Wharepapa v Fulton Hogan Limited HC Ak CIV 2009-404-4539
[2009] NZHC 2491
•1 December 2009
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2009-404-4539
BETWEEN MAXWELL WHAREPAPA
Plaintiff
AND FULTON HOGAN LIMITED Respondent
Hearing: 18 November 2009
Appearances: A D Banbrook for the Plaintiff
C J Booth for the Respondent
Judgment: 1 December 2009 at 4.30 pm
RESERVED JUDGMENT OF PRIESTLEY J
This judgment was delivered by me on 1 December 2009 at 4.30 pm
pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
A D Banbrook, P O Box 3600, Shortland Street, Auckland 1140. Fax: 09 377 0762Holmes Dangen & Associates Limited, P O Box 3600, Auckland 1140. Fax: 09 309 2554
C J Booth, Kensington Swan, Private Bag 92101, Victoria Street West, Auckland 1142
Fax: 09 309 4276
WHAREPAPA V FULTON HOGAN LTD HC AK CIV 2009-404-4539 1 December 2009
Introduction
[1] The parties entered into a written subcontract agreement which was dated 1
September 2006.
[2] The respondent was the head contractor for the construction of the extension
to State Highway 20 through Mt Roskill.
[3] The appellant’s agreed responsibilities, in general terms, were to carry out earthworks specified by the respondent in respect of the highway’s construction. The appellant was to provide a workforce of operators and labourers and, as the workforce’s employer, was responsible for payment of their wages. The contract entitled the appellant to charge the respondent for the supplied labour at an agreed hourly rate.
[4] The contract obliged the respondent to pay the appellant $35 per hour exclusive of GST “or such greater or lesser sum as shall become payable under the subcontract documents” in respect of the labour supplied.
[5] The appellant had, by 1 September 2006, been working on the highway construction site for approximately four weeks. Despite the contract’s date, its actual execution was probably somewhat later. The respondent had written on 1 September
2006 to the appellant enclosing the contract documents for signature and specifying a
1 September start date at the agreed rate of $35, GST exclusive. An executed copy
of the contract was returned to the appellant by the respondent on 3 October 2006. Nothing hangs on the date of execution.
[6] This letter, which both counsel accept, forms part of the contract, provided the agreement could be terminated with one day’s written notice by either party. In the event the appellant used this mechanism to terminate the contract by letter dated 18 September 2007.
[7] Just over a month into the contract’s term, in early October 2006, there was a meeting between the parties’ representatives. As a result of that meeting the hourly
rate invoiced to the respondent by the appellant (which the respondent paid) reduced from $35 per hour to $30 per hour, GST exclusive.
[8] The dispute between the parties is whether the $5.00 reduction of the specified contractual hourly rate flowed from an agreed variation of their contract, or whether instead the higher $35 rate remained afoot as a contractual obligation enforceable against the respondent.
[9] The appellant contended that he was entitled to the stipulated $35 hourly contract sum. He sued the respondent in the Auckland District Court seeking damages for breach of contract (effectively the alleged arrears) of $91,782. Judge A A Sinclair presided over the ensuing trial in April 2009 and heard the parties’ witnesses. In a reserved judgment, delivered on 22 June 2009, the Judge dismissed the appellant’s claim and awarded the respondent costs. This appeal challenges Judge Sinclair’s judgment.
Background
[10] The Judge, in addition to considering the evidence from the parties’
witnesses, also considered relevant documents. Because these documents are central
to the appellant’s submissions, I briefly describe them.
[11] I have already dealt with the relevant terms of the printed 1 September 2006
subcontract document.
[12] On 27 November 2006 the respondent wrote to the appellant the following terms:
Offer to vary our sub-contract agreement
We offer to vary our sub-contract agreement with you as follows:
The market for labour has only moved 4% over the last 12 months and fuel
to run your Ute is only a small percentage of your labour rate and would add only another 1% to your costs.
Consequently our offer to you is to vary your labour rates by 5%.
The new rates associated with your offer will take effect as of the 1st of
December 2006 and will apply until the 30th of November 2007.
Should you agree to this variation of the contract then simply increase your rate on your December invoice.
[13] Although expressed as an offer to vary the subcontract, that letter is not central to the dispute. Rather it relates to an entitlement the respondent had under its head contract, permitting it to increase its rates and prices which the respondent decided to pass on to its subcontractors. Significantly, the post-1 December 2006 invoices submitted by the appellant applied the 5% increase to the lower $30 figure.
[14] On 14 June 2007 a Mr Dickens, the respondent’s project manager, wrote to the appellant to address certain issues raised by the appellant. By that stage, for reasons not relevant, the working relationship between the parties had become uneasy. The letter relevantly states:
I have investigated the issues you raised in your telephone conversation and comment as follows. We intend to continue hiring your staff provided the price is right and the men are skilled and reliable….
Both Lou and Glen deny offering you any terms of engagement other than what is in our signed agreement. If you look at our hire Labour Hire agreement you will see that there is no guarantee of ongoing work for your firm. Both parties have the opportunity to terminate the agreement with one days (sic) notice. However the way to continue getting hire business from us
is to provide a reliable service with skilled men that solve our labour problem and so make your firm the best to deal with.
Another reason for the reduction in labour hire from your firm is the fact that the nature of the work on site is changing. The screening has stopped and the Quarry work is much reduced. Hence we have need of fewer hired operators. This is a fact of Project work. We did try to redeploy your men as the screening and quarry work has wound down….
Competition in your business is also a fact of life. Other firms are undercutting your rate and we also retain the option of directly employing our own staff if we choose to. Glen tells me that he negotiated with you to charge a rate cheaper than the $35.00 noted in the hire agreement. The proof of this is the fact that you have generally charged us at a rate less than $35 for the last several months. Hence your request to back charge $75,000 on all the hours previously charged is declined on the basis that you chose to charge a lesser rate to remain competitive.
Should you wish to exercise your contractual right to charge $35.00 for all future hires then you should do so. However it will most likely result in us moving our business to cheaper and more reliable companies and thus we will replace any of your men that we think is not worth the higher rate.
[15] Mr Banbrook in his submissions placed great weight on the last paragraph of the letter in which the $35 figure is described as a “contractual right”. He also placed weight on the first sentence of the second paragraph, construing it as a denial that the terms of engagement were different from what was in the signed contract. But, as a reading of the letter suggests, the context in which those portions appear makes such blunt assertions problematic.
[16] The final document is an undated letter written by the appellant to the respondent covering a number of issues. The appellant’s evidence was that this was delivered to a member of the respondent’s secretarial staff in late May or early June
2007. The Judge did not accept the appellant’s evidence so far as that delivery time was concerned. The letter covers a number of issues but relevantly claims that the appellant seeks “back payment” for the agreed $35 hourly rate and that at the early October 2006 meeting (supra [7]) the appellant felt “misdirected and was placed in a very vulnerable position”. The letter purportedly attached an invoice for the back payment. No such invoice or copy of it was ever discovered.
The Judge’s findings
[17] The appellant, suing as it was for breach of contract, had to discharge the civil burden of proof in the District Court. The respondent’s position was that, at the early October 2006 meeting, the parties agreed to vary the stipulated contract rate of $35 per hour to $30. Such a variation was concluded orally and from thenceforth the parties applied the reduced rate.
[18] The Judge heard conflicting evidence about the October 2006 meeting which appears to have taken place in the State Highway 20 site office at Hayr Road, Mt Roskill. The respondent’s evidence was that it had discovered the $35 per hour rate was slightly above the market; that only five operators provided by the appellant were working on the site at that stage; that because of its need for more skilled operators, the respondents would continue to use labour provided by the appellant, provided the hourly rate was adjusted downwards to $30. Although the contract gave no monopoly or exclusivity to the appellant, the respondent’s evidence was that it was prepared to hire additional skilled operators through the appellant for a longer
duration, provided the hourly rate was cut. The respondent’s witnesses described the meeting as friendly and cordial. They indicated to the appellant that if he was not prepared to drop the hourly rate they would continue to honour that sum in respect of the five operators who were on site, but would look elsewhere for further skilled operators.
[19] The appellant’s perception of the meeting was that he was very much “over a barrel” and had little choice but to accept, although he conceded in evidence that there was a “gentleman’s agreement” to the effect that, for any skilled operator work on State Highway 20, the respondent would initially come to him.
[20] The issues which confronted the Judge, other than credibility issues, were:
· Whether the subcontract agreement had been varied.
· Whether there was consideration.
· Whether the variation was the product of duress.
· Whether the respondent had admitted liability.
[21] These last two issues were not pursued on appeal. One of the grounds of appeal challenged the Judge’s findings on duress which in turn provoked a cross- appeal. In the District Court the appellant had not pleaded duress but the Judge nonetheless allowed submissions on the topic. The fourth of the above issues related to a settlement proposal from the respondent to settle all outstanding differences, without recourse to litigation, by payment of the sum of $68,000. The appellant was invited to invoice that sum but did not do so. With the advantage of hindsight it is a pity the parties’ dispute was not settled on those terms.
[22] The Judge reached her conclusion that the appellant’s claim had failed via the following route. The judgment speaks for itself. I replicate those portions which are relevant to the appeal:
[21] The plaintiff submitted that there was no written variation of the Subcontract Agreement as required in the subcontract conditions or alternatively, in accordance with the defendant’s practice. The Subcontract Agreement provides that any variation to the Subcontract Works can only be made if directed in writing by the defendant. However, there is no such restriction in respect of other contractual terms and accordingly the parties can orally agree to vary those terms. The plaintiff points to the Letter of Acceptance and letter of 27 November 2006 as evidence of the defendant’s practice to reduce such matters to writing. However no evidence was produced that this was the defendant’s usual practice or that the defendant had any prohibition on entering into oral agreements and/or oral variations to agreements.
[22] The plaintiff refers to the defendant’s offer to settle the claim and submits that this offer, combined with the defendant’s letter of 14 June 2007 “strongly supports the conclusion that there was no enforceable variation agreement ever entered into between the parties in October 2006.” The plaintiff contends that the statement made by Mr Dickens that “Should you wish to exercise your contractual right to charge $35 for all future hires then you should do so.” comprises a frank acknowledgement that the plaintiff retained the contractual right to charge $35 per hour and by inference there was no enforceable variation in place reducing the hourly rate from $35 to $30 per hour. I do not consider this statement to be an acknowledgement by the defendant of an existing contractual right. When viewed in the context of the letter as a whole, I am satisfied that the defendant in making this statement, was focussed on future dealings and was simply emphasising to the plaintiff that if he wished to revert to the rate set out in the Subcontract Agreement for future hires then he should do so but it was unlikely he would get work.
[23] Having had the opportunity to hear and see the witnesses, I prefer the evidence of Mr Dickens, Mr Nelson and Mr Cole in all respects. I found them to be reliable and credible witnesses. Their evidence was detailed and consistent. On the other hand, I found the plaintiff’s memory of events was poor at times and his evidence lacked particularity.
[24] Having given careful consideration to all the evidence I am satisfied that at the October 2006 meeting the plaintiff did agree (for the reasons canvassed below) to the variation in his rate to $30 per hour (plus GST). Following the meeting the plaintiff charged at the reduced rate (plus escalation). He did not express any concern about this rate until June 2007 when he met with Mr Dickens by which time difficulties being experienced with the plaintiff and operators supplied by him were coming to a head. The plaintiff did produce an undated letter, which he said he had delivered to the defendant possibly in late May or early June seeking back payment and enclosing an invoice. Mr Dickens gave evidence that the defendant did not receive this letter. Under cross-examination the plaintiff stated that the invoice which was not produced, was for $91000 (approx) being the amount owing on termination of the Subcontract. I am satisfied therefore that the letter (if sent at all) was sent considerably later in time than initially claimed
by the plaintiff.
(b) Was there consideration?
[25] The plaintiff alleges that the promise by the defendant to fulfil his obligations under the original agreement cannot constitute good consideration for a variation which had the unilateral effect of reducing the benefit of the Subcontract Agreement to the plaintiff. The defendant concedes that if there was a reduction in the rate in favour of the defendant without any corresponding benefit to the plaintiff there would be no consideration and the defendant could not enforce the varied agreement.
[26] The defendant claims, however, that there was, in fact, a corresponding benefit for the plaintiff by way of increased work. The variation followed the defendant’s increased need for skilled operators and for a longer duration than had originally been anticipated. By agreeing to the variation, the plaintiff secured that opportunity to supply those operators. The plaintiff went on to earn a substantial sum in the period from October
2006 to cancellation of the Subcontract Agreement on 18 September 2007.
[27] In this case, I find that the variation to the Subcontract Agreement benefited both the defendant in securing a reduced rate for the supply of labour and the plaintiff in achieving an increased number of operators on site for a longer period. I am satisfied, therefore, that there is consideration to support the agreement to vary the terms of the Subcontract Agreement.
Discussion
[23] Mr Banbrook advanced the appellant’s submissions under two heads. The first head was the Judge had erred in finding that in early October 2006 there had been a “consensual oral agreement” between the parties which varied the hourly rate stipulated in the written contract from $35 to $30. The second head was that the variation was, in any event, not legally enforceable because there was no consideration in the form of any enforceable benefit to the appellant.
No consensual variation of the agreement
[24] Mr Banbrook placed great weight on the fact that the alleged reduction of the hourly rate to $30 had not been recorded or mentioned in writing. Although accepting that a variation of the parties’ subcontract could be oral, counsel nonetheless pointed to the documentary evidence. The 1 September 2006 written offer recorded the $35 rate. So too did the executed agreement returned by the respondent on 3 October 2006. The respondent’s 14 June 2007 letter (supra [14]) expressly referred to the $35 rate as “your contractual right”. The absence of
anything recording the alleged variation in writing sat uneasily with the respondent’s
27 November 2006 letter (supra [12]) headed “Offer to vary our sub-contract agreement”.
[25] In counsel’s submission the evidence of the appellant at trial was to be preferred. Although he had invoiced the respondent at the lower $30 rate on 9 October 2006 (the first reduced invoice date), right through to termination some 11 months later, the appellant had never consented to the variation.
[26] Objectively, submitted Mr Banbrook, the variation for which the respondent contended had not been made out. Counsel referred to a passage from the Laws of New Zealand: Contract, Part II Formation of Contract which at [16] states:
Where one party has behaved in such a way that a reasonable bystander would believe that that party is unambiguously assenting to the terms as proposed by the other party, the first party is generally precluded from setting up a claim that he or she had some other intention. Consequently that first party is bound by the contract as if he or she had intended to agree to the other party’s terms. This will not be the case where the offeror knows that the offeree does not intend to accept the offer, even though the offeree’s conduct is such that a reasonable bystander would consider that it was in response to, and in acceptance of, the offer.
[27] The “reasonable bystander” concept was referred to by the Court of Appeal
in Meates v Attorney General [1983] NZLR 308, 378.
[28] Additionally, submitted counsel, although the appellant had indeed invoiced
at the lower $30 rate, he had never accepted the reduced rate as his undated 2007 letter (supra [16]) showed. On the appellant’s evidence he was faced with an ultimatum from the respondent to which he acceded unwillingly. He continued to protest the demand. As support for that submission, counsel again refer to the 14 June 2007 letter. The reference to $35 being the appellant’s “contractual right” clearly showed that the respondent knew full well the appellant had never accepted the variation and that its contractual entitlement to the higher sum remained in force.
[29] For similar reasons to those expressed by Judge Sinclair (supra [22]) I reject the appellant’s argument under this head. I do so for the following reasons.
· The Judge resolved credibility issues in favour of the respondent’s witnesses
(see her judgment [23]).
·The respondent’s evidence as it related to the October 2006 meeting was that, provided the appellant agreed to a reduction to $30 (then being paid to five of his workers on site), it would be to the appellant that the respondent would look for the extra operators it required. The respondent would otherwise have been prepared to continue to pay the agreed $35 rate for those five workers but would, in those circumstances, have looked elsewhere for the extra operators it required for the highway development.
· At no stage after early October 2006 did the appellant invoice the respondent
at the higher amount. Nor did the appellant enter any form of protest indicating a stance that the contract rate of $35 remained afoot.
·The 5% upward adjustment applied by the respondent to the subcontract in the wake of the respondent’s 27 November 2006 letter was calculated by the appellant on the $30 rate not the $35 rate.
·In the months that followed the October 2006 variation, consistent with a variation which the parties had negotiated, the number of operators provided by the appellant engaged on the site increased considerably as did the number of hours worked. By way of example the number of operators engaged in September 2006 was between 3 and 5, and the invoiced sums totalled
$20,120. In November 2006 the numbers were 10 and $36,990. By March
2007 the numbers were 12 and $77,161.
· I agree with the Judge’s construction of the respondent’s 14 June 2007 letter.
I do not, in the context of that letter, construe the words “should you wish to exercise your contractual rights to charge $35 for future hires then you should
do so” as being a concession by the respondent that the contract had remained unvaried. Rather it was somewhat loose language used by the author of the letter to set out what the appellant (who had clearly changed his stance some eight months later) took to be his contractual entitlement. The
earlier portion of the paragraph in which those words appear (supra [14]) makes it very clear that the respondent’s position was that the contractual rate had indeed been varied. The letter is totally consistent with the facts as the Judge found them, and with the respondent’s defence at trial.
[30] I have not overlooked the fact that, from the appellant’s standpoint, the 1
September 2006 contract carried some risk. The first risk was there was no guarantee that the appellant would have any exclusivity or priority in providing the operators and labourers required for the earthworks on the respondent’s site. The second risk was that the contract could be terminated by the respondent for any reason on one day’s notice. But it was against that background, in a situation where the respondent was looking to engage more operators but at a lower rate, that a variation was negotiated and concluded.
[31] In the absence of any protest or reservation of rights by the appellant, the pattern of increasing operators and revenue supplied by the appellant under the contract in the wake of the October 2006 variation, reinforces the Judge’s findings (supra [22]) about what the parties had negotiated.
[32] It was the appellant who, as plaintiff in the District Court, had to prove on the balance of probabilities that the respondent had breached its contractual obligations. The Judge was clearly of the view that the original $35 hourly rate had been varied. Quite simply the appellant failed to prove its case so far as the variation was concerned. The reasons given by the Judge are correct. The first head fails.
No consideration
[33] It was common ground between the parties that, for any variation of a contract to be legally enforceable, there must be consideration. If there was no consideration then the variation is at law unenforceable.
[34] Mr Banbrook’s argument under this head was simple. If there was an oral variation of the contract in early October 2006 then the sole benefit of that variation flowed to the respondent by way of a reduced hourly rate. There was absolutely no
benefit to the appellant because all the other terms of the 1 September 2006 contract remained unvaried and in force.
[35] In that regard counsel referred to Chitty on Contracts (29th ed 2004) paras 3-
079 and 3-080. Citing from the first of these paragraphs:
…it has been held that there is no consideration for variation which, though capable of benefitting either party, is in fact made wholly with the benefit of one. For example a variation as to the place at which a debt is to be paid is capable of benefitting either party; where such a variation was introduced solely for the benefit of the debtor there was held to be no consideration for a promise by the creditor.
[36] Counsel cited the New South Wales Court of Appeal judgment of T A Sundell
& Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd (1956) SR (NSW) 323 and
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd – The Atlantic Baron
[1978] 3 All ER 1170.
[37] The Judge found that there was consideration moving both ways (see her judgment [27]). I consider she was correct in so doing. If the parties’ variation agreement had been limited solely to a reduction to an hourly rate of $30 without more, then there would be force in Mr Banbrook’s submission.
[38] But that was not the case. The evidence which the Judge clearly accepted (in preference to the appellant’s evidence) was that although the respondent was prepared at the October 2006 meeting to continue to pay the five operators on site the agreed $35 rate, it would, in that situation, stand on the non-exclusivity aspect of the contract and look for cheaper operators elsewhere. The quid pro quo accepted by the appellant was that, in return for the reduction to the lower rate, the appellant, provided his operators were of acceptable quality, would be the respondent’s first port of call. That is exactly what happened. The number of operators increased. The respondent’s 14 January 2007 letter (supra [14]) echoes the varied arrangement.
[39] So, focusing on the consideration requirement of the contractual variation, the benefit flowing to the respondent was a lower rate. The benefit flowing to the appellant was an increasing number of operators and labourers for which he could charge.
[40] I am mindful of Mr Banbrook’s submission that, as a matter of principle, the fact that the appellant’s revenue increased significantly in the months after October
2006 is irrelevant so far as the consideration submission is concerned. That might be the case if there were no consideration. But as the Judge found, and correctly, there was on the facts before her consideration moving both ways.
[41] For these reasons the second head of the appellant’s argument fails.
Result
[42] I conclude, for the reasons given, that the Judge was correct in her determination of the issues before her. On the facts as she found them, and indeed
on the construction of the various documents before her, the only permissible conclusion was that the parties to the 1 September 2006 contract had orally agreed to reduce the hourly rate from $35 to $30. The appellant was thus unable to make out his claim for breach of contract.
[43] Accordingly the appeal is dismissed.
Costs
[44] As the successful party the respondent is entitled to costs on a 2B basis.
[45] Because the appellant abandoned its third ground of appeal based on duress the respondent did not pursue its cross-appeal. The appellant indicated this modified stance, so counsel inform me, on 4 November 2009. Mr Booth seeks costs for the respondent on the cross-appeal up to that date. Mr Banbrook accepts this claim is proper. Thus, in addition to 2B costs on the appeal I award the respondent 2B costs on the cross-appeal up to 4 November 2009.
[46] Counsel did not indicate any difficulty in calculating the relevant figures.
.......................................… Priestley J
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