IN THE SUPREME COURT OF VICTORIA Not Restricted
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
No. SCI 2010 03928
SKILLED GROUP LIMITED (ACN 005 585 811) Plaintiff
V
CSR VIRIDIAN LTD (ACN 006 904 052) First Defendant
and
PILKINGTON AUSTRALIA ENGINEERING PTY LTD
(ACN 126 263 205) Second Defendant
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JUDGE : Vickery J
WHERE HELD : Melbourne
DATES OF HEARING : 20–24, 29 February; 1, 5-7, 19-20 March 2012
DATE OF JUDGMENT : 4 July 2012
CASE MAY BE CITED AS : Skilled Group Ltd v CSR Viridian Ltd & Anor
MEDIUM NEUTRAL CITATION : [2012] VSC 290
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B UILDING C ONTRACTS – Unexecuted sub-contracts - Whether binding sub-contracts entered into – Sub-contracts implied from conduct – Whether conduct of parties evidenced a concluded bargain and on what terms - Fourth class of Masters v Cameron (1954) 91 CLR 353 considered and applied - Whether party estopped from denying binding sub-contracts – Whether restitutionary quantum meruit available - Lumbers v W Cook Builders Pty Limited (2007) 232 CLR 635 considered and applied - Milestone dates for progressive completion of stages of works not agreed – Whether milestone dates essential terms - Whether free acceptance of benefit arises – Construction and effect of final certificates issued by superintendent under General Conditions of AS2124 – 1992 as amended – Entitlement for payment pursuant to final certificates.
C ONTRACT - Whether conduct of parties evidenced a concluded bargain and on what terms - Fourth class of Masters v Cameron (1954) 91 CLR 353 considered and applied - Whether party estopped from denying binding contract – Lumbers v W Cook Builders Pty Limited (2007) 232 CLR 635 considered and applied - Whether restitutionary quantum meruit available.
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APPEARANCES : Counsel Solicitors
For the Plaintiff Mr M R Scott SC Clayton Utz
For the First Defendant Mr M Rudge SC and DibbsBarker
Mr FP Hicks
For the Second Defendant Mr A Laird Freehills
HIS HONOUR:
Background
Outline of Contractual Relationships
1 In this case the plaintiff Skilled Group Ltd claims monies it alleges to be due to it by way of a restitutionary quantum meruit for engineering work it performed at a glass manufacturing plant known as the “Dandenong Float Glass Plant” situated at 95 Greens Road Dandenong in Victoria (the “Plant”).
2 The first defendant, CSR Viridian Ltd (“CSR”), is the owner of the Plant and the proprietor in respect of the works conducted at the Plant (the “Project Works”).
3 In 2007, CSR contracted with the second defendant, Pilkington Australia Engineering Pty Ltd (“Pilkington”), to carry out a $120 million upgrade of the Plant (the “Project”).
4 Pilkington and CSR entered into three head contracts for the Project Works (together the “Head Contracts”). The Head Contracts comprised:
(a) A contract for the design, installation and testing of a new 4300tpw batch plant to replace the existing facility 3500tpw at the Plant, to be completed by September 2008; (the “Batch Head Contract”);
(b) A contract for the design, supply, installation and testing of a five beam on line CVD coating system including the necessary bath and building modifications, to be completed for commercial production in April 2009 (the “Coating Head Contract”); and
(c) A contract for the repair and refurbishment of the existing float glass manufacturing line to be completed by September 2008 (the “Repair Head Contract”).
5 Pilkington in turn sub-contracted out parts of the Project Works under the Head Contracts to twelve (12) sub-contractors.
6 These parts of the works involved a total of about $46.9 million worth of the total Project Works.
7 The plaintiff, Skilled Group Ltd (“Skilled”), was one of these contractors retained by Pilkington. It performed approximately $6.5 million worth of the $46.9 million work sub-contracted by Pilkington (the “Skilled Engagement”).
8 Pursuant to the Skilled Engagement, the Skilled Works comprised part of the repair and refurbishment works to the Furnace and Bath, Lehr and Cutting Line components of the existing float glass manufacturing line in the Plant (together, the “Skilled Works”).
9 The Skilled Works were divided into three works packages. These packages can broadly be described as:
(a) The Cutting Line package of works (the “Cutting Line Works”);
(b) The Furnace and Bath package of works (the “Furnace and Bath Works”);
and
(c) The Lehr package of works (the “Lehr Works”).
10 The proceeding arises out of these relatively small parts of the overall Project Works, comprising three works packages under the Repair Head Contract that Pilkington awarded to Skilled comprising the Skilled Works.
Float Glass Process
11 Pilkington developed the ‘float process’ of glass production during the 1950s and 1960s. This process is highly specialised and requires the use of sophisticated machinery and equipment.
12 In the first stage of the process, glass is heated to approximately 1600ºC in a furnace (the “Furnace”).
13 In the second stage of the process, the molten glass is poured continuously from the furnace onto a shallow bath of molten tin, called a bath (the “Bath”). The molten glass ‘floats’ on the bath and spreads out to form a level surface. The thickness of the glass is controlled by the speed at which the solidifying glass ribbon is removed from the bath by a conveyor that takes the glass to the next stage of the process.
14 In the third stage of the process, a conveyor transports the glass from the Furnace and Bath towards a kiln with precisely controlled temperatures, called an annealing lehr (the “Lehr”). When the glass enters the Lehr it has already cooled to approximately 600ºC. Once inside the Lehr, the glass undergoes a further controlled cooling process. When the glass leaves the Lehr, it has solidified.
15 In the fourth stage of the process, the glass is inspected either by personnel or by automated computers. Substandard or flawed glass is removed from the conveyor. The glass remaining on the conveyor is then cut using diamond-wheel glass cutters. These glass cutters are controlled by computers which guide around any remaining imperfections. The conveyor and associated equipment used to inspect, guide and cut the glass is referred to as the ‘cold end’ or ‘cutting line’ (the “Cutting Line”).
Skilled’s Scope of Works
16 The scope of the Skilled Works for each of the Furnace and Bath, Lehr and Cutting Line components of the upgrade works is summarised below:
(a) Skilled’s scope of works for the Furnace and Bath Works in general terms involved dismantling steelwork and installation of new steelwork associated with the demolition and construction of a new and larger furnace, and enlarging the width of the bath to accommodate wider sheets of molten glass. Steelwork was also involved. More specifically the work involved:
(i) pre-works, removal, modification and installation works to be undertaken prior to shutdown of the furnace; and
(ii) works to be undertaken during the shut down. This work largely involved the removal of steel to allow demolition to occur, the removal of steel for modification and subsequent re-installation and installation of new steel.
(b) Skilled’s scope of works for the Lehr Works included the installation of new supplied plant being a new Lehr and drive system and the alignment of those items.
(c) Skilled’s scope of works for the Cutting Line Works involved the assembly and installation of supplied conveyor and associated equipment used to cut, convey and offload glass and the alignment of those items.
Issues for Determination
17 The following issues were ordered to be heard and determined in this separate liability trial (the “Liability Trial”):
a. Did the plaintiff (Skilled) and the second defendant (Pilkington) enter into legally binding contracts (the “Sub-contracts”) for the works for which Skilled sues the first defendant (CSR) in this proceeding, being those works described as:
i. The Cutting Line works; and/or
ii. The Furnace and Bath works; and/or
iii. The Lehr works.
(“the Contract issue”)
b. If the answer to question (a) (i) and/or (a) (ii) and/or (a) (iii) is no is Skilled estopped from denying the existence of a contract or contracts? (“the Estoppel issue”)
c. If the answer to question (a) (i) and/or (a) (ii) and/or (a) (iii) is yes:
i. should Skilled’s claim against CSR be dismissed; and/or
(“the Dismissal issue”)
ii. is Pilkington entitled to be paid the sum certified as payable by the Superintendent in the Final Certificate that was issued under the relevant contract?(“the Final Certificate issue”)
18 To these I will add the following question in order to finally dispose of issues squarely raised in the Liability Trial:
d. Were the Cutting Line Works, Furnace and Bath Works or Lehr works performed at the request, or with the acquiescence of, CSR?
19 I will approach this case on the basis that the Contract issue is logically the first question to be answered. If the question is answered in the affirmative, it will not be necessary for the Court to deal with the Estoppel issue. Further, if the Contract issue is answered in the affirmative, it would also appear to follow that the Dismissal issue must be answered in the affirmative. The Contract issue is also a necessary precursor to the Final Certificate issue, which is a question of construction of the relevant contract.
20 Skilled’s claim is as follows: It says that between about April 2008 and November 2008 Skilled performed the Skilled Works at the Plant. These involved mobilisation of labour and equipment to site; work on the Furnace and Bath (steelwork removal, modification and installation); work on the Lehr (installation, labour and meeting tool requirements); and Cutting Line (installation); additional items of work; and demobilisation of labour and equipment from site.
21 Skilled says further that the Skilled Works were performed at the request, or with the acquiescence, of CSR and that CSR accepted the benefit of the works and was accordingly advantaged. It then says that the fair and reasonable value of the works was $16,170,150 (plus GST), however, CSR has to date paid, or caused Skilled to be paid, only $10,593,643.88 (plus GST) for the Skilled Works. It says further that, in these circumstances, CSR has been unjustly enriched at the expense of Skilled and it claims the sum of $5,576,506.12 (plus GST) as the reasonable and unpaid value of the works.
22 CSR resists Skilled’s claim for the payment of monies by way of a restitutionary quantum meruit (the “QM Claim”). It says that where, as it alleges was the case here, there is a sub-contract between CSR and Pilkington, there is no room for Skilled’s QM Claim to operate. In particular, CSR contends:
(a) There was a legally binding sub-contract between CSR and Pilkington for the works the subject of the QM Claim;
(b) Further, there was a legally binding head contract between Pilkington and Skilled for the works the subject of the QM Claim; and
(c) Further, and in the alternative, Skilled is estopped from asserting its QM Claim.
Whether Restitutionary Principles Applicable
23 Where there is a binding and enforceable contract in respect of relevant work between a Proprietor (in this case CSR) and a Head Contractor (in this case Pilkington), there is no basis in law to permit a third party Sub-contractor or Supplier (in this case Skilled) to make a claim upon the Proprietor by way of a restitutionary quantum meruit for part or all of that work.
24 In Lumbers v W Cook Builders Pty Limited (“ Lumbers ”) the facts were these:
25 In 1993 the owner and lessee for life of land in North Haven, Adelaide, Mathew and Warwick Lumbers (the “Lumbers”), entered into an oral contract with a building company, W. Cook & Sons Pty Ltd (“Sons”) to construct a house on the land. The Lumbers chose Sons because of its reputation and because they had confidence in a member of the company known to them. The contract between the Lumbers and Sons was never put into writing, and no invoices were ever issued. However, most of the work required by the contract was performed, not by Sons, but by W. Cook Builders Pty Ltd (In Liq) (“Builders”). Builders made a claim against the Lumbers for services it performed on the project. The claims included claims for reimbursement of amounts paid to various sub-contractors and a fee for supervision of their work. The Lumbers made progress payments to Sons as requested from time to time. Without the knowledge of the Lumbers, Sons paid those amounts to Builders. Builders claimed that a balance (ultimately found to be $261,715) remained due and unpaid. Builders made a demand for payment from the Lumbers in November 1999, more than a year after it went into liquidation.
26 Builders commenced a proceeding in the District Court of South Australia, joining as defendants both the Lumbers and Sons for the sum claimed. Builders claimed against the Lumbers on the basis that Sons had assigned the contract to Builders (rather than it being a sub-contractor) and for restitution/unjust enrichment. Both claims were dismissed at first instance. On appeal the Court of Appeal of South Australia rejected the assignment claim, but upheld the appeal on restitution, holding in essence that an incontrovertible benefit was conferred on the Lumbers at Builders’ expense and it would be unconscionable for them to keep the benefit of the service without paying a reasonable sum for it. The Lumbers appealed to the High Court which unanimously allowed the appeal and restored the judgment at first instance.
27 The High Court in substance held that the Court of Appeal had not taken sufficient account of the rights and obligations under the contractual relationship between Sons and the Lumbers. The Lumbers were not shown to have unconscionably accepted a benefit at Builders’ expense. They had never asked Builders to do anything in connection with the house construction. It held that Builders’ remedies lay under its sub-contract with Sons.
28 In the joint judgment of Gummow, Hayne, Crennan and Kiefel JJ in Lumbers the contractual position of the parties was analysed at [124] to 126] in the following way:
[124] When account is taken of the contractual relationship between the Lumbers and Sons several observations may be made.
[125] First, the Lumbers accepted no benefit at the expenses of Builders which it would [be] unconscionable to retain. The Lumbers made a contract with Sons which either has been fully performed by both parties or has not. Sons made an arrangement or agreement with Builders which again has either been fully performed or it has not. If neither the agreement between Sons and the Lumbers or the agreement or arrangement between Sons and Builders has not been performed (because all that is owned by one party to the other has not been paid) that is a matter between the parties to the relevant agreement. A failure of performance of either agreement is no reason to conclude that Builders should then have some claim against Lumbers, parties with whom Builders should then have some claim against the Lumbers, parties with whom Builders has no contract.
[126] Because Builders had no dealings with Lumbers, Builders has no claim against the Lumbers for the price of any work and labour Builders performed or for any money that Builders may have paid in relation to the construction. Builders has no such claim because it can point to no request by the Lumbers directed to Builders that Builders do any work it did or pay any money it did. Reference to whether the Lumbers ‘accepted’ any work that Builders did or ‘accepted’ the benefits of any money it paid is irrelevant. It is irrelevant because it distracts attention from the legal relationships between the three parties: the Lumbers, Sons and Builders. To now impose on the Lumbers an obligation to pay Builders would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that.
29 The Lumbers decision was considered and applied by the Court of Appeal (Victoria) in Henderson's Automotive Technologies Pty Ltd (in liq) v Flaton Management Pty Ltd. Tate JA (with whom Ashley and Neave JJA agreed) said at [55] to [56]:
[55] The High Court [in Lumbers’ case] held that the majority of the Full Court had wrongly applied the doctrine of ‘free acceptance’ (that is, acceptance of a benefit in the absence of a request), in upholding the plaintiff’s claim in restitution; had wrongly put aside consideration of the contractual arrangements as relevant to the parties’ obligations; and had applied, when it should not have done so, the principles from Angelopoulos v Sabatino . In Angelopoulos , it was held that, in addition to an implied request for work to be done or money paid, there were numerous other factors to be given separate consideration before restitution could be awarded, including, as a factor, whether a benefit was conferred at another party’s expense. In considering the analysis proffered by the majority below, in Lumbers v Cook , Gummow, Hayne, Crennan and Keifel JJ said (at 662-3 [78]-[79] (citations omitted)):
“The application of a framework for analysis expressed only at the level of abstraction adopted in this case, by reference to ‘benefit’, ‘expense’ and ‘acceptance’ coupled with considerations of unconscionability, creates a serious risk of producing a result that is discordant with accepted principle, thus creating a lack of coherence with other branches of the law. There are two reasons of particular relevance to this case why that is so. ... First, does applying the posited framework for analysis to the facts of the present case extend the availability of recovery beyond the circumstances in which a claim for work and labour done (or money paid) for and at the request of the defendant would be available? Secondly, and no less importantly, how is the result of applying this framework for analysis consistent with the obligations relevant parties undertook by their contractual arrangements?
The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a ‘benefit’ at the ‘expense’ of another which the recipient ‘accepts’ and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this Court’s decision in Steele v Tardiani, an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with any particular contract the parties have made. It is essential to consider how the claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean Shipping Co Ltd v Creditcorp Ltd, ‘serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract’. In a similar vein, in the Comments under s 29 of the proposed Restatement, (3d), ‘Restitution and Unjust Enrichment’, the Reporter says:
‘Even if restitution is the claimant’s only recourse, a claim under this Section will be denied where the imposition of a liability in restitution would overturn an existing allocation of risk or limitation of liability previously established by contract.’”
[56] There can be no doubt from these pronouncements that, even where a claim for restitution is properly brought, primacy is to be given to any legal relationships that exist between the parties, as Flaton Management argued on the appeal. Moreover, as Lumbers v Cook makes clear, where there is an agreement between the parties, the scope of that agreement will almost invariably govern the relationship between the parties independently of any questions about so-called incontrovertible benefits or unconscionability.
30 To like effect is a recent decision of the English Court of Appeal, MacDonald Dickens & Macklin v Costello & Other where it was held that restitutionary relief for unjust enrichment was not available against a Defendant who had benefited from the Claimant’s services rendered pursuant to a contract to which that Defendant was not a party. It was held that the obligations in respect of the Claimant’s works and services, and in particular the risk of non-payment, was contractually confined to the Head Contractor. If a claim was permitted directly against the Proprietors, “it would shatter that contractual containment” . It would also alter the usual consequences of insolvency.
31 Lord Justice Etherton summarised the general rule as follows:
The general rule should be to uphold contractual arrangements by which parties have defined and allocated and, to that extent, restricted their mutual obligations, and, in so doing, have similarly allocated and circumscribed the consequences of non-performance.
That general rule reflects a sound legal policy, which acknowledges the parties autonomy to configure the legal relations between them and provides certainty, and so limits disputes and litigation.
32 In the context of construction law there are sound practical policy considerations for the application of the Lumbers principle.
33 First, in the absence of the principle, commercial uncertainty could arise – a Proprietor could be obliged to meet claims by third party suppliers and contractors of an unknown and unmanageable dimension, notwithstanding the existence of a binding and legally enforceable contract between the Proprietor and a Head Contractor for the work.
34 Second, multiple obligations in respect of the same work would be imposed on a Proprietor – those agreed under the Head Contract and those imposed in favour of third party Sub-contractors and Suppliers.
35 Third, the Proprietor would be left with no control or protection in respect of:
i. The price of the works – any agreement as to a lump sum or a schedule of rates would become immaterial;
ii. The cost of the works – any regime for notice and claim in respect of variations, delay costs, etc, would become immaterial.
36 Fourth, the level of risk for a Proprietor associated with these matters may well impact adversely on the financing of construction projects.
37 Fifth, the ability of a Proprietor to communicate with those undertaking the works on site may well be inhibited in circumstances where any communication could be later asserted by a disgruntled third party Sub-contractor or Supplier to amount to an implied “request” to perform the works, in turn resulting in liability being imposed on the Proprietor through a quantum meruit claim. As Emmitt and Gorse write in Communication in Construction Teams , which I fully endorse:
Communication is arguably the one aspect of project management that pervades all others, for without effective communication between the participants the project team cannot succeed in realising its objectives.
38 In order to avoid these consequences, the law recognises under the Lumbers principle that full effect should be given to the binding contractual arrangements of the parties as the basis of their dealings in the administration of a construction contract.
39 It is critical therefore to determine whether any and what legal relationships existed between the parties involved in the works comprised in part of the repair and refurbishment works to the Furnace and Bath, Lehr and Cutting Line components of the existing Plant, and in particular, whether there was any and what contract between CSR and Pilkington and whether there was any and what sub-contract between Pilkington and Skilled.
The Head Contracts Between CSR and Pilkington
Structure of Head Contracts
40 Each of the three Head Contracts were in writing and executed by the parties to them. Under the Head Contracts, CSR was the Principal and Pilkington was the contractor.
41 Steve Rauer was appointed and named as the Contractor’s Representative under clause 7.3 of Schedule 7 of each of the Head Contracts. He was therefore required to act on behalf of Pilkington in respect of its responsibilities and obligations under the Head Contracts.
42 The Batch Head Contract required Pilkington to design, supply, install and test a new Batch Plant at the Plant.
43 The Coating Head Contract required Pilkington to design, supply, install and test a five beam on-line coating system to be installed with associated support equipment to facilitate the manufacture of certain products at the Plant.
44 The Repair Head Contract required Pilkington to perform repair and refurbishment works of the existing floating glass manufacturing line installed and operated at the Plant.
45 Each of the Head Contracts also provided in relation to the project administration of each contract:
7.1 Generally
7.1.1 The detailed project administration procedures shall be agreed between the Principal and the Contractor prior to commencement of work under the Contract and in accordance with the principles set out below. In the event that one of the parties wants to make a change or the parties cannot agree the issue will be referred to the Steering Committee and the Steering Committee’s ruling shall apply.
46 Clause 7.2 of Schedule 7 of the Head Contracts also required that a steering committee for the Project be formed comprising representatives of CSR and Pilkington. Steve Rauer was nominated in clause 7.2 of Schedule 7 of the Head Contracts as a Pilkington representative on the Project Steering Committee, as was Chris Newitt. As Project Manager Steve Rauer was responsible for reporting to the Steering Committee on, among other things, time, cost and quality issues.
47 Under the Head Contracts it was CSR rather than Pilkington that was responsible for industrial relations issues. This was because CSR had significantly more relevant local experience with industrial relations matters. In practice CSR managed the various industrial relations issues that arose on the Project, including issues that concerned Pilkington’s subcontractors.
Engagement of Sub-contractors Under Head Contracts
48 The Head Contracts contemplated that Pilkington would engage subcontractors to perform the works required. Specifically, clause 9.2 of the Head Contracts provided that Pilkington could subcontract without CSR’s approval.
49 Clause 9.2 provided:
9.2 Sub-contracting generally
The Contractor [Pilkington] may sub-contract any part of the Works without the approval of the Principal or the Superintendent .
50 Further, Clause 1.2.2 of Schedule 1 defined Pilkington’s scope of work under each Head Contract to include engaging subcontractors. Ultimately, Pilkington engaged approximately 15 to 20 main subcontractors to perform the works under the Head Contracts.
Payment of Sub-contractors Under Head Contracts
51 Under clause 37.7 and clause 8.4 of Schedule 8 of the Head Contracts CSR was required to reimburse Pilkington for the cost of subcontractors engaged by Pilkington to perform the works on the Project.
52 However, this arrangement gave rise to practical difficulties. Pilkington, which was UK based, in order to administer the contractual payment system would have been required to incur additional expenditure in establishing in Australia a local accounts team to manage payments and financial transactions for the Project.
53 In order to resolve this difficulty, CSR and Pilkington engaged in discussions which resulted in a more workable regime under which Pilkington’s sub-contractors would be paid directly by CSR. This arrangement was confirmed in a ‘side letter’ between CSR and Pilkington that was signed by Pilkington in December 2007. Under the side letter, it was agreed that CSR would pay Pilkington’s subcontractors directly, upon Pilkington issuing to CSR a direction to pay each time a subcontractor was required to be paid. In the case of the Skilled Works, a direction to pay was typically prepared on a monthly basis.
54 The payment arrangement was evidenced for example in an email dated 8 May 2008 from CSR to contractors on the Project concerning the payment arrangements under the various installation contracts for the float line repair. The email confirmed that the contractors had been engaged by Pilkington and stated, among other things, that:
Regarding the installation contract(s) you are conducting for the Dandenong Float line repair that you have engaged by [sic] PILKINGTON AUSTRALIA ENGINEERING PTY LTD. Just a reminder about submitting your invoices/progress claims.
Can you please ensure they are made out to:
PILKINGTON AUSTRALIA ENGINEERING PTY LTD (ABN 63 126 263 205) And please submit/deliver invoices to our site location:
Attention: Sharon Bailey (sbailey@csr.com.au)
VIRIDIAN GLASS
95 Greens Road, Dandenong, Vic 3175.
55 In my opinion, the fact that this arrangement for payment was agreed upon between CSR and Pilkington and put into effect as far as third party contractors engaged by Pilkington on the Project were concerned, does not evidence any contract directly between CSR and those contractors. The arrangement was a creature of convenience and had nothing to do with any actual or perceived alteration in the contractual structure between any of the parties.
Local Team Under Head Contracts
56 Under the Head Contracts, CSR agreed to ‘second and make available… on a full-time basis’ to Pilkington certain CSR personnel, in order to ensure continuity and local knowledge during the Project. A number of these CSR personnel, including Tom Zilic, had been employed by Pilkington prior to the sale of the business to CSR. These CSR personnel were referred to in the Head Contract as the Local Team.
57 Under Clause 8.5 of the Head Contracts, CSR, among other things, retained responsibility as the employer of members of the Local Team and was responsible for the performance of the Local Team and any increased costs, loss or damage attributable to the performance of the Local Team. CSR was also required to ensure that the Local Team carried out their functions, complied with all instructions and directions of Pilkington and fully co-operated with Pilkington, or with Steve Rauer as the Contractor's Representative under the Head Contracts.
58 Clause 8.5 of each of the Head Contracts provided:
8.5 Local Team
The Principal shall second and make available to the Contractor on a full time basis the Local Team . The Principal shall remain responsible as the employer of the Local Team for all aspects of employment including but not limited to payment (and shall indemnify the Contractor in respect thereof) but the Local Team shall in all other respects comply with the directions of and report to the Contractor .
The Local Team shall act on behalf of the Contractor in respect of ensuring the Contractor fulfils its obligations under the Fixed Lump Sum Price in relating to legislative requirements in Australia, relevant Australian standards and importation requirements.
The Local Team shall also act on behalf of the Contractor in respect of the Local Element and shall be responsible for ensuring the Contractor’s compliance with the Local Element and such work will include without limitation advising on all matters in relations to the execution of the WUC in Australia and elsewhere, customs clearance at Melbourne Harbour and Airport, arranging inland transportation to the site , assembling the necessary information for the required procurement of all sub contracts, inviting tenders from sub Contractors , awarding sub contracts, administering the sub contracts, managing the rectification of any defects, managing the cost of the said work and keeping sufficient and adequate records of the said work to satisfy the Principal , the Superintendent , the Steering Committee and the Contractor as to the costs of the said work on an ‘open book’ Actual Cost basis, and liaising with and providing services in relation to the requirements of any State, Federal, local or other authority with jurisdictions over the WUC .
Notwithstanding any direction given by the Contractor to the Local Team the Principal shall be responsible for the performance of the Local Team and if the Contractor incurs any increased costs, loss or damage not recoverable as Actual Cost as a consequence of any act, default or omission of the Local Team the Contractor shall be entitled to claim such costs, loss or damage from the Principal .
“ Local Team” was defined to mean the individuals named in clause 7.5 of Schedule 7 or any person agreed between the Principal and the Contractor to be a replacement for any named member of any team.
59 Thus, under clause 8.5 of the Head Contracts, the Local Team was to be under the direct supervision and instruction of Pilkington, and was required to act on behalf of Pilkington in respect of ensuring that Pilkington fulfilled its obligations under the Head Contracts. This included:
(a) advising on all matters in relation to the execution of the works under contract;
(b) assembling the necessary information for the required procurement of all subcontracts;
(c) inviting tenders from subcontractors;
(d) awarding subcontracts;
(e) administering subcontracts;
(f) managing the rectification of any defects; and
(g) managing the cost of the said work and keeping records of the cost of the work.
60 Clause 7.5 of Schedule 7 of each of the Head Contracts provided:
7.5 The Local Team
The Principal undertakes to maintain the continuity, wherever possible, of all the Principal’s personnel to the end of the project, and to discuss any changes with the Contractor before making them. The Local Team shall comprise the following named employees of the Principal and where no names are inserted individuals of sufficient experience, training and competence to carry out the duties as listed:
Neil Robinson - Manager of Local Team and Principal’s representative (full- time)
Peter Adamovskis - Operations Manager (part-time up to repair and then full- time during the repair)
Mr Tom Zilic – Project Buyer, Expeditor, Shipping and Documentation (full- time)
… [then follows 17 nominated persons or persons to be advised shown as “TBA”]
…
The Local Team Manager (Mr N. Robinson) shall be responsible for managing the Local Team under the directions of the Contractor’s EPM. Mr Robinson shall play an active day-to-day role in the execution of the Local Element and he shall ensure that the Local Team comply with their obligations under clause 8.5 of the General Conditions of Contract and that they use their best endeavours at all times to provide advice and assistance to the Contractor that will enable the Contractor , as far as practicable and taking account of his with his (sic) obligations and duties under the Contract , to minimise the amount of the Actual Cost expenditure.
…
61 For the purposes of the administration of the Project, the members of the Local Team , although they continued to be employed by CSR, were appointed as agents of the contractor Pilkington and were obliged to comply with the directions of and report to Pilkington.
Whether a Sub-Contracts Between Pilkington and Skilled
“Sub-Contract” Engagement Terms
62 Skilled’s contention was that the Skilled Works were never undertaken pursuant to any concluded Sub-contract between itself and Pilkington because, in essence, there was never any agreement as to two essential terms of the proposed sub-contracts, namely the dates for practical completion and the proposed milestone dates for the purposes of calculation of liquidated damages, should any be claimed.
63 It said that it was for these reasons that none of the proposed Sub-contracts were executed as contemplated by the parties they would be.
64 A further issue arises, namely in the light of there being in place unexecuted agreements of Sub-contract in writing which otherwise was used to govern the relationship between Pilkington and Skilled in carrying out the Skilled Works, and in the light of there being an intention on the part of one or other or both of the parties expressed from time to time to enter into formal executed contracts, do any and which classes of case described in Masters v Cameron apply?
Non-Execution of Sub-Contracts
65 It is common ground that neither Pilkington or Skilled ever physically executed the sub-contract documents.
66 Nevertheless, binding and enforceable contracts can arise in the absence of formal execution by implication.
67 Two recent examples are PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd and Anor and Ambridge Investments Pty Ltd v Baker & Ors .
68 An implied contract may arise where it is to be inferred from the evidence that the parties agreed by their conduct to act on an agreement embracing all of the essential terms.
“Sub-Contract” Tender Documents
69 On 14 January 2008, Pilkington sent out invitations to tender for the Skilled Works to a number of companies, including Skilled inviting them to tender for the Pilkington “Repair Furnace Steelwork – Pre-Works Removal, Modification and Installation Line Removal & Installation” and the “Repair Cutting Line Removal & Installation”. On 18 January 2008 Skilled was invited by Pilkington to tender for the Furnace & Bath Steelwork – Removal, Modification and Installation. The contract documents, specifications and drawings were enclosed for the Furnace and Bath works (the “Tender Documents”).
70 There was no doubt that the tender documents were sent out to the market, including Skilled, by Pilkington as the prospective principal under the proposed Sub-contracts.
71 On 15 February 2008, Skilled submitted a proposal entitled “Pilkington Australia Engineering Ltd Request for Proposal for Furnace Steelwork Friday, 15 February 2008”, as well as Skilled’s completed “Furnace-Bath Steelwork Install A Tenders”. At paragraph A.2 “Statement of Conformance”, Skilled notes:
1. In submitting this response to tender Skilled must advise Pilkington that it reserves its position to negotiate the terms and conditions under which it proposes to perform the works.
Skilled has received the General Conditions of contract contained in AS 2124 – 1992 and the Special Conditions provided by Pilkington as amendments to that standard. As a result of our review we have concluded that the documents presented do not support the services to be undertaken and as such we have provided no comment other than to request that Pilkington consider an alternative form of contract more aligned to the scope of work and the responsibilities to be accepted by the relevant parties.
72 Each of Skilled’s tenders contained qualifications. The qualification concerned amendments to the standard AS-2124 1992 wording that were proposed by Pilkington. This issue was resolved following negotiations and Skilled and Pilkington agreed on a compromise wording, being the Special conditions of contract dated 10 January 2008, marked up with Skilled’s amendments of 21 April 2008.
73 By 6 May 2008, Pilkington had confirmed and finalised the award to Skilled for the Cutting line Works, Furnace and Bath Works and the Lehr Works and had supplied the negotiated contract documents to Skilled ready for execution (the “Sub- contracts”). This was evidenced in an email of that date sent by Zilic, a local team member acting for Pilkington, to Charles, Skilled’s Senior Project Manager.
74 By that time, I am also satisfied that the parties had agreed to operate under the terms of the Sub-contracts comprising the Australian Standard contract conditions contained in AS 2124 – 1992 as modified by agreed special conditions in respect of all three Sub-contracts. This was confirmed by an email on or about 15 May 2008, received by Zilic of Pilkington from Piers O’Brien, Skilled’s Group Manager Commercial Contracts and Strategic Bids. The email stated:
Tom
Further to our discussion earlier this week, I’d be grateful if you could please confirm:
1. The actual dates of practical completion under each of the 3 contracts;
and
2. The LD milestones (and associated dates) for each of the three contracts. In respect of LDs, Barry and I agreed that LDs under each contract would be subject to one milestone AND the date for practical completion.
Despite the fact that we’ve agreed that we’re operating under the terms of the relevant Australian Standard (as modified by the agreed special conditions) I can’t get signatures on the contracts until we’ve clarified these dates.
75 I accept this email as an admission on the part of Skilled as to the true position, namely that by early May 2008 Skilled and Pilkington had agreed that the Skilled Works were to be conducted pursuant to the written Sub-contracts which had been negotiated and supplied by that time, however, formal execution of those documents would not be effected by Skilled until agreement had been achieved in relation to each of the three Sub-contracts for the dates of practical completion and milestones.
Sub-contract Specifications
76 The specifications which comprised part of the Furnace and Bath unexecuted Sub- contract (the “Furnace and Bath Specifications”) included the following clauses in its introduction:
1: Introduction
This document is to be used as a tender document, and later as a basis for contract, for the steelwork removal modification and installation for the repair of a Float Furnace and Float Bath at Dandenong near Melbourne in Victoria, Australia.
The description given hereafter gives a detailed scope of work together with a list of drawings and a programme which must be met, or improved on.
The Contractor will be required to work closely with the Refractory Demolition and Refractory Installation Contractors throughout the furnace construction. The onus will be on the Contractors to work together to complete the project successfully.
Sub-contract Specifications in Relation to Programming
77 The Furnace and Bath Specifications contained in the unexecuted Sub-contract (“Specification Document 4428-401-B03-41R7”) also included the following in relation to programming:
Programme
A detailed manning schedule for the installation shall be prepared by the Contractor so as to describe to Pilkington how he intends to achieve the overall timescale allowed to him, this is to include the manning he proposes for each area of activity and include the skills of the persons involves, i.e. welders, fitters, labourers etc.
Site Mobilisation for Main Repair complete by 25/04/08
Furnace Shutdown 07/05/08
Remove all Waist Refiner & Working End Steel complete by 23/05/208
Start Installation of Furnace Bottom transverse Beams
(At waist and working end) start by 26/05/08
Complete installation of Bottom Transverse beams complete by 02/06/08
Install and Set Melt End Steel incl Springer plates complete by 16/06/08
Install waist Working End Steelwork & Refiner Steel complete by 13/06/08
Set working End Steel incl springers complete by 18/06/08
Install Front Wall frame incl. castings complete by 19/07/08
All Furnace Steelwork installed complete by 27/07/08
Bath Roof Support Steelwork extension complete by 12/06/08
Install New Bath Casings complete by 06/06/08
Widen Narrow End bath casings complete by 05/06/08
|
Complete all Bath Casing incl. Lip Plate |
complete by |
24/06/08 |
|
Complete Steelwork mods and installation to |
complete by |
30/07/08 |
|
Bath Roof casings excluding Roof plates |
|
|
|
Refit all Roof plates (tack welded) |
complete by |
06/08/08 |
|
Install Coater Steelwork |
complete by |
03/07/08 |
|
Warm up of Furnace |
|
28/07/08 |
Working hours and deployment of personnel shall be planned such that the above deadlines are complies with. If required, work can be in multiple shifts (“around the clock”) in accordance with the applicable statutory regulations.
The Contractor is expected to work to the Pilkington Schedule provided DA2-
4428-493-P24-05R10 14-12-07. In the event that the Contractor proposes an alternative schedule this be agreed in advance by the Pilkington Engineer.
It is the Contractor’s responsibility to keep or better the programme agreed. To ensure that this is done the Contractor will provide a permanent engineer during the day shift to be stationed on site. This engineer will attend daily informal construction meetings with the Construction Engineer with formal ones on a weekly basis. At these meetings he will provide a chart to show how he is meeting the required programme.
The Contractor is reminded that he will be working alongside other Contractors during the build i.e. pipe work, ducting and refractory etc. co- ordination of these activities will be jointly carried out with the respective Contractors and the Pilkington Engineer. A high level of co-ordination and co- operation is expected.
78 I construe the phrase used in the last item of the above table “Warm up of Furnace 28/07/08” in the Specification Document 4428-401-B03-41R7 to mean completion of the Furnace and Bath Works was programmed to be undertaken by 28 July 2008 or earlier, unless an alternative schedule proposed by the Contractor, in this case Skilled, was agreed in advance by the “Pilkington Engineer” as described in the Furnace and Bath Specifications.
79 As can also be seen, the programme for the Furnace and Bath in the Specification Document 4428-401-B03-41R7 set out milestone dates from the completion of various components of the works.
80 The programming obligations also need to be viewed in the light of the “ ‘C’ Special Conditions of Contract”. Clause 33.3 relating to ‘Planning and Scheduling’ provided:
This clause 33.3 defines the form and time of the construction program which the Contractor is hereby deemed to have been directed to furnish the Superintendent under Clause 33.2 of the General Conditions of Contract.
Within two weeks of the Date of Acceptance of Tender, the Contractor shall submit a detailed program for the whole of the work of the Contract to the Superintendent for approval. Upon approval of the program, the dates and duration for each activity shall be fixed and form the ‘Baseline’ against which progress will be monitored. The program shall be in the form of a time-chart clearly indicating all activities including design, procurement, construction, receival of Principal supplied equipment and availability of windows and arranged to show a “certain path”. The program shall show against each activity the percentage allocated to it of the total work, and a plotted “S” curve of planned progress, measured as described below, against time.
81 Throughout the progress of the works during the relevant period work was done on production and modification of programmes for the Skilled works. For example, on 2 May 2008, Bill Charles, Skilled’s Senior Project manager, wrote an email to Rauer, Pilkington’s Project Manager, in which he said:
Steve,
We have completed an initial draft Schedule that includes the Furnace and Bath.
We have based our programme on the dates as listed in the specification document 4428-401-B03-41R7 and the project schedule DA2-4428-493-P24- 05R15.
We are now in the process of finalising the programme and have arranged a meeting today with Neil Crompton to discuss and review the schedule and terminology used in both documents.
82 As at 1 May 2008 the Skilled programme which was prepared was based on the dates as listed in the Specification Document 4428-401-B03-41R7 and the project schedule issued 17 March 2008.
83 However, it seems to me that from the time of the adoption of the Sub-contract to regulate the contract, although there was in place what appeared to be a “default position” with regard to the project programme which would apply in the absence of agreement to the contrary, the parties did not manifest an intention to apply the Furnace and Bath Specifications in this way. The Specifications were not referred to by either Skilled or Pilkington as a default position in the course of their discussions in May and June of 2008 which concerned alternative and different dates for practical completion and a single milestone date for each of the Sub-contracts as a reference point.
“Sub-Contract” Principal Issue
84 Much of the trial was devoted to the factual issue as to whether there was agreement between Pilkington and Skilled as to completion dates for the Skilled Works comprising the Furnace and Bath Works in the context of the Furnace and Bath Unexecuted Agreement. A second issue is, if there was no such agreement, did that result in there being no binding sub-contract.
85 Skilled submitted tenders between 1 February 2008 (Furnace and Bath Steelwork) and 2 May 2008 (Lehr) and a single price for Cutting Line and Furnace and Bath was settled on 19 March 2008, with a 10% cap on liquidated damages and in principle agreement of one interim milestone and one practical completion date for liquidated damages on 16 April 2008.
86 Skilled commenced work on site before formal Sub-contracts were signed. This is not unusual in construction and engineering projects. In this case, at the time when Skilled commenced work, negotiations were ongoing with respect to milestones, milestone dates and practical completion dates. Other contractors were on site, and as a practical matter, in the interests of the Project, the Skilled work had to start.
87 Contracts were not executed between Pilkington and Skilled for any of the Furnace and Bath, Cutting Line or Lehr works.
88 Skilled’s case rested in part on evidence which it said pointed to Pilkington's insistence that there had to be signed sub-contracts in place and that this was inconsistent with Pilkington now contending there was nevertheless an enforceable agreement in existence. Skilled further contended that the only explanation for the absence of executed agreements was that the bargain between the parties had not been concluded. It said that it was fundamental to the proposed subcontracts that there be an agreed program and commitment to specific milestone dates and through them practical completion dates and these terms were never agreed.
89 Skilled submitted that the risk allocation between CSR and Pilkington and the evidence about what CSR knew and what CSR did establishes that Pilkington was Project Manager not head contractor in any conventional risk allocation sense. It submitted that CSR obtained works insurance on those terms and that the risk allocation between CSR and Pilkington under the contract between them as varied was only consistent with this characterisation.
90 On the other hand, Pilkington submitted that it was common ground between it and Skilled that Jones and O’Brien reached agreement on the following issues on 16 April 2008:
a. Liquidated damages (LDs) would be assessed at a daily rate of 0.5% of the relevant contract sum capped at 10% of the relevant contract value; and
b. PILKINGTON would have two separate triggers for an entitlement to LDs. These two separate triggers were the relevant Dates for Practical Completion under the subcontracts and an agreed interim milestone.
Accordingly the only issues that remained to be agreed as of 16 April 2008 were the relevant Dates for Practical Completion under each of the subcontracts and the separate agreed interim milestone.
91 Pilkington submitted that, viewed objectively:
a. it is reasonable to infer based on the conduct of Skilled and Pilkington that agreement was reached on the Dates for Practical Completion for each of the Furnace and Bath, Cutting Line and Lehr subcontracts by no later than late May 2008; and
b. it is also reasonable to infer based on the conduct of Skilled and Pilkington that agreement was reached on a separate milestone for both the Lehr and the Cutting Line by no later than late May 2008.
92 Pilkington’s alternative argument was that, if agreement on the Dates for Practical Completion cannot be inferred, then Pilkington and Skilled were clearly in a contractual relationship and that fair and reasonable original Dates for Practical Completion can and should be implied into the subcontracts. Skilled placed reliance on the fact that in addition to the conduct from which the existence of sub-contracts can be inferred clause 6.2 of the sub-contract terms expressly provided “Irrespective of the date upon which a Formal Instrument of Agreement is executed the Contract will take effect from the Date of Acceptance of Tender”.
93 In relation to the issue of agreement on separate milestones, where it was conceded there was no agreement in respect of the Furnace and Bath works, it was Pilkington’s position that this issue was ultimately of no practical importance. This was so because Pilkington only claimed, and the Superintendent only assessed, Pilkington’s entitlement to LDs by reference to the adjusted Dates for Practical Completion under each of the sub-contracts and not by reference to separate milestones. For this reason, even if the Court was to find that agreement cannot reasonably be inferred in relation to separate milestones (or one or more of them), it is submitted that this issue can and should be severed from the sub-contracts.
“Sub-Contract” Legal Analysis – Formation of the Contract
94 In any determination as to whether a binding contract exists, it is the objective intent of the parties, as revealed in the factual context, that is the paramount consideration. The fact of agreement and its content is to be determined by the communications between the parties considered objectively. It is also legitimate to consider the factual context in which the communications took place. Regard may also be had to communications between the parties subsequent to the date of the alleged contract, at least to the extent to which those communications may inform the meaning of the language used by the parties in earlier exchanges between them which evidenced the fact of agreement and its content and defined the commercial context.
95 The subjective intention of the parties, as it may be expressed, for example in internal memoranda, or statements made by individuals as to as to subjective intention in the course of giving evidence, is generally inadmissible. However, in some circumstances such expressions of intention may amount to admissions and be admissible on that basis. However, care needs to be exercised in determining the content of any such admission.
96 The issue was explored in Australian Broadcasting Corporation v X1VTH Commonwealth Games Ltd, and was explained in the following terms by Gleeson CJ (as he then was, and with whose reasons for judgment Hope and Mahoney JJA agreed):
… The case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular to the subject matter of those communications: Allen v Carbone (1975) 132 CLR 528 at 531-532. Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated.
The position is by no means so clear, however, in connection with internal memoranda… or statements as to subjective intention made by individuals in the course of giving evidence. As it happens, although the learned judge had a good deal of material of this kind put before him at the hearing, it was not particularly helpful even if admissible. In the first place, a great deal of it was equivocal and individual pieces of evidence were contradictory in effect. Some of the persons who participated in the negotiations in question were called to the witness box and vigorously examined as to what was going on inside their minds at particular times.
This process in the end principally served to demonstrate what might have been expected to be the case, that is to say, that the witnesses, not being lawyers themselves, were in a state of considerable confusion about the issue that ultimately emerged as determinative of the rights of the parties…
In so far as acts or statements of the kind referred to, not involving communications between the parties, are claimed to be relevant in a case such as the present upon the ground that they constitute an admission, it seems to me that it will often be necessary to identify with some care the fact which is said to have been admitted. As was noted, there may be cases in which the issue is such that the fact of the subjective state of mind of one or other of the parties is relevant. Normally, however, what is in issue is not their subjective state of mind but their “intention as expressed” (cf Inland Revenue Commissioners v Raphael [1935] AC 96 at 142 per Lord Wright) and caution may need to be exercised in relating the fact which is said to be admitted to the fact which is legally relevant.
97 In Brambles Holdings Ltd v Bathurst City Council , Heydon JA (as he then was) reviewed the authorities and stated the accepted principles of the law to be applied in determining the existence of (and construction of) a contract. What was in issue in Brambles was the conduct of the parties before the contract was made, their conduct after the contract was made, and their subjective beliefs about the implication of terms and the construction of those terms. Relevantly, in relation to pre-contractual and post-contractual conduct in relation to a contract, the following statements of principle are provided:
(a) The first relevant principle of law is that pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts ht on the genesis of the contract, its objective aim, or the meaning of any descriptive term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347-352;
(b) The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669 and 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR [97011] at 9149 and 9154-9156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR [97023] at 9255.
(c) The third relevant principle is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. As explained by Priestley JA (Meagher JA agreeing) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326-330, the status of the relevant High Court authorities is unclear: hence unless it is demonstrated that the later decisions of the Victorian Full Court and Court of Appeal against admissibility, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 and FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, are clearly wrong or they are overruled, they should be followed in New South Wales. No attempt was made to demonstrate that they are clearly wrong.
(d) The fourth relevant principle is that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found. No argument of these kinds was advanced in this case.
(e) The fifth relevant principle is that terms may be implied in one of four ways. The trial judge set out this orthodox classification in his unreported interlocutory judgment in Carlton & United Breweries Ltd v Tooth & Co Ltd , which was quoted by Young J, the trial judge in that case ((1986) 7 IPR 581 at 605-6):
"A more precise classification of the different types of implied terms was given by Hodgson J in his first interlocutory judgment in the current proceedings. His Honour set out four classes of implied terms, the first two of which are in the class of terms implied in law, the second two the implied terms in fact. His Honour said:
`There is a spectrum of different types of implied terms covering, inter alia, the following:
(i) Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown [1928] HCA 12; (1928) 40 CLR 540 a 553-4.
(ii) Implications from the `nature of the contract itself' as expressed in the words of the contract: see Liverpool City Council v Irwin [1976] UKHL 1; [1977] AC 239.
(iii) Implications from usage (for example, mercantile contracts).
(iv) Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337.'"
98 In Brambles Heydon JA also, considered the offer and acceptance analysis of contract formation, acknowledging that this methodology does not “work well in various circumstances”, noting that the offer and acceptance analysis is a useful tool in most circumstances, and indeed is ”normal” and ”conventional”, but that “limited recognition has been given to the possibility of finding that contracts exist even though it is not easy to locate an offer or acceptance”. Citing Ormiston J in Vroon BV v Foster's Brewing Group , His Honour observed:
…. in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.
99 In Vroon BV v Foster's Brewing Group , Ormiston J also approved the following statement of Cooke J in Meates v Attorney-General :
I would not treat difficulties in analysing the dealings into a strict classification of offer and acceptance as necessarily decisive in this field, although any difficulty on that head is a factor telling against a contract. The acid test in the case like the present is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.
Ormiston J also said in Vroon :
... I am prepared to accept ... that agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances. In the language of para. 22(2) of the Second Re-statement on Contracts: `A manifestation of mutual assent may be made even though neither offer or acceptance could be identified and even though the moment of formation cannot be determined'.
His Honour concluded:
… there is now sufficient authority to justify the court inquiring as to the existence of an agreement evidenced otherwise than by offer and acceptance.
100 McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd took a similar approach where his Honour said:
… a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract.
101 In the light of this analysis of the case-law it is relevant in the present case to ask: in all the circumstances can agreements by way of Sub-contracts be inferred? Has mutual assent been manifested? What would a reasonable person in the position of Skilled on the one hand and a reasonable person in the position of Pilkington on the other think as to whether there was a concluded bargain?
Masters v Cameron Analysis
102 I here turn to a consideration of the principles in Masters v Cameron .
103 The classic statement is to be found in the judgement of the High Court in the following passage:
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
104 Subsequently, it has been established that there is a so-called “fourth class”, which was first considered by the High Court in Sinclair Scott & Co Ltd v Naughton . This may arise, as observed by Knox CJ, Rich J and Dixon J, where the parties are content to be bound immediately and exclusively by the terms which they had agreed upon while at the same time expecting to make a further contract in substitution for the first contract, containing, additional negotiated terms. Their Honours in Sinclair Scott refer to the speech of Lord Loreburn, in Love & Stewart v S Instone & Co , where his Lordship said:
It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with he full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.
105 The fourth class of Masters v Cameron was considered and applied by McClelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd.
106 In my opinion, the parties reached agreement in this case in conformity with the fourth limb of Masters v Cameron as described by the High Court in Sinclair Scott. Their conduct clearly manifested an intention to elevate their commercial relationship beyond the clutches of the third class.
107 By early May 2008 the parties reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms. At the same time the parties proposed to make a further contract in substitution for the first contract, containing negotiated additional terms relating to dates for practical completion of the three Sub-contracts and agreed milestone dates, upon which it was intended that the Sub-contracts would be formally executed.
108 However, in the case of each of the Sub-contracts which were agreed by early May 2008, at that point they were necessarily limited. Without practical completion and milestone dates the regime for assessing applications for extensions of time could not work. Nevertheless the balance of the terms of the Sub-contracts in all cases could work. In my opinion, each of the Sub-contracts was intended by the parties to operate to regulate Skilled’s work for a reasonable period of time until agreement was achieved on completion dates sufficient to enable claims for extensions of time to be processed.
109 Further, the agreement reached in early May 2008 between Skilled and Pilkington in relation to the Sub-contracts was intended by them to operate both prospectively, governing future work to be performed by Skilled, as well as retrospectively, governing work already performed by Skilled.
110 In the case of the Furnace and Bath works, although the agreement was theoretically complete because the specifications included in effect a date for practical completion and milestone dates, there is no evidence that the parties intended that these dates would be used for assessing applications for extensions of time.
111 Once the dates for practical completion and milestone dates had been settled it was agreed by implication from the conduct of the parties that new and “substituted” Sub- contracts would come into being to replace the earlier binding agreements, and that the contractual regime for the assessment of applications for extensions of time would commence to operate on the basis of the agreed dates.
112 Further, it was intended by the parties that upon dates for practical completion and milestone dates having been agreed, the parties would move to execute the written Sub-contracts incorporating the dates.
113 However, in the meantime until dates for practical completion and milestone dates had been settled, as from early May 2008, binding Sub-contracts on the agreed terms would govern the relationship between Pilkington and Skilled, but on the limited terms described.
114 This approach accords with the facts relating to the submission and processing of claims for extensions of time (“EOT claims”) in relation to each of the three Sub- contracts. The Sub-contracts I have described came into operation in early May 2008. As discussed below, I find that by 13 May 2008 the dates for practical completion were agreed between Skilled and Pilkington and this was sufficient for the processing of claims for extensions of time. This is when the further “substituted” Sub-contracts came into existence. As further discussed below, Skilled made numbers of claims against Pilkington for extensions of time between 15 May and 23 July 2008. Each of these claims was based on the agreed dates for practical completion, and the Superintendent assessed Skilled’s EOT claims on this basis.
115 As further found below, by 20 May 2008 milestone dates were agreed between Skilled and Pilkington in relation to the Cutting Line Works and the Lehr Works. In relation to the Furnace and Bath Works, although a milestone date had not been agreed beyond those set out in the Specifications, still permitted the Furnace and Bath Sub- contract to operate, including the regime for processing claims for extensions of time. All of the claims for extensions of time in relation to the Furnace and Bath Sub- contract were founded on the agreed date for practical completion for that work, and not on any milestone date.
116 From 20 May 2008, therefore, both Skilled and Pilkington were entitled to call upon the other the execute formal contracts in relation to the Cutting Line and Lehr Works. The fact that neither sought to do so did not affect their entitlement in this respect.
117 The factual analysis I have described, involving as it does the application of the fourth limb of Masters v Cameron, also goes to explain the negotiations between the parties which continued from early May 2008 as to dates for practical completion and milestone dates. What the parties were not about during this period was negotiating towards a set of original binding Sub-contracts, for by early May 2008 they were already bound to a concluded, but limited suite of bargains. What they were about was the negotiation of a new set of Sub-contracts in substitution for the already binding ones. The fact that the parties continued to negotiate for an alternative regime of dates, and this continued beyond early May 2008, had no bearing on the concluded bargains which were already in place.
“Sub-Contract” Factual Findings on Agreement for Practical Completion
118 I am satisfied that Skilled did experience difficulties on site in programming and sequencing the Skilled works. The task was made all the more difficult because Skilled personnel were required to work alongside other contractors. The Project required a high level of project management, administration, planning, and co-ordination of the work on site. This was not consistently forthcoming.
119 However, the effect of the evidence when read together establishes that the task of finalising the relevant Dates for Practical Completion and identifying a proposed separate interim LD milestone for each of the Sub-contracts was dealt with as the works progressed.
120 Skilled commenced work on site:
a. in March 2008 on the Furnace and Bath pre works, with shutdown of the Furnace occurring on about 7 May 2008;
b. in about early April 2008 on the Cutting Line; and c. in about mid May 2008 on the Lehr.
121 Attached is Annexure A which lists and describes relevant persons who participated in negotiations and discussions relevant to dates for practical completion and interim LD milestones during the period 1 May – 5 July 2008.
122 Also attached is Annexure B which comprises exchanges of relevant emails passing between the parties, in some cases within the organisation of each party relating to the question of dates for practical completion and interim LD milestones, interleaved with a timeline of relevant events during, the period 1 May – 5 July 2008.
123 Skilled made numbers of claims against Pilkington for extensions of time (EOT Claims) between 15 May and 23 July 2008. The making of these EOT Claims on the part of Skilled and the processing of the claims by Pilkington points strongly to the dates for practical completion having been agreed by 15 May 2008, for without such agreement, there was nothing against which to measure the claimed delays. Put simply, the machinery for the making of EOT Claims was in place and was able to work for the purposes of the Sub-contracts.
124 In each case the Superintendent assessed Skilled’s EOT claims on the basis that there were agreed Dates for Practical Completion. The EOT Claims approved by the Superintendent were:
a. Skilled’s EOT claims for the furnace component of the Furnace and Bath dated 3 June 2008, 17 June 2008, 19 June 2008, 27 June 2008 and 23 July 2008;
b. Skilled’s EOT claims for the bath component of the Furnace and Bath dated 28 May 2008 and 1 July 2008;88
c. Skilled’s EOT claims for the Lehr dated 15 May 2008 and 27 May 2008; and
d. Skilled’s EOT claims for the Cutting Line dated 26 May 2008 and 23 July 2008.
125 Typical of the EOT Claims lodged by Skilled claiming an extension of time from Pilkington was that dated 28 May 2008 in respect of the Furnace and Bath works, designated “Claim No. 1”. The claim was sent and signed by Anthony Frewen, contracts administrator on behalf of Skilled. The extension of time claimed was a total of 11 days with a revised completion date for the works set at 16 August 2008. The original completion date was therefore acknowledged to be 11 days earlier than the revised completion date (which completion day is not counted in the calculation), namely on 4 August 2008. The delay period was referred to (15/05/2008 – 27/05/2008) and the reason for the delay was set out (“Complete shutdown of all work due to asbestos being discovered on the site”). Associated costs claimed amounted to $151,826.79. The claim included the following text:
Setout (sic) below is an extension of time claim submitted in accordance with clause 35.5.2 of the proposed Sub Contract Agreement between Pilkington Australia Engineering Ltd & Skilled Group Limited. Also included is an estimation of the costs incurred by Skilled Group to date based on the proposed S.O.R contained in the Sub Contract Agreement.
…
Please sign & date this facsimile and fax to Skilled Group, on 02 9695 1582, within the time stipulated under clause 35.5.5 of the Sub Contract Agreement notifying Skilled Group that the E.O.T & costs, if applicable, are accepted & that the contract sum has been increased by the amount stated above.
126 The claim was accepted by the site superintendent Chris Newitt, Pilkington’s Site Manager under the Repair Head Contract, by his signature dated 27 June 2008.
127 All the other EOT Claims lodged by Skilled and accepted by Pilkington were in the same format.
128 I find that the phrase ”Setout (sic) below is an extension of time claim submitted in accordance with clause 35.5.2 of the proposed Sub- Contract Agreement between Pilkington Australia Engineering Ltd & Skilled Group Limited” contained in each of the EOT Claim forms, although they referred in each case to a ‘proposed’ sub- contract, in fact referred to an acknowledged and binding agreement between the parties which was in writing, as reflected in the unexecuted Sub-contracts and the exchange of emails relating to the dates for practical completion and the milestone dates.
129 Agreement was struck between Skilled and Pilkington as to dates for practical completion under the Sub-contracts in the exchanges of emails described below.
130 On 3 June 2008, Frewen emailed the Superintendent attaching an EOT claim for the Furnace component of the Furnace and Bath that also proceeded on the basis of an original Date for Practical Completion for the Furnace and Bath of 4 August 2008.
131 Skilled also submitted variation claims for the bath component of the Furnace and Bath works that contained both a time component and a cost component. For some of the variation claims that included a time component, Skilled specified a revised date for practical completion. The variation claims were consistent with Skilled’s EOT claims and proceeded on the basis of an original Date for Practical Completion for the Furnace and Bath works of 4 August 2008.
132 The 4 August completion date for the Furnace and Bath works was entirely consistent with the parties having adopted the completion dates agreed. This agreement was evidenced in the email exchange described below:
(a) On 12 May 2008 O’Brien sent an email to Charles, Frewen (who was Skilled’s contracts administrator) and Wise in the following terms: I need to get these contracts finalised ASAP.
In order to do so, could you please confirm for each of the Cutting Line Contract, the Furnace Bath Contract and the Lehr Contract:
1. What is the Date for Practical Completion
2. What are the agreed milestone and date for the liquidated damages.
(b) This email was responded to in an email reply sent on 13 May 2008 from Frewen to O’Brien, which was copied to Wise and Charles, as follows:
As confirmed last night the cutting line is the 4th August. Lehr is 16th July.
Furnace & Bath 4th August.
These dates are as per Pilks programme of the 14th March 2008 & are the dates we are working to.
Pilks have warmup starting for the Furnace on the 5th August.
133 I find on the evidence that by 13 May 2008 the dates for practical completion were agreed between Skilled and Pilkington as follows:
• Cutting Line – 4 August 2008;
• Lehr – 16 July 2008; and
• Furnace and Bath – 4 August 2008
” Milestone Dates for Liquidated Damages
134 As to agreement on milestone dates, on 20 May 2008 Charles responded to O’Brien’s email of 16 May 2008 (copied to Olsen, Frewen and Ceccomancini) at 5:17 PM and relevantly said:
…
The dates I had agreed with Bill Charles are:
- Lehr Rollers Installed – Complete by 23 June 2008
- Practical Completion – Total Lehr Installation (ready for Cold Commissioning) – Complete by 16 July 2008
Cutting Line
- Mechanical and Electrical Installation of Main Line (M201-M229, M301- M333) – Complete by 17 July 2008
- Practical Completion – Mechanical and Electrical Installation of all Equipment (and Safety Fencing) – Complete by 8 August 2008
135 I find that by 20 May 2008 milestone dates were agreed between Skilled and Pilkington as follows:
• Cutting Line – 17 July 2008; and
• Lehr – 23 June 2008.
136 However, there was no evidence of any milestone date being agreed for the Furnace and Bath component of the works and I find that there were no milestone dates agreed in relation to those works.
137 Nevertheless, for the reasons expressed below, I find that this was not an essential term to there being a complete, valid and binding sub-contract between Pilkington and Skilled. As it was, the Furnace and Bath sub-contract worked perfectly well with all of the EOT Claims lodged by Skilled and approved by Pilkington being founded upon an earlier agreed original completion date, namely 4 August 2008.
138 Although agreed milestones for the Furnace and Bath works would have served as a useful aid to Pilkington to measure the progress of the Skilled Works, it was not essential for a binding contract to have these in place as agreed terms.
139 In any event, I am satisfied that by 8 July 2008 milestone dates or a milestone date for the Furnace and Bath Works were abandoned by the parties, and that claims for liquidated damages were by implication agreed to be linked to the date for practical completion alone. In cross-examination, Rauer, Pilkington’s Project manager confirmed in this regard, which I accept:
It's fair to say, isn't it, that at this point (i.e. 8 July 2008) you were confronted by a dilemma between pushing for agreement with Skilled on milestones or letting the matter rest and just getting on with the work?---Yes, I was prepared to run the risk on milestones in the belief we had a practical completion date.
Further Conduct Pointing to Concluded Agreements
140 Skilled submitted four progress claims under each of Sub-contracts during the period from May 2008 to September 2008. Skilled’s progress claims were typically made up of an invoice addressed to Pilkington and a progress claim summary spreadsheet that contained a breakdown of the costs that made up the claim for payment.
141 Skilled submitted a large number of variation claims under each of the Sub-contracts for work that Skilled claimed was outside the scope of the subcontracts.80 Skilled typically submitted variation claims to Pilkington in the form of a “Site Variation Request”. Some of the Site Variation Requests submitted by Skilled to Pilkington specified a revised date for practical completion. On occasion, Pilkington would issue Skilled with site instructions to carry out variations.
142 In Skilled’s Final Claim for the Furnace and Bath submitted in May 2009, Skilled made 239 claims for variations “pursuant to clause 40 of the Furnace and Bath Contract” and 6 claims for variations “pursuant to clause 55 of the Furnace and Bath Contract”.
143 In Skilled’s Final Claim for the Lehr submitted in May 2009, Skilled made 36 claims for variations “pursuant to clause 40 of the Lehr Contract” and 5 claims for variations “pursuant to clause 55 of the Lehr Contract”.
144 In Skilled’s Final Claim for the Cutting Line submitted in May 2009, Skilled made 153 claims for variations “pursuant to clause 40 of the Cutting Line Contract”.
145 Pilkington submitted 28 claims for back charges, omissions and set-offs addressed to Skilled under the Sub-contracts as well as claims for liquidated damages. Pilkington’s claims for back charges, omissions and set-offs comprised 22 claims in relation to the Furnace and Bath Sub-contract, 1 claim in relation to the Lehr Sub-contract and 5 claims in relation to the Cutting Line Sub-contract. An example of the correspondence exchanged between Pilkington and Skilled in respect of back charges is a letter from Frewen, Skilled’s Contracts Administrator, to the Superintendent dated 20 February 2009. In this letter Skilled requested supporting documentation for its claims and requested that Pilkington set out the “ contractual basis ” of its authority to issue back charges to allow Skilled to “ properly address the issues and decide on their contractual merits or absence of contractual merits and assess the quantification .”
146 In May 2009, Skilled submitted final claims under each of the Sub-contracts. These final claims were said to be “ in accordance with clause 42.7 ” of the relevant Sub-contract and were also made under the Building and Construction Industry Security of Payment Act 2002 (Vic).
147 Skilled also submitted Deeds of Release under each of the subcontracts as part of their final claims. The deed of release for the Furnace and Bath Sub-contract set out, among other things:
The Contractor hereby certifies that:
1. All wages and allowances which become due and payable to all employees who were at any time engaged on the Works under the said Contract have been paid in full, and
2. All Statutory requirements including but not limited to long service leave provisions, public liability and workers compensation insurance premiums taxation requirements have been paid in full.
The Contractor hereby acknowledges the Contractors obligations to remedy defects and omissions in accordance with the Defects Liability provisions of the said Contract.
148 On 29 May 2009, the Superintendent issued the following final certificates to Frewen, Skilled’s Contracts Administrator, and Rauer, Pilkington’s Project Manager, “ under Clause 42.8 of the General Conditions of Contract AS2124 – 1992 as amended by ‘C’ Special Conditions of Contract ”:
a. Final Certificate in respect of the “Lehr Drive Installation” contract;
b. Final Certificate in respect of the “Furnace & Bath Steelwork Removal Modification and Installation” contract; and
c. Final Certificate in respect of the “Cutting Lines Installation” contract.
149 Pilkington also relied upon a number of payment claims made by Skilled under the terms of the Building and Construction Industry Security of Payment Act 2002 (Vic) (the “Act”). In the period from January 2009 to April 2009, Skilled made the following payment claims directed to Pilkington under the Act:
a. 2 payment claims for the Furnace and Bath;
b. 2 payment claims for the Lehr; and
c. 1 payment claim for the Cutting Line.
Pilkington responded to each of these payment claims by the delivery of payment schedules issued under the Act. A number of Skilled’s payment claims were subsequently referred to adjudication under the Act.
150 However, I find this conduct to be of no assistance in determining the existence or otherwise of binding Sub-contracts between the parties.
151 Section 7 Building and Construction Industry Security of Payment Act 2002 provides for the application of the Act. The section reads:
7. Application of Act
(1) Subject to this section, this Act applies to any construction contract, whether written or oral, or partly written and partly oral, and so applies even if the contract is expressed to be governed by the law of a jurisdiction other than Victoria.
152 However, the concept of a “construction contract” under the Act is significantly modified to take it outside the traditional concept of a common law contract by the definition in section 4, which provides:
construction contract means a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party;
153 Thus any “arrangement”, which can be short of a contract, under which a party undertakes to carry out construction work will suffice to make the Act applicable.
154 Accordingly, the fact that Skilled served payment claims on Pilkington under the Act, and in some cases sought adjudication of those claims, does not evidence the existence of a contract between the two parties either by conduct or by any admission arising from the conduct.
155 Another important indicator of the existence of valid and binding Sub-contracts between Skilled and Pilkington arose from their conduct in participating in dispute resolution processes established under each of the Sub-contracts. On 11 June 2009, Skilled issued the following Notices of Dispute:
a. Notice of Dispute issued in accordance with “clause 47.1 of the DA2 Repair Furnace and Bath Contract No 4428-402-B03-41”;
b. Notice of Dispute issued in accordance with “clause 47.1 of the DA2 Repair Cutting Line Contract No 4428-402-E00-700/1”; and
c. Notice of Dispute issued in accordance with “clause 47.1 of the DA2 Repair Lehr Contract No 4428-402-D00-702.
156 These Notices of Dispute disputed the amounts certified as payable by Skilled to Pilkington in the Final Certificates issued by the Superintendent. Following the issue of Skilled’s Notices of Dispute, Skilled and Pilkington exchanged correspondence, including:
a. Jane’s sent a letter to Rauer (Pilkington) on 19 June 2009 that said, among other things:
“The contracts now require that the parties embark on the process prescribed under clause 47.1 of the contract in an effort to resolve the dispute”; and
“Skilled is keen to explore whether this process could be optimised…” and
“…therefore proposes an alternative dispute resolution process which amalgamates the key aspects of the existing clause 47.1 of the contracts”; and
b. Rauer (Pilkington) responded to Jane’s by letter dated 24 June 2009 which said, among other things:
“…either at all or more effectively than the contractual procedure (we assume your proposed process is intended to be a substitute for and not additional to the procedure under clause 47.1 of the contracts)” and: “In the meantime we consider that the contractual process should continue to be observed.”
157 Finally, Skilled provided Pilkington with bank guarantees under each of the Sub- contracts and consistently with the terms in those contracts. Following an exchange of correspondence between Skilled and Pilkington from September 2008 to November 2008, Skilled ultimately provided three bank guarantees to Pilkington. It was clear from the correspondence surrounding the provision of the bank guarantees that Skilled was providing Pilkington with the bank guarantees pursuant to the terms of each of the Sub-contracts.
158 In the light of the conduct described, I find it irresistible to conclude otherwise than implied contracts on the terms of the three Sub-contracts are to be inferred from the evidence and that these implied contracts operated to govern the Skilled works on the Project from the outset of their engagement.
Conclusion as to Sub-contracts
159 In early July there was an exchange of emails between Barry Jones, Pilkington’s Purchasing Manager, and Michael Olsen, Skilled’s Executive General Manager, which took the following form:
On 2 July Jones wrote:
I understand from our site team that the contracts for both the furnace and cutting line installations have not been signed and returned.
Would you advise if there is a problem?” On 3 July Olsen responded:
You are correct, there seems to be a problem in providing key dates for the contract?
In any event we are committed to the agreement. I'm staying close to all projects.
Perhaps we could discuss one other sensitive matter over the phone?
160 In my opinion the statement by Olsen “ In any event we are committed to the agreemen t” clearly manifested assent with the force of an admission that there were binding Sub- contracts in place between the parties, even in the absence of key dates then not being finalised, which I find related to the fact that no milestone dates had been agreed for the Furnace and bath Works, and in the absence of the Sub-contracts not having been executed.
161 The fact that Pilkington may later have remained concerned that because there was a lack of clarity in relation to the interim milestone date for the Furnace and Bath Works meant that it would be difficult for Pilkington to be able to invoke the provisions of the Sub-contract against Skilled in relation to that particular interim milestone, does not militate against the existence of a binding agreement of Sub-contract for those works.
162 In my opinion, a failure to agree on a single milestone date for the Furnace and Bath Works, particularly in circumstances where no such date was ever actually used for the purposes of claims for liquidated damages made under that Sub-contract, is powerfully outweighed by the other factors which go to proof of a binding Sub- contract for those works. Further, this failure does not go to the existence or otherwise of each of the Cutting Line and Lehr Sub-contracts.
163 In all the circumstances, as from early May 2008, binding agreements by way of Sub- contracts between Skilled and Pilkington are to be inferred from the conduct described. A reasonable person in the position of Skilled on the one hand, and a reasonable person in the position of Pilkington on the other, would have considered there to be concluded bargains in place.
“Sub-Contract” Legal Analysis – Whether “Milestones” are an Essential Term
164 Another factor enters the stage for consideration. In my opinion, the fact that there was no concluded agreement as to milestone dates or a milestone date for the Furnace and Bath Sub-contract, does not detract from there coming into existence a binding agreement for these works. This is because agreement as to milestone dates or a milestone date for this Sub-contract was not an “essential” term for the purposes of validity.
165 In the nature of things, every contract has what may be described as “minimum content”. A binding contract will be concluded where all of the essential terms are agreed. Conversely, an agreement will be incomplete and unenforceable where essential terms are still to be agreed. Considering the matter in the abstract, only three obvious matters are generally regarded as being essential in the usual case:
(1) agreement on parties;
(2) agreement on subject matter; and
(3) agreement on consideration and price.
166 However, depending on the nature and subject-matter of the contract, other matters may be “essential” such that, in the absence of agreement on the matter, no enforceable contract arises. The duration of a service contract or the dates for the payment of instalments under a credit contract may provide some examples - but there are others. In some circumstances a rule of law or statute may make agreement on a particular term essential for a valid contract; a market custom or usage may make agreement on a particular term essential; and finally, the parties may have stamped a particular term with the character of essentiality, by agreeing that there is to be no contract unless and until the term is agreed.
167 It is conceivable that agreement on milestone dates under a proposed contract to undertake construction or engineering works may fall under one or more of these categories giving rise to the critical mass of “essentiality”. Alternatively, the proposed contract may be so structured that agreement on milestone dates is central to the working of the contract in some fundamental way.
168 However, in this case, the Furnace and Bath Sub-contract was able to work in its essentials without agreement on milestone dates. The extension of time claims were all based upon the agreed date for practical completion and not on any milestone date.
169 Further, I am not satisfied that the failure to produce from time to time any or any adequate “co-ordinated schedules” for the works, was dependent upon agreement on milestone dates.
170 Although the parties were remiss in formulating adequate working programmes of work from time to time, it was always open for them to do so in conformity with the terms of the Sub-contract. The fact that they may have failed from time to, time in this regard, may have pointed to a transgression of contractual terms, but not to the existence of the contract itself.
171 Under this construction Sub-contract it cannot be said that milestones were essential terms, absent which no binding contract arose. On the contrary, a binding Furnace and Bath Sub-contract arose, even without agreement on any milestone date or dates.
Estoppel
172 In the light of my findings as to the existence of implied sub-contracts, it is strictly unnecessary for me to deal with the issue of estoppel. However, for the sake of completeness, in the event that I am wrong about that, I find that Skilled is estopped from denying the existence of binding Sub-contracts between it and Pilkington.
173 The relevant category of estoppel is estoppel by conduct, as described in Thompson v Palmer and in Grundt v Great Boulder Pty. Gold Mines Ltd . In Grundt Dixon J referred to his earlier observations in Thompson when he said:
A brief statement of the recognized grounds of preclusion is contained in the reasons I gave in Thompson v Palmer , and it is convenient to repeat it: — “Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co v Craine ; cp Cave v Mills; Smith v Baker ; Verschures Creameries Ltd v Hull and Netherlands Steamship Co ; and Ambu Nair v Kelu Nair ; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party’s adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption.”
174 I am satisfied on the evidence that the following matters have been established for the purposes of the doctrine:
1. Pilkington assumed there were agreements on foot on the terms of the written sub-contracts between it and Skilled.
In this respect I accept the following evidence:
Colin Broom, Pilkington’s package manager for the Cutting Line said that based on his dealings with Skilled during the course of the Upgrade Project, he understood both Pilkington and Skilled to be proceeding in a manner consistent with there being contracts in place between the parties. He noted that Skilled were more focussed on making extension of time claims and variation claims than any of the other subcontractors he worked with on the Upgrade Project. Broom was involved in reviewing the claims for Pilkington. Skilled commenced submitting variation claims for the Cutting Line Works from about April 2008 and ultimately made 161 separate claims. Broom also assisted to review Skilled’s extension of time claims (EOT claims) in respect of the Cutting Line Works. From April 2008, Skilled submitted a number of EOT claims in respect of the Cutting Line Works. Broom said:” In view of my involvement with the Cutting Line Works, I was very surprised to hear that Skilled had formally adopted the position in these proceedings that there was no contract in place between Skilled and PAEL [Pilkington] for the Cutting Line Works”.
Neil Crompton, Pilkington’s package manager for the Furnace and Bath said that at all times during the course of the performance of the Furnace and Bath Works, he proceeded, and he understood Skilled and Pilkington to be proceeding on the basis that there was a contract in place between Skilled and Pilkington in respect of the Furnace and Bath Works. He said further that he did not recall anyone from Skilled asserting to him after the contractual negotiations were apparently concluded in mid 2008 that there was no contract for the Furnace and Bath Works in place because documents had not been physically signed by Skilled or because there was an alleged lack of agreement about milestone dates or the date for practical completion. Had such a suggestion been made to him he would have immediately raised the issue with his superiors so that they could have taken steps to manage Skilled and protect the position of Pilkington.
Neil Martland, Pilkington’s package manager for the Lehr Works said that it not until this proceeding was issued that he became aware that Skilled was saying that there was no contract for the Lehr Installation Works. I was surprised by this because it seemed to me based on my own involvement that virtually everything that Skilled and Pilkington did on the Upgrade Project had proceeded on the basis that there was a contract.
Steve Rauer was Pilkington’s senior project manager assigned to the upgrade and repair of the existing float glass manufacturing plant at the Dandenong site.
Steve Rauer, Pilkington’s Project Manager, said, and I accept:
From the time that Skilled commenced work on site on the Project there was no doubt in my mind that Pilkington and Skilled were operating under a contractual framework, notwithstanding there were some matters that remained to be finalised and signed contracts had not been exchanged. I formed this impression for a number of reasons including:
(a) The fact that Skilled was actually getting on with work on site indicated to me that Pilkington and Skilled were in agreement about the key terms of their commercial arrangements;
(b) Pilkington as an organisation is risk averse and is very reluctant to retain any contractor on anything other than a fixed price and time basis; and
(c) The ‘contractual’ way that Skilled was conducting itself from an early stage surprised me and was, to my mind, only explicable if Pilkington and Skilled were operating under a contractual framework.
2. Skilled by its conduct induced Pilkington to assume that there were agreements on foot on the terms of the written sub-contracts between it and Skilled.
I am in no doubt that Skilled induced Pilkington by its conduct on the Project to assume that there were binding sub-contracts between them.
The conduct of Skilled which had this effect was:
(a) Skilled commenced work on site.
(b) Skilled and Pilkington held various meetings at site in relation to the progress of Skilled’s Works;
(c) Skilled submitted site variation requests, including site variation requests relating to an industrial relations rates issue;
(d) Skilled submitted final claims for payment and adjudication applications under the Building and Construction Industry Security of Payment Act 2002 (Vic);
(e) Skilled submitted notices of dispute pursuant to clause 47.1 of the Sub- contracts for the Skilled Works and engaged in correspondence regarding the dispute resolution process under the contracts for the Skilled Works;
(f) Skilled submitted extension of time claims pursuant to the Sub-contracts and they were processed according to those contracts; and
(g) Skilled and Pilkington engaged in extensive dispute resolution discussions pursuant to clause 47.1 of the Sub-contracts for the Skilled Works.
3. I am satisfied that Skilled knew that Pilkington was at all material times acting and that Skilled intended Pilkington to act on the basis that there were binding sub-contracts in place. This is obvious from the facts addressed above.
4. Pilkington both acted and abstained from acting in reliance on its assumption that there was a binding agreement. In this regard, Steve Rauer, Pilkington’s Project Manager, said, and again I accept:
It was not until the current proceedings were issued that I became aware that Skilled asserted that it had never entered into subcontracts with [Pilkington] for the Skilled Works. I was very surprised by this because throughout the DA2 Project I believe that both Skilled and [Pilkington] proceeded on the basis that contracts were in place for the Skilled Works for the reasons that I have explained in my witness statement.
Had Skilled made its current position on the existence of contracts known to me, then I can say without a shadow of a doubt that [Pilkington] would have done things differently.
Precisely what would have occurred would have depended on the timing of Skilled’s disclosure. For example:
(a) If Skilled had made the disclosure prior to the shutdown of the Plant on 7 May 2008 the option existed to delay the shutdown. This would have allowed [Pilkington] to force Skilled back into negotiations to get the subcontracts signed in circumstances where Skilled was spending money on site and would have been under pressure to get concluded subcontracts into place;
(b) If Skilled had made the disclosure after the Plant was shut down then [Pilkington] would still have brought the issue to a head immediately in order to achieve certainty by getting the subcontracts signed. [Pilkington] would have done this even if it required some form of compromise position to be reached on milestone dates, completion dates and EOTs, because moving forward without clarity on the basic issue of whether contracts were in place would have been totally unacceptable. [Pilkington] would also have seriously considered dispensing with Skilled altogether and engaging an alternative contractor if Skilled was intransigent and/or if the disclosure was made at a time where this was practical;
(c) Even in circumstances where Skilled was intransigent and it was impractical to engage another contractor, things would have been done differently because moving forward without clarity on the issue of whether contracts were in place was simply not an option. As DA2 Project Manager, I would have acted immediately and investigated all of the options available to [Pilkington]. In this respect I would have sought advice from Debtech, discussed the situation with the DA2 Steering Committee and senior Pilkington management and possibly sought legal advice; and If Skilled had made the disclosure prior to the commencement of adjudication or the contractual dispute resolution processes there is no way that [Pilkington] would have willingly engaged in those processes. Both processes ate into the time of key Pilkington personnel and were very expensive both in terms of opportunity cost (because key personnel were diverted from other tasks and forced to fly back to Australia) and because it was necessary to engage lawyers and consultants to assist in the processes.
[Pilkington] was deprived of the opportunity to take any of the above steps because Skilled failed to disclose its current position on the existence of contracts until it was too late for [Pilkington] to act to protect its position.
5. Departure from the assumption that there was a binding agreement would be productive of detriment such that it would be unconscionable for Skilled to be permitted to depart from the assumption. Unless Skilled were kept to the assumption that there was a binding agreement, Pilkington would be deprived of the benefit of the contractual conditions pursuant to which Skilled purported to carry out the works it was obliged to undertake under the head contract with CSR. The minimum equity requires that Skilled be kept to the assumption that there was a binding agreement on the terms mentioned. Otherwise it would be impossible to put Pilkington back in the position in which it would have been but for its actions and abstentions on the faith of the assumption.
175 If, therefore, it were it not possible to imply the existence of binding agreements, Skilled would be estopped from denying the existence of the agreements as reflected in the three Sub-contracts.
Request or Acquiescence of CSR
176 A further question arose from the Liability Trial which is convenient to deal with at this juncture: Were the Cutting Line Works, Furnace and Bath Works or Lehr works performed at the request of or with the acquiescence of CSR such as to give rise to the imposition by law of the obligation to make restitution?
177 I find that they were not.
178 In Andrew Shelton & Co Pty Ltd v Alpha Healthcare Ltd , Warren J (as her Honour then was) considered restitution pursuant to acquiescence or ‘free acceptance’. The judgment reviewed the authorities as they then stood and the noted the relevant principles. It was observed that ‘free acceptance’ may be considered to be a recognised restitutionary ground. Her Honour cited a passage from Goff and Jones, The Law of Restitution (5th ed) (1998), as setting out the concept of “free acceptance” in the following terms:
A defendant, who is not contractually bound, may have benefited from services rendered in circumstances in which the court holds him liable to pay for them. Such will be the case if he freely accepts the services. In our view, he will be held to have benefited from the services rendered if he, as a reasonable man, should have known that the plaintiff who rendered the services expected to be paid for them, and yet he did not take a reasonable opportunity open to him to reject the proffered services. Moreover, in such a case, he cannot deny that he has been unjustly enriched.”
179 It was then observed in Andrew Shelton & Co that, following Pavey & Matthews v Paul , an obligation to make restitution will only arise where there is no applicable genuine agreement and a benefit is derived at the expense of the Plaintiff and accepted by the Defendant. In Pavey & Matthews v Paul , Deane J held that the obligation to pay fair and just compensation for a benefit which has been accepted can only arise in a case where there is no contract in place to govern the rights and obligations of the parties. It is the very fact that there is no contract or that it is frustrated, avoided or unenforceable, that provides the occasion for (and part of the circumstances giving rise to) the imposition by law of the obligation to make restitution.
180 I am satisfied that throughout the course of the works in the present case, the relevant Sub-contractor (Skilled) maintained and performed those works on the basis that:
a. there was a Head Contract between the Proprietor (CSR) and the Head Contractor (Pilkington); and
b. there were Subcontract(s) between the Head Contractor (Pilkington) and the Subcontractor (Skilled).
181 What occurred in the present case, as was the position in Lumbers’ case , was this:
a. the performance of building work on property owned by the Proprietors in circumstances where there was a contract between the Proprietors and the Contractor which obliged the Contractor perform the work and the Proprietor to pay for it; and
b. a subcontract between contractor and a Subcontractor obliging the Subcontractor to perform the work and Contractor to pay the Subcontractor to pay for it.
182 It follows that the Proprietor (CSR) could not have requested or freely accepted the Sub-contractor’s works (i.e. Skilled’s works) because at all material times these works were performed not directly for CSR but for Pilkington pursuant to the Sub-contracts. The “benefit” that was “accepted” by the Proprietor (CSR) was in fact the works which the Head Contractor (Pilkington) had undertaken to perform for the Proprietor, and for which the Proprietor had agreed to pay the Head Contractor.
183 In sum, CSR has not “freely accepted” anything from Skilled where:
a. CSR received the benefit of the completion of the works as part of Pilkington’s performance of its obligations under the Head Contract, such that anything that CSR “accepted” was proffered by Pilkington; and
b. CSR has paid Pilkington what it was contractually liable to pay for the performance of its obligations under the Head Contract, including the completion of the works, so that CSR did not receive anything for “free”.
184 Further CSR never had any opportunity to reject the proffered services, where:
a. the performance of the works as part of the Head Contract was a matter for Pilkington, and it was entitled to subcontract the works as it saw fit and without the approval of CSR; and
b. at all material times, Skilled proposed to and did undertake the performance of works pursuant to fixed price lump sum Subcontract(s) or Subcontract arrangements with Pilkington.
Disposition of the Proceeding
185 I turn now to the remaining issues for consideration resulting from my findings, namely:
• Whether Skilled’s claim against CSR be dismissed (“the Dismissal issue”); and/or
• Whether Pilkington is entitled to be paid the sum certified as payable by the Superintendent in the Final Certificate that was issued under the relevant contract?(“the Final Certificate issue”).
Whether Skilled’s claim against CSR should be Dismissed
186 I am satisfied in this case that full force and effect must be given to the contractual arrangements which the parties have made.
187 It follows from my findings in relation to the Sub-contracts, properly applying the principles in Lumbers v Cook Builders Pty Ltd , Skilled’s claim against CSR should be dismissed.
Entitlement for Pilkington to be paid Under the Final Certificates
188 Pilkington makes a claim against Skilled in its counterclaim that it has an entitlement to payment from Skilled arising from the issue of Final Certificates by the Superintendent at the completion of the Project.
189 If enforceable Sub-contracts were to be found, Skilled advances a contractual defence to Pilkington’s claim founded upon the issue of Final Certificates.
190 It is common ground between Skilled and Pilkington that the Superintendent issued Final Certificates. Christopher Newitt (“Newitt”) was appointed by Pilkington as the Superintendent under the Sub-contracts in relation to Skilled’s works. He performed this role until about mid 2009 under the three Sub-contracts.
191 In his role as Superintendent, Newitt was required to issue final certificates pursuant to clause 42.8 of the General Conditions of the Sub-contracts, comprised in the standard form AS2124 – 1992. This required him to adjudicate upon claims that were being made by both Skilled and Pilkington for adjustments to the subcontract sums. Prior to issuing final certificates, Newitt reviewed each of the claims before making his determination.
192 On 29 May 2009, Newitt issued by email the following final certificates to Anthony Frewen (Skilled’s Contracts Administrator) and Steve Rauer (Pilkington’s Project Manager) under the Sub-contracts pursuant to Clause 42.8 of the General Conditions of AS2124 – 1992 as amended by ‘C’ Special Conditions of Contract:
(a) Final Certificate in respect of the “Lehr Drive Installation” contract. Attachment 1 to this Final Certificate contained Newitt’s assessment of Pilkington’s claim with respect to backcharges, omissions and set-offs. Attachment 2 to this Final Certificate contained his assessment of Pilkington’s liquidated damages claim;
(b) Final Certificate in respect of the “Furnace & Bath Steelwork Removal, Modification and Installation” contract. Attachment 1 to this Final Certificate contained Newitt’s assessment of Pilkington’s 23 revised claims for backcharges, omissions and set-offs. Attachment 2 to this Final Certificate contained his assessment of Pilkington’s liquidated damages claim; and
(c) Final Certificate in respect of the “Cutting Lines Installation” contract. Attachment 1 to this Final Certificate contained Newitt’s assessment of Pilkington’s 4 revised claims for backcharges, omissions and set offs. Attachment 2 to this Final Certificate contained his assessment of Pilkington’s liquidated damages claim. The date of 29 February 2009 stated on this document was an error. The correct date of this document was the date of Newitt’s signature, namely 29 May 2009.
193 The effect of the Final Certificates is in issue between Skilled and Pilkington. An issue of contractual interpretation arises under the terms of the Sub-contracts.
194 Skilled submitted that on a proper interpretation of the Sub-contract terms, it was not required to make the payments due under the Final Certificates because it issued Notices of Dispute under clause 42.8 of the General Conditions of AS2124 – 1992 as amended by ‘C’ Special Conditions of Contract. Pilkington admits the issue of Notices of Dispute under clause 42.8.
195 On the other hand, Pilkington contends that the mere issue of a Notice of Dispute under clause 42.8 does not absolve a party of its contractual obligation to make a payment certified by the Superintendent pending the outcome of the dispute resolution process (assuming that the dispute resolution process is pursued).
196 The Sub-contracts in this case are based on the widely used AS 2124-1992 standard form of contract. A finding that the mere delivery of a Notice of Dispute under clause 42.8 deprives a party of the contractual right to be paid on account under a Superintendent’s Final Certificate would have significant ramifications for the construction industry.
197 Clause 42.8 of the General Conditions of AS2124 – 1992 as amended by ‘C’ Special Conditions of Contract, relevantly provided:
Unless either party, either before the Final Certificate has been issued or not later than 15 days after the issue thereof, serves a notice of dispute under Clause 47, the Final Certificate shall be evidence in any proceedings of whatsoever nature and whether under the Contract or otherwise between the parties arising out of the Contract, that the Works have been completed in accordance with the terms of the Contract and that any necessary effect has been given to all the terms of the Contract which require additions or deductions to be made to the Contract Sum, except in the case of …
198 Thus clause 42.8 expressly contemplated the possibility of, and expressly provided for, the Superintendent finding that monies were due from the Contractor to the Principal in the final payment certificate.
199 Skilled submitted that Pilkington’s reliance on the Final Certificates is foreclosed by its dispute notices. It contended that Clause 42.8 of the form of contract relied upon by Pilkington provided that the evidentiary significance of a Final Certificate is neutralised by a Notice of Dispute given within 15 days. The Final Certificates were dated 29 May 2009 and Notices of Dispute were given within the 15 day period on 11 June 2009.
200 However, I am of the view that Skilled’s contentions must be rejected.
201 While the Sub-contract terms do not define the terms “payment certificate” or “final certificate”, the Superintendent has the power to issue payment certificates, including final payment certificates.
202 Clause 42.1 of the Sub-contracts deals with payment certificates generally and relevantly provides pursuant to the General Conditions of AS2124 – 1992 as amended by ‘C’ Special Conditions of Contract:
Clause 42 CERTIFICATES AND PAYMENTS is amended as follows:- Clause 42.1 – is deleted and the Following is inserted:
At the times for payment claims stated in the Annexure and upon issue of a Certificate of Practical Completion and within the time prescribed by Clause 42.7, the Contractor shall deliver to the Superintendent claims for payment supported by evidence of the amount due to the Contractor and such information as the Superintendent may reasonably require. Claims for payment shall include all amounts then due to the Contractor under the Contract or for breach thereof. If the Superintendent considers that the information submitted with the claim is insufficient to enable it to make a proper assessment of the claim, the Superintendent may delay the issue of a payment certificate until the Contractor has provided the information required by the Superintendent.
Within 14 days after the receipt of a claim for payment the Superintendent shall issue to the Principal and to the Contractor a payment certificate stating the payment which, in the opinion of the Superintendent, is to be made by the Principal to the Contractor. The Superintendent shall set out in the certificate the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by the Contractor, the reasons for the difference.
If the Contractor fails to make a claim for payment, the Superintendent may nevertheless issue a payment certificate.
Within 28 days after the receipt by the Superintendent of a claim for payment within 14 days of issue by the Superintendent of the Superintendent’s payment certificate, whichever is the earlier, the Principal shall pay to the Contractor the amount due to the Contractor and shall with the payment provide written particulars of how the payment was calculated.
Payment of moneys shall not be evidence of the value of work or an admission of liability or that work has been executed satisfactorily but shall be a payment on account only.
…
203 Thus, under Clause 42.1 as amended, payments are to be made within 14 days of a payment certificate being issued by the Superintendent and payments made under a payment certificate are on account.
204 Clause 42.8 of the Sub-contract terms as amended, provided that:
… the Superintendent shall certify the amount which in the Superintendent’s opinion is finally due from the Principal to the Contractor or from the Contractor to the Principal under or arising out of the Contract or any alleged breach thereof.
205 In my opinion, in this contractual context, delivery of a valid Notice of Dispute under clause 42.8 has only limited effect. It deprives a Final Certificate of the evidentiary effect contemplated by the clause. It does not relieve the disputing party from the contractual obligation to make the payment due under the Final Certificate. This construction is supported by clause 47.1 of the Sub-contract terms which provides:
Notwithstanding the existence of a dispute, the Principal and the Contractor shall continue to perform the Contract and the Contractor shall continue with the work under the Contract.
206 The requirement that payment is to be made on the Superintendent’s certification is consistent with the decision of Gillard J in Novawest Contracting Pty Ltd v Taras Nominees Pty Ltd . In that case his Honour concluded:
In my opinion the provisions of clause 42.1 which I have summarised and referred to make it clear that once the certificate is issued it must be paid without deduction.
That conclusion is based upon the plain meaning of the words used which is the primary source of the common intention of the parties.
207 I have arrived at the same conclusion in the present case based on consideration of the terms of the Sub-contracts in question.
208 Skilled did not seek to impugn the validity of the Final Certificates.
209 The result is that unless and until a finding is made in litigation or arbitration, or the issue is otherwise resolved by negotiation or mediation resulting in a binding settlement agreement, that the Final Certificates are erroneous or otherwise are invalid, then under the Sub-contracts in this case there was a contractual obligation for Skilled to pay the monies to Pilkington that the Superintendent certified as payable in the Final Certificates.
Conclusion
210 The questions for determination in the Liability Trial are answered as follows:
QUESTIONS:
(a) Did the plaintiff (Skilled) and the second defendant (Pilkington) enter into legally binding contracts (the “Sub-contracts”) for the works for which Skilled sues the first defendant (CSR) in this proceeding, being those works described as:
(i) The Cutting Line works; and/or
(ii) The Furnace and Bath works; and/or
(iii) The Lehr works?
ANSWERS: Yes in answer to questions (a) (i), (ii) and (iii).
QUESTIONS:
(b) If the answer to question (a) (i) and/or (a) (ii) and/or (a) (iii) is no is Skilled estopped from denying the existence of a contract or contracts?
ANSWERS: Although it is unnecessary to do so given my findings in answer to questions (a) (i), (ii) and (iii), the answer in each case is yes.
QUESTIONS:
( c) If the answer to question (a) (i) and/or (a) (ii) and/or (a) (iii) ) or question (b) is yes:
(i) should Skilled’s claim against CSR be dismissed; and/or
(ii) is Pilkington entitled to be paid the sum certified as payable by the Superintendent in the Final Certificate that was issued under the relevant contract?
ANSWERS: Yes in answer to questions (c) (i) and (ii).
QUESTION:
(d) Were the Cutting Line Works, Furnace and Bath Works or Lehr works performed at the request of or with the acquiescence of CSR?
ANSWER: No in answer to question (d).
211 I will hear the parties on costs and any other orders which should be made.
A NNEXURE A Persons
|
Person |
Party |
Role between May-July 2008 |
|
Colin Broom |
(Broom |
Pilkington |
Senior Project Engineer/Package Manager for the Cutting Line |
|
Claude Ceccomancini |
(Ceccomancini) |
Skilled |
Southern Regional Manager |
|
William Charles |
(Charles) |
Skilled |
Senior Project Manager |
|
Chris Christo |
(Christo) |
Skilled |
General Manager (Commercial) |
|
Neil Crompton |
(Crompton) |
Pilkington |
Senior Furnace Design Engineer/Package Manager for the Furnace and Bath |
|
Anthony Frewen |
(Frewen) |
Skilled |
Contracts Administrator |
|
Terry Godden |
(Godden) |
Skilled |
Supervisor |
|
Barry Jones |
(Jones) |
Pilkington |
Manager of Several Global Projects/Purchasing manager |
|
Marius Marginean |
(Marginean) |
Skilled |
Supervisor |
|
Neil Martland |
(Martland) |
Pilkington |
Senior Design Engineer/Lehr Project Manager |
|
James McKee |
(McKee) |
Skilled |
Shut Down Services Manager |
|
Lewis Ng |
(Ng) |
Pilkington |
External Sub-Contractor |
|
Piers O’Brien |
(O’Brien) |
Skilled |
Executive General Manager |
|
Michael Olsen |
(Olsen) |
Skilled |
Executive General Manager |
|
Steve Rauer |
(Rauer) |
Pilkington |
Project Manager |
|
Jonathan Smith |
(Smith) |
Skilled |
Project Manager |
|
Tom Zilic |
(Zilic) |
CSR/ Pilkington |
CSR Contracts Manager – Local Team agent of Pilkington |
|
Peter Wise |
(Wise) |
Skilled |
Resources and Services Manager/ Senior Project Manager until early May 2008 |
A NNEXURE B Timeline and Emails
1 May 2008
212 An email dated 1 May 2008 shows that on 17 March 2008 Skilled was given a copy of the Pilkington programme for the Furnace and Bath dated 14 March 2008.
2 May 2008
213 An email exchange between Zilic and Charles on 2 May 2008 confirmed that the subcontract terms were also to be used for the Lehr. The exchange started with an email from Zilic to Charles at 5.29 PM that stated among other things:
As per our discussions I need your confirmation that should we proceed further with Skilled for the Lehr installation that we shall follow the same contract conditions as agreed on the furnace-bath and cutting line and that Skilled will be in a position to proceed with the work immediately with the a (sic) contract being promptly executed?
214 Charles responded:
I confirm our best offer is A$1,868,429
We would expect and are happy for the terms and conditions of the Furnace, Bath and Cutting line contract be used for the Lehr and Lehr Drive contract.
215 As of the same date, Skilled had prepared what Charles describes as an initial draft Schedule, which was emailed to Rauer on 2 May 2008. Charles’ email stated:
We have completed an initial draft Schedule that includes the Furnace and Bath.
We have based our programme on the dates as listed in the specification document 4428-401-B03-41R7 and the project schedule DA2-4428-493-P24- 05R15.
We are now in the process of finalising the programme and have arranged a meeting today with Neil Crompton to discuss and review the schedule and terminology used in both documents.
6 May 2008
216 On 6 May 2008, Zilic sent Charles and O’Brien (copied to Olsen, Ceccomancini and Jones) an email attaching a number of the contract documents for the Lehr. This email attached the Tender non-conformances and clarifications documents for the Lehr that set out:
Project Milestone Dates
Liquidated damages will be set at a rate of 0.5% per day of the total contract value per nominated milestone dates. The total amount of liquidated damages shall be capped at a maximum of 10% of the total contract value.
The milestones are:
- Lehr Modules Positioned - Complete by 30 May 2008
- Lehr Rollers Installed – Complete by 23 June 2008
- Total Lehr Installation (ready for Cold Commissioning) – Complete by 16 July 2008
217 During early May 2008 O’Brien sent a number of internal emails to Skilled personnel chasing the Dates for Practical Completion and separate milestone dates so that the subcontracts could be executed.30 Charles responded to one of these emails on 6 May 2008 and said (Charles’ response is in bold):
1. Finalise the dates for LDs (including the date for prac completion and the milestone date). Any update on this? Will update you on Furnace, Bath and Cutting line later today. Lehr Milestones attached in documents from Tom Zilic.
2. Finalise the contract for the Lehr. Any update on this?
You have now received the confirmation email awarding the Lehr to SKILLED, including documents from Tom Zilic. $ 1,822,000
8 May 2008
218 An email from Zilic to the various contractors on the Project dated 8 May 2008 confirmed that the contractors had been engaged by Pilkington and stated, among other things, that:
Regarding the installation contract(s) you are conducting for the Dandenong Float line repair that you have engaged by [sic] PILKINGTON AUSTRALIA ENGINEERING PTY LTD. Just a reminder about submitting your invoices/progress claims.
Can you please ensure they are made out to: PILKINGTON AUSTRALIA ENGINEERING PTY LTD (ABN 63 126 263 205)
And please submit/deliver invoices to our site location: Attention: Sharon Bailey (sbailey@csr.com.au) VIRIDIAN GLASS 95 Greens Road, Dandenong, Vic 3175.
219 An email from the Superintendent to the various contractors on the Project also dated 8 May 2008 stated, among other things that:
Regarding the installation contract(s) you are conducting for the Dandenong Float line repair please ensure that any contract notices to the Superintendent are sent as follows:
Only Via E-mail to:
The Superintendent - Chris Newitt chris.newitt@pilkington.com
Copies to:
Steve Rauer (Project Manager) steve.rauer@pilkington.com
Tom Zilic tzilic@csr.com.au
Sharon Bailey sbailey@csr.com.au
For all other general correspondence please liaise directly with your relevant Pilkington Project Engineer.
12 May 2008
220 On 12 May 2008 O’Brien sent an email to Charles, Frewen (who was Skilled’s contracts administrator) and Wise in the following terms:
I need to get these contracts finalised ASAP.
In order to do so, could you please confirm for each of the Cutting Line Contract, the Furnace Bath Contract and the Lehr Contract:
1. What is the Date for Practical Completion
2. What are the agreed milestone and date for the liquidated damages.
13 May 2008
221 Frewen responded to O’Brien’s email (copied to Wise and Charles) on 13 May 2008 as follows:
As confirmed last night the cutting line is the 4th August. Lehr is 16th July.
Furnace & Bath 4th August.
These dates are as per Pilks programme of the 14th March 2008 & are the dates we are working to.
Pilks have warmup starting for the Furnace on the 5th August.
222 Also on 13 May 2008 Charles emailed O’Brien as follows:
The date for commencement is 13th May as per “A.7 WORKS SCHEDULE DATES”, and as per the schedule attached.
This Planning DA2 schedule was part of the Tender documents. The demolition company is late and we will start 14th May.
After Prac Completion date 16-Jul-08, cold commissioning will commence then hot commissioning.
We will be claiming a variation for 1 day EOT and PM+Supervisor for a day.
15 May 2008
223 On 15 May 2008 Skilled claimed the foreshadowed 1 day extension of time to the Date for Practical Completion of the Lehr. The EOT claim nominated the original Date for Practical Completion for the Lehr as being 16 July 2008. Skilled subsequently lodged another 11 EOT claims for the Lehr. Those claims also proceeded on the basis that 16 July 2008 was the original Date for Practical Completion for the Lehr. The Superintendent approved Skilled’s EOT claim for the Lehr dated 15 May 2008 on 3 June 2008 and Skilled’s EOT claim for the Lehr dated 27 May 2008 on 27 June 2008. On 13 May 2008 at 16.30.49 Zilic sent Broom an email copied to Jones in the following terms:
The last item Skilled want clarified before signing the contract are the dates for the:
- milestones to which Liquidated damages shall apply for late completion
- practical completion date
Can you advise asap so we can have them sign off?
224 On 15 May 2008 at 8.33 O’Brien emailed Zilic (copied to Jones) and said:
Further to our discussion earlier this week, I’d be grateful if you could please confirm:
1. the actual dates of practical completion under each of the 3 contracts;
and
2. the LD milestones (and associated dates) for each of the 3 contracts.
In respect of LDs, Barry and I agreed that LDs under each contract would be subject to 1 milestone AND the date for practical completion.
Despite the fact that we’ve agreed that we’re operating under the terms of the relevant Australian Standard (as modified by the agreed special conditions), I can’t get signatures on the contracts until we’ve clarified these dates.
225 Later on 15 May 2008 at 18.15.48 Broom sent Jones an email (copied to Zilic and
Rauer) responding to an earlier Jones email:
How do these dates sound? They tie in with the best programme we have from Bottero and are the best have at the moment. Over the next week I’m trying to develop this with Jason, Alberto (Bottero) and Jon from Skilled.
Milestone 1
Complete Mechanical and Electrical Installation of Main Line (M201-M229, M301-M333) on 17/07/08 (this gives a few weeks to commission the main line prior to warm up).
Date for Practical Completion
Complete Mechanical and Electrical Installation of all equipment (and Safety Fencing) included in the Contract on 08/08/2008.
16 May 2008
226 Charles sent Marginean an email on 16 May 2008 at 10:29:41 that contained the following:
Neil is looking for you to put a schedule together.
I gave you with the drawings for the Lehr a Small MS Project schedule from
Pilkington and an excel version with a bit more detail.
The completion date that we must meet is the 16-July-08, the milestone dates are included in the Small MS Project schedule from Pilkington.
Neil would like to discuss this on Monday, so could you please create an MS Project schedule.
227 On 16 May 2008 Zilic responded to O’Brien’s email of 15 May 2008 at 8.33 by email (copied to Jones, Crompton, Martland and Broom) at 14:29:23:
The dates are as follows: Lehr
The dates I had agreed with Bill Charles are:
- Lehr Modules Positioned – Complete by 30 May 2008
- Lehr Rollers Installed – Complete by 23 June 2008
- Practical Completion – Total Lehr Installation (ready for Cold Commissioning) – Complete by 16 July 2008
Cutting Line
- Mechanical and Electrical Installation of Main Line (M201-M229, M301- M333) – Complete by 17 July 2008
- Practical Completion – Mechanical and Electrical Installation of all Equipment (and Safety Fencing) – Complete by 8 August 2008
Furnace-Bath Steel Work
The furnace and bath contract is quite complex and effectively two zones thus we need dates against both of these areas. They are:
- Installation of Bottom Transverse beams – Complete by 2 June 2008
FURNACE
- Waist Working End Steelwork & Refiner Steel – Complete by 13 June 2008
FURNACE
- Bath Roof Support Steelwork Extension – Complete by 16 June 2008
BATH
- All Furnace Steelwork (Including Platforms) – Complete by 27 July 2008 (effectively a Practical Completion of the Furnace Area)
- Practical Completion – Final Welding of all Bath Roof Plates – Complete by 1 August 2008
With each contract after Practical completion of the installation works there is still requirements for Skilled to provide commissioning/warm up support as included in the contracts.
228 On 16 May 2008 O’Brien on forwarded Zilic’s email to Charles (copied to Frewen, Christo and Wise) at 16:30:57 and said:
See email below from Tom Zilic.
The agreed position re LDs for each job is 1 milestone and practical completion. Can you please confirm, based on the email below, for each job what is our preferred milestone and associated dates. I will then insert these into the final contracts.
In respect of the dates for prac completion, I had previously been informed that the relevant date for the Furnace was 4 August – the email below refers to 1 August.
Please confirm.
19 May 2008
229 On 19 May 2008 Frewen responded to O’Brien’s email (copied to Godden, Wise and Christo) at 08:14:25 as follows:
The dates I gave to Piers last week were as per the gant chart that Jon has produced & take into account the delays associated with the contract negotiations at the beginning of the project delaying the start date.
Please Note: When I was on site last week Terry & I were talking about the schedule for the widening of the Bath & how from version 3 of the spec to version 6 there had been a reduction to the time allowed to complete these works of approx 3 weeks. This leaves Terry with an impossible timeframe & to meet it we will have to put on an additional night shift plus supervisor.
This is not on & it must be remembered that we quoted the works against version 3 of the spec so we must include the date in version 3 for the widening as the milestone for the Bath apart from the practical completion date of the 4th August.
This is also critical as the works we are doing impact on other subbies & the last thing anyone needs, in particular Terry, is the client coming back & saying we are delaying other subcontractors works.
Piers: If this can wait till tomorrow when I am on site I can get the exact dates, if not Jon & Kieron have the dates for the Bath.
Please advise.
230 At 5.25 PM on 19 May 2008 Charles sent O’Brien an email that said:
Will have milestone dates for you tomorrow. (Tuesday 20th). Can you please email me a copy of the contract to date.
231 O’Brien responded to Charles email at 5.36 PM and said:
Thanks Bill.
The contract is AS2124 - 1992 version.
I've attached the special conditions which have been agreed with Pilks other than a slight change that I've made to clause 17 to fit in the Lehr contract (as this wasn't included when we agreed the final document). The same Special Conditions will apply to each of the three jobs.
20 May 2008
232 On 20 May 2008 Charles responded to O’Brien’s email of 16 May 2008 (copied to Olsen, Frewen and Ceccomancini) at 5:17 PM and said:
Milestone dates for LD's are below.
I am still having difficulty getting confirmed dates out of Neil Crompton for the Furnace and Bath sections.
They are constantly changing the schedule. I will try Thursday 22nd morning. BUT I need to talk to you about the Furnace and Bath sections.
Lehr
The dates I had agreed with Bill Charles are:
- Lehr Rollers Installed – Complete by 23 June 2008
- Practical Completion – Total Lehr Installation (ready for Cold Commissioning) – Complete by 16 July 2008
Cutting Line
- Mechanical and Electrical Installation of Main Line (M201-M229, M301- M333) – Complete by 17 July 2008
- Practical Completion - Mechanical and Electrical Installation of all Equipment (and Safety Fencing) - Complete by 8 August 2008 Furnace-Bath Steel Work ???????
21 May 2008
233 Charles sent O’Brien an email on 21 May 2008 at 17:21:13 (copied to Olsen, Frewen and Ceccomancini) responding to O’Brien’s email of 19 May 2008 5:36 PM:
The Lehr and cutting line dates we have identified. It is the Furnace and Bath dates we still have to finalise.
Pilkington onsite personnel have been moving the goal posts (schedule) every week, they cannot give me any dates till late tonight. 7.00pm But definitely tomorrow morning.
Looks like I can get a schedule as a base line as from 21-May-08.
If they wish to make changes then we will be submitting a variation for EOT
and Costs if applicable.
Once we have this schedule we will be reviewing this baseline and quickly identifying the critical path. This will make it easy to identify the variations.
We do not have full control over scheduling of these works, I will make the comment I'm not happy with intermediate milestones as LD dates.
Confidentially: Pilkington's onsite scheduling and coordination is below standard.
26 May 2008
234 On 26 May 2008 Zilic emailed Charles in the following terms:
Have you confirmed the final dates you were waiting upon from Neil Crompton so we can sign off on the contracts?
27 May 2008
235 On 27 May 2008 Frewen emailed the Superintendent a 1 day EOT claim in relation to the Cutting Line specifying a revised Date for Practical Completion of 5 August 2008. This EOT claim nominated the original Date for Practical Completion for the Cutting Line as being 4 August 2008. Skilled subsequently lodged another 6 EOT claims for the Cutting Line. Those claims also proceeded on the basis that 4 August 2008 was the original Date for Practical Completion for the Cutting Line. The Superintendent approved Skilled’s EOT claim for the Cutting Line dated 26 May 2008 on 27 June 2008 and Skilled’s EOT claim for the Cutting Line dated 23 July 2008 on 24 July 2008.
28 May 2008
236 On 28 May 2008 at 11:12:11 Frewen sent an email to the Superintendent (copied to Charles) attaching an EOT claim for the Bath component of the Furnace and Bath that proceeded on the basis of an original Date for Practical Completion for the Furnace and Bath of 4 August 2008. Skilled subsequently lodged another 3 EOT claims for the Bath component of the Furnace and Bath. Those claims also proceeded on the basis that 4 August 2008 was the original Date for Practical Completion for the Furnace and Bath. The Superintendent approved Skilled’s EOT claim for the Bath dated 28 May 2008 on 27 June 2008 and Skilled’s EOT claim for the Bath dated 1 July 2008 on 24 July 2008.
3 June 2008
237 On 3 June 2008, Frewen emailed the Superintendent attaching an EOT claim for the Furnace component of the Furnace and Bath that also proceeded on the basis of an original Date for Practical Completion for the Furnace and Bath of 4 August 2008.
24 June 2008
238 On 24 June 2008 at 5.00 PM, Ng emailed the Superintendent (copied to Charles and Frewen):
Chris
We are in a process of assessing the extension of time claims submitted by Skilled for the Bath, Cutting Line, Furnace and Lehr. In accordance with SCC clause 35.5.2, they are required under the contract to provide a revised programme for the works which identifies the impact of the delay and the new date on which Skilled anticipates reaching Practical Completion. It is also their obligation under SCC clause 33 to provide weekly programme to assist the superintendent to monitoring the progress of works.
Chris, could you please instruct Skilled to provide revised programme for their contracts?
239 On 24 June 2008 at 5:23 PM the Superintendent emailed Ng (copied to Charles, Frewen and Rauer):
Bill, Anthony
As Louis as pointed out under the contract you have an obligation to supply a revised programme showing the PC for all the areas, also a weekly programme to monitor your progress.
Can you please supply:-
1) A revised programme showing PC for the Furnace, bath, lehr and cutting line
2) A weekly progress programme for the Furnace, bath, lehr and cutting line
Can you please ensure I have both of the above programmes for all your areas, no later then 12 Noon Friday 27/06/08
27 June 2008
240 On 27 June 2008 Charles emailed Smith (copied to McKee, Frewen and Ceccomancini) at 1.57PM forwarding a copy of the Superintendent’s email of 24 June 2008 and said:
Just confirming.
Please get a copy of Marius’s (Lehr) Schedule from him. Furnace is done,
Bath still to update,
Cutting Line still to update.
And, when you have completed printing the schedules for all areas, please give a copy of these to Anthony Frewen to hand to Chris Newitt on Monday 2:00pm.
Please ensure there is some slack time allowed in each job.
241 Charles then emailed the Superintendent and Ng at 14:12:50 on 27 June 2008 (copied to Frewen, Rauer, McKee and Ceccomancini) in response to the Superintendent’s email of 24 June 2008 and said:
Chris,
We have completed the Schedule for the Furnace.
As per discussions with Steve Rauer, your planner will complete your proposed schedule and meet with Tony Love, John Smith and Andreco Hurll, to develop a coordinated schedule.
Marius Marginean (Lehr) is keeping his schedule up to date. Jon Smith is currently working on the Bath and the CuttingLine.
These completed schedules will be handed to Anthony Frewen to hand to you at the 2:00pm Meeting Monday.
242 Frewen responded to Charles and Smith at 2.25PM on 27 June 2008 (copied to McKee and Ceccomancini) in the following terms:
Wouldn't we want to go with the dates as per the E.O.T's we have claimed as per my rec I sent out this morning & summarised below.
Project Original Date P.C E.O.T's Days Revised Date
P.C
Cuttine Line 4th Aug 08 15 21st Aug 08
Lehr 16th July 08 11 29th July 08
Bath 4th Aug 08 39 18th Sept 08
Furnace 4th Aug 08 44 24th Sept 08
Using these dtaes (sic) would deffinatly (sic) give us some slack. Your call.
243 30 minutes later on 27 June 2008 Frewen sent a further email to Charles (copied to McKee and Ceccomancini) forwarding his earlier email and said:
Actually the more I think of it we need to use these dates otherwise Pilks could well & truly come back & ask why do we need to have all the additional E.O.T's & costs approved.
I can counter that by saying the claims are for actual time & costs & the schedule is just an estimate but I would prefer not to give them the opportunity to delay signing off on the claims.
I will not hurt for us to have an earlier date in our programm (sic) than the one we submit to Pilks.
In fact it will make us look good if we can bring it in earlier than scheduled & will increase our escalation costs if they ask us to compress, which they probably will.
2 July 2008
244 On 2 July 2008 the following email exchange between Jones and Olsen had occurred:
Jones wrote:
I understand from our site team that the contracts for both the furnace and cutting line installations have not been signed and returned.
Would you advise if there is a problem? Olsen responded:
You are correct, there seems to be a problem in providing key dates for the contract?
In any event we are committed to the agreement. I'm staying close to all projects.
Perhaps we could discuss one other sensitive matter over the phone?
3 July 2008
245 On 3 July 2008 at 15.53.04 Smith emailed McKee, Frewen and Charles as follows:
Attached is a simplified version of my latest program for the completion of the
Cutting line.
Anthony, in your email last week, you had an original practical completion date of 4 th August which as far as I can ascertain is the date when the mechanical and electrical installation was scheduled to be completed. In the original contract specification this is the date for the completion of all electrical works. (Mechanical installation is completed prior to this). However, in the Addendum to the specification, the latest completion date is the 8th August. Which date should we really be working to?
At this stage I have based the new schedule on the 4th plus 15 days as the new completion date. To achieve this I have had to do quite a bit of padding and in reality I believe that with no further unforeseen delays we should come in at least 2 weeks
sooner. If we use the 8th plus 15 days then better still. Can somebody please clarify?
Pilks are nagging me for this schedule but I do not want to issue it until you are in agreement.
5 July 2008
246 On 5 July 2008 Charles responded to Frewen’s email (also sent to Smith, McKee and Ceccomancini) in the following terms:
I agree, considering Pilks want to push this project we should use these dates, as we will finish well within these current milestone dates.