costs below and on appeal.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date:   7 July 2006

Counsel for the appellant:  Mr CS Ward  
Solicitor for the appellant:  Sparke Helmore
Counsel for the respondent:  Mr G Lunney
Solicitor for the respondent:  RJ Barnett & Associates
Date of hearing:  4 July 2006
Date of judgment:  7 July 2006