GRAHAM EVANS CO PTY LTD v S P FORMWORK PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, MCHUGH and CLARKE JJA 29 April 1988, 30 August 1988 [1988] NSWCA 56 The appellant which had agreed to construct the Sydney Police Centre at Riley, Goulburn and Campbell Streets, Sydney, entered into a sub-contract with the respondent pursuant to which the latter agreed to supply and erect the formwork necessary for the construction of the building. Disputes arose between the parties to the sub contract and eventually a Deed of Settlement was successfully negotiated. Further disputes arose between the parties as to the meaning of certain clauses in the sub-contract and the Deed of Settlement. Consequently the respondent commenced arbitration proceedings during the course of which it became apparent that specific questions of law arose. Accordingly, the appellant instituted proceedings in the Building List seeking declarations as to the meaning of the covenants in question Smart J made a number of declarations and orders and an appeal was brought from three of them. In the first instance the appellant claimed that the word contract" appearing in CL(f) of Recital L of the Deed of Settlement in a context in which the contract between the builder and owner was described as the head contract and the contract between the builder and formworker was described as the sub-contract should be construed to mean the head contract. HELD: The word "contract" referred to sub-contract. In the second instance the question was whether claims for losses under CL28(f) of the contract could only be maintained if there had been some wrongful act by the builder. HELD: The act of the builder leading to the sub-contractor occurring additional cost did not need to be a wrongful act before the sub-contractor could maintain a claim. In the third instance the sub-contractor claimed for losses under CL30(h) of the sub-contract in respect of cost arising from delay. HELD: It is not necessary that the delay be caused by an act of the contractor which constitutes a breach of the sub-contract or gives rise to an action in tort before the sub-contractor can maintain a claim under the clause. Priestley JA I agree with Clarke JA. McHugh JA I agree that the appeal should be dismissed for the reasons given byClarke JA. Clarke JA The appellant entered into a building contract dated 9 April 1981 pursuant to which it contracted to build the Sydney Police Centre at Riley, Goulburn, Campbell and Brisbane Streets, Sydney. Prior to signing the contract it had on 24 October 1980 entered into a sub-contract with the respondent under which the latter agreed to supply and erect the formwork for the construction and completion of the seven storey building. This agreement included the standard form of sub-contract for use with NPWC (National Public Works Contract) edition 2 Head Contract, some special conditions and a construction programme. The respondent was first engaged on the site in the latter part of 1980. On 5 April 1982 all workmen employed on the site, including those employed by the respondent, went out on strike. On 17 May 1982 various unions placed a black ban on the project. No work was carried out on the site until August 1982 and substantial delay was occasioned to the project. 2 UNREPORTED JUDGMENTS Disputes arose between the parties to this appeal as to the manner in which the consequential increase in cost of performance of the works should be borne and subsequently negotiations ensued in an effort to compromise those disputes. On 18 August 1982 they entered into a deed expressing the terms on which their disputes were conditionally resolved. It is common ground that all conditions were satisfied and that the deed operated according to its terms. At a later stage further disputes arose between the appellant and the respondent. These concerned the meaning of both the subcontract and the deed of 18 August 1982. Consequently in 1985 the respondent commenced arbitration proceedings against the appellant in order to recover moneys which it alleged were being wrongfully withheld from it. During the course of these proceedings it became apparent that a number of questions of law would arise and in order to obtain a definitive ruling the appellant instituted proceedings in the Building List of the Common Law Division of this Court seeking appropriate declarations. The summons was heard by Smart J who made a number of orders and declarations. The appellant has challenged three of them. THE MEANING OF THE HANDWRITTEN WORD 'CONTRACT' IN RECITAL L(f) IN THE DEED OF 18 AUGUST 1982 Recital A in the deed referred to the contract between the appellant and the Public Works Department and stated that it was to be called "the head contract" in the Deed. Recital B dealt with the contract between the parties to the present appeal which was to be described in the deed as the sub-contract. Recital H, which contained in summary form the respondent's claims, read: "The subcontractor claims that the subcontractor is entitled to be paid by the contractor for material hiring expenses, financing expenses, supervision expenses and certain other expenses it alleges it has incurred during the strike and during the black ban and for startup costs and certain other extra costs it alleges it will incur in performing the subcontract after the return to work and for loss of productivity, overhead and profit it alleges it has suffered and is continuing to suffer as a result of the strike and the black ban all of which it would not otherwise have incurred had their been no strike and no black ban. The sub-contractor further claims that the sub-contractor is entitled to be paid by the contractor for similar expenses, costs and losses arising out of delays and lost time which occurred prior to the said strike." Recital L, which is the critical one for present purposes, relevantly read: Provided that there is a return to work within the next ten days the parties hereto have now agreed to abandon the claims referred to herein and all and any claims that one may have against the other in respect of any expenses, costs or losses or any other claim due to or arising out of or in consequence of:- (e) Any lost time, delays or prolongation occasioned to the progress of the contract and sub-contract by reason of or during the strike and black ban; (f) any lost time, delays or prolongation occasioned to the progress of the contract and the sub-contract which occurred prior to the said strike. Not including claims for variations pursuant to the contract. (The underlined words appeared in handwriting in the original deed). This recital was of particular importance because CL3 of the Deed which expressed the mutual releases of the parties related them "to any matter or thing relating to the matters referred to in Recital L". The question at issue is whether the word "contract" where it appears in handwriting in sub-clause (f) referred to the sub-contract or the head contract. A perusal of the deed discloses that while the parties recited that they would URJ GRAHAM EVANS CO PTY LTD v S P FORMWORK PTY LTD (Clarke JA) 3 describe the contract between the Public Works Department and the appellant as the head contract in the deed they did so on only one occasion (CL2(iv)). In recital L there is reference only to the contract and the sub-contract. For instance in sub-clause (e) the parties speak of "the progress of the contract and sub-contract" clearly enough on that occasion the contract being spoken of is the head contract. The two words are used in similar fashion in the printed portion of sub-para (f). Again there is no difficulty in concluding that the contract spoken of in the second line of sub-para (f) is the contract between the appellant and its principal, ie the head contract. Senior Counsel for the appellant submits that ordinary rules of construction require that where a word is used in a clause on more than one occasion it should be accorded the same meaning in each instance unless a different meaning is indicated by the context. Here, he argues, there is no indication that the word "contract" is used in two different senses. Accordingly the handwritten words should be taken to refer to claims for variations pursuant to the head contract. This argument, while superficially attractive, in my opinion places too much reliance upon a basic rule of construction and has too little regard to the context. The deed effected, conditionally it may be accepted, a resolution of disputes between the appellant as contractor, and respondent as sub-contractor. There were claims on each side arising out of the strike and black ban and in addition, claims arising out of delays and lost time prior to the strike. Both sets of claims are summarised in recitals (H and J). It is obvious that all the claims arose under the sub-contract. The respondent could not make any of the claims referred to in recital H against the appellant under the head contract. They were necessarily based on the sub-contract. Likewise the appellant's claims set out in recital J could only be maintained under the sub-contract. In particular the respondent's claims for expenses costs and losses arising out of delays occurring prior to the strike must necessarily have been claims arising under the sub-contract. In that context sub-clause (f) of that recital should be seen as referring to those claims of the parties which were referred to in recitals H and J respectively and which necessarily arose out of the sub-contract. In the printed part of the sub-clause the parties addressed claims arising out of or in consequence of: "(1) delays etc occasioned to the contract which occurred prior to the strike; and (2) delays etc occasioned to the sub-contract..." Both the appellant's and respondent's claims against the other would be made pursuant to their (eg sub) contract although delay to the (head) contract resulting from an action of the respondent may have given rise to a claim by the appellant under the sub-contract. For this reason it was necessary to include reference to both contracts in that part of the sub-clause. The handwritten words exclude claims "for variations" pursuant to the contract from the release. In other words in CL(iii) the parties agreed to release one another from claims for delay and lost time etc prior to the strike with the exception of those claims which were for "variations pursuant to the contract'. The exception operated to remove from the area of release only those claims for lost time etc which could properly be categorised as claims for variations. Once it is recognised that the parties could only make claims in respect of variations against each other pursuant to the sub-contract the conclusion that the handwritten word "contract" refers to the sub-contract is inescapable. 4 UNREPORTED JUDGMENTS There are other considerations tending to the same conclusion. Where the word "contract" in the typed section is used to refer to the head contract it commences with a capital "C". In the handwritten addition a small "c" is used. This is no doubt a small point but it tends to confirm the conclusion. More importantly is the obvious need to refer both to the head contract and to the sub-contract in the typed portion of CL(e) and CL(f) However, when attention is directed to the second use of the word "contract" in sub-clause (f) there appears to be no reason why it should be read as to refer to the head contract. In my opinion Smart J was correct and I would dismiss the appeal against the part of his order concerned with recital L. CLAIMS FOR LOSSES UNDER CL28(f) OF THE SUB-CONTRACT This claim arises under CL28(f) of the sub-contract. For the sake of clarity I will set out the whole of CL28. It reads: (a) Ifthe contract neither includes nor requires the Sub-Contractor to supply a construction programme showing the dates by which or the times within which the various stages or parts of the Works are to be executed or completed, the contractor may direct the Sub-Contractor to supply to him such a construction programme. The Sub-Contractor shall, within the time stated in the direction, supply to the contractor such a construction programme and the Sub-Contractor shall, subject to CL29, adhere to that construction programme unless a deviation therefrom is directed by the contractor pursuant to sub-clause (b) hereof. (b) The contractor may from time to time direct a deviation from a construction programme included in the contract or supplied by the Sub-Contractor pursuant to a requirement of the contract or a direction of the contractor under sub-clause (a) hereof and, in any event, the contractor may direct the Sub-Contractor to supply to him a further construction programme. The Sub-Contractor shall, within the time stated in any such direction, supply such a further construction programme. (c) Any such further construction programme shall have effect and be subject to the same conditions as if it were a construction programme included in the contract or supplied by the Sub-Contractor pursuant to a requirement of the contract or a direction of the contractor under sub-clause (a) hereof. (d) The supply of a construction programme or of a further construction programme under this clause shall not relieve the Sub-Contractor of any of his obligations under this contract. (e) If a construction programme has not been provided pursuant to any preceding provision of this clause the contractor shall have full power to direct in what order and at what time the various stages or parts of the Works shall be performed. (f) The Sub-Contractor shall not be entitled to any extra cost resulting from (i) a deviation from a construction programme directed by the contractor pursuant to sub-clause (b) hereof; or (ii) a direction given by the contractor pursuant to sub-clause (e) hereof. unless the need for the deviation or the direction was due to an act default or omission of the principal, the Superintendent or the contractor. URJ GRAHAM EVANS CO PTY LTD v S P FORMWORK PTY LTD (Clarke JA) 5 (g) Where the deviation or direction referred to in sub-clause (f) hereof was due to an act default or omission of the principal or the Superintendent the Sub-Contractor shall be entitled to extra cost resulting from that deviation or direction only if such deviation or direction affects the construction programme for the Main Contract Works and then only to the extent to which such extra cost has been included in extra cost payment to the contractor in respect of that deviation or direction affecting the construction programme of the Head Contract". A construction programme had been agreed (annexure D to the sub-contract) and was incorporated into the contract by Annexure A (para 11) which read: "PROGRAMME Annexure 'D' of this contract is the initial construction programme. The contractor reserves the right to vary either or both the times and logic shown on the initial programme as may become necessary to better facilitate the progress of the Works, and similarly to vary any subsequent programmes. The Sub-Contractor undertakes to provide sufficient labour and material resources to ensure that all programme requirements are achieved." The appellant's submission is that in the context it is appropriate to understand "default" and "omission" in sub-clauses (f) and (g) as connoting an inadvertent and a conscious failure, respectively, in breach of some duty. In addition the word "act", used as it is in conjunction with "default" and "omission", takes its colour from them and should be understood as connoting a wrongful act. Smart J rejected these submissions and it is that conclusion which is challenged. It is helpful, I think, to describe the factual context in which the legal issue arose. The respondent in its points of claim in the arbitration made a claim in respect of deviations from the contractual programme which required the respondent to form walls and columns concurrently with the slab above them. The deviations were directed in a series of fortnightly programmes issued by the appellant between 24 August 1982 and 5 February 1983 in respect of certain areas of the building and between 30 November 1981 and the end of July 1984 in respect of other areas and required the respondent to form walls and columns before it commenced forming the slab above them. It was claimed that these deviations from the programme caused the respondent to incur extra cost which it claimed against the appellant under CL28(f) of the sub-contract. The "act" of the appellant on which the claim was based was the issuing of fortnightly programmes varying the agreed procedure for the forming of the concrete slabs. It was not claimed that the deviations arose from any wrongful act or a failure to conform to some duty. In these circumstances the question which falls for determination in the arbitration is whether the issuing of fortnightly programmes varying the agreed course of construction appearing in Annexure D to the sub-contract and exposing the respondent to additional cost in the performance of its contractual obligations entitles it to claim that additional cost under CL28(f). The scheme of the contract appears at first sight to be relatively simple. The parties agreed upon a construction programme and expressly reserved the right to the contractor to vary "either or both the times and logic shown on the initial programme as may become necessary to better facilitate the progress of the works". The respondent was required to adhere to that programme unless a deviation was directed under sub-CL28(b). That sub-clause expressly empowered the contractor to order a deviation. However the respondent was not entitled to any extra costs resulting from a directed deviation unless CL28(f) was 6 UNREPORTED JUDGMENTS satisfied. That is "unless the need for the deviation was due to an act, default or omission of the principal, the Superintendent or the contractor". The appellant founds his submission that "default" and "omission" should be understood as connoting fault from the absence of the grant of an affirmative right in CL28(f). I do not think the manner of expression of that clause provides the support on which the appellant relies. Firstly, while it is correct to observe that no affirmative grant is expressed it is clear that the effect of the provision is to allow the recovery of the additional cost caused by the deviation if the stated conditions are satisfied. The structure of the clause is to deny the extra cost unless the need for the deviation was due to one of the matters mentioned. Secondly CL28(g) also contains the words "act default or omission", which should in my opinion be accorded the same meaning as the same phrase in CL28(f), in the context of an affirmative grant. The reason that CL28(f) was not expressed in terms of affirmative grant like CL28(g) is probably to be found in the relationship between the two clauses. In CL28(f) no cost is recoverable "unless the need..... (was due to) the act etc of the Principal, the Superintendent or the contractor". By CL28(g) the right to claim extra cost is qualified if the act etc is that of the principal or his agent, the superintendent (in this particular contract the principal nominated itself as superintendent). Accordingly, if the need for the deviation was due to the "act" of the principal then the sub-contractor was entitled to recover the resulting additional cost but only to the extent specified in CL28(g). It is this inter-relationship between CL(f) and CL(g) which leads me to conclude that the words "act default or omission" are used in the same sense in both clauses. But the removal of that area of support for the appellant's argument does not resolve the problem of determining whether the three words should be regarded as denoting fault. The question raised is not capable of a simple answer and is complicated by the use of the word "need" in CL28(f). This seems to indicate that there must be a need to direct a deviation and that a decision by the contractor to vary the mode of performance of the work to suit its own preferences and not because of any "need" would not be included. This I find difficult to accept. In considering the matter it should not be overlooked that a sub-contractor who tenders for a contract does so upon the basis of a costing which would normally be influenced by the manner in which he proposed to carry out the sub-contract works. In this case we know from the agreed construction programme in Schedule D that the sub-contractor had a specific programme on which to base his costing. But CL28 must be approached upon the basis that it is not a particular provision agreed for this contract but appears in a form of contract prepared for general use in the industry and described as "SCNPWC Edition 2". Hence CL28 deals with a number of alternative situations and the words in (f) have to be understood as applying to each of them. For instance the construction programme may be agreed in the contract or may be required to be submitted by a sub-contractor pursuant to a direction of the contractor or a requirement in the contract. Thus sub-clauses 28(f) and (g) have to deal both with agreed programmes and those submitted by the sub-contractor which may pay no regard to the needs of the contractor efficiently to organise URJ GRAHAM EVANS CO PTY LTD v S P FORMWORK PTY LTD (Clarke JA) 7 works on the site. On the other hand no construction programme may be provided in which case the contractor has power to direct the order and time of performance of works (sub-clause (e)). CL28(f) also deals both with directions under CL(e) and deviations. In the case where a construction programme is neither agreed nor directed the sub-contractor accepts the commercial risks flowing from the contractor's right to direct the order in which and the time at which the various works are to be performed. The sub-contractor cannot in that case complain, for instance, if the order chosen by the contractor exposes him to costs which he did not anticipate and he cannot claim for any unexpected costs unless the need for a particular direction as to manner or time arose from "an act default or omission" of the contractor principal or superintendent. Because I find some difficulty in understanding the significance of the word "need" in relation to deviation I think a better understanding of the words under examination can be reached by initially considering the question raised in the context of a direction. Under CL(e) the contractor may give a direction simply in the normal course. If the sub-contractor finds that he hasn't anticipated the particular course of the works then because he has accepted the commercial risk that that might happen he cannot claim extra costs which he didn't anticipate. On the other hand a contractor may give a direction which could not be regarded as arising in the normal course such as a direction to stop work on a particular job for four weeks. Or it may give a direction varying an earlier direction at a stage when the sub-contractor was in the course of complying with the earlier direction. The need for a direction of the latter type may arise for a number of reasons. The principal or superintendent may have directed the contractor to vary the course of construction to meet some particular need of the principal's. The contractor may find that it has miscalculated the speed with which other works would be completed and therefore needs to delay following stages, or the sub-contractor itself may have fallen behind and sought the issue of a direction. Again the need might arise out of what I might describe as a neutral factor, such as, for instance, a strike of all the men on the site. These examples are not intended to be exhaustive but serve to illustrate that the need to issue a particular direction can arise from an instruction from the principal or superintendent, a decision by the contractor to alter the course of construction, the request, or even the lack of diligence, of the sub-contractor or a neutral factor. I have not mentioned other sub-contractors whose own delay may have had an effect on the course of work. The reason is that they pose a special problem. While it may be that their failures might be visited on the contractor in the sense that he is responsible for the coordination of the works, as the particular question does not arise in this case it is better put to one side. In this context it is clear beyond doubt that the contractor is not to be allowed extra cost if the need for the direction arose from its own request or failure to comply with previous directions. If it has caused the need for the direction then it cannot claim extra cost. The position is the same if the need is created by a neutral factor. On the other hand if the principal issues an instruction which causes the contractor to issue a particular direction to the sub-contractor, for instance, to delay commencement of a particular part of the work at a time when the sub-contractor had hired formwork and engaged men to start that work, it seems to me that the instruction should be regarded as an "act" of the principal which 8 UNREPORTED JUDGMENTS created the need for the direction. Accordingly, the sub-contractor would be entitled to claim the extra cost but only if, and to the extent, CL(g) was satisfied. Likewise if the need arose from the contractor's miscalculation or failure efficiently to coordinate the works which led it to give a direction to a sub-contractor in circumstances which were to the knowledge of the contractor likely to lead it to incur extra expenses. Either should be regarded as an "act default or omission" of the contractor which caused the "need" and entitled the sub-contractor to claim extra. It would not matter on this view whether or not the direction resulted from conduct which was a breach of contract or some other duty or was tortious. If a direction is given by the contractor as a consequence of a policy decision to change the course of construction and the timing of the direction is such that the sub-contractor is necessarily exposed to additional cost then the position is not so clear. The contractor is entitled to change its policy, or previously decided course of construction, and, on the assumption that there is no construction programme, give a direction designed to implement the new policy. It could not in general be said that it was in breach of contract in acting in this manner. Nor would he have committed a tort. It is possible to regard his conduct as in breach of some duty not enforceable in law. But the duty would be vague and is, in any event, difficult to express It seems to me that if one or other parties so conducted themselves as to create a need for a direction the effect of which would, for instance, disrupt the progress of the course of construction or require the subcontractor to depart from an earlier direction at obvious cost to it then the need for the direction should be seen as due to the act, neglect or default of that party. In my opinion the parties were in this clause endeavouring to implement a scheme which led to the result that if, and only if, the particular direction was caused by conduct on the part of the named parties and had the obvious consequence of leading, or being likely to lead, the sub-contractor into extra cost then it should be able to claim for those costs. (at page 17) The words in question obviously apply both to deviations and directions. Consequently my reasoning applies to the question thrown up in this case. I appreciate that I have furnished a somewhat broad answer but the clause in question is drawn in such a manner as to make it impossible to find an entirely satisfactory answer. As I said earlier the word "need" complicates the question in regard to deviation. It would be clearer if the words were "the need to direct a deviation" and that is the sense in which I believe the clause should be understood. Viewed in this way the question is whether the need to direct a deviation arose from conduct of the nature I have mentioned Indeed, and while the ultimate question which arises is one for the arbitrator, I would think of no better example of act omission or default than the issuing of directions to depart from the course of construction laid down in the agreed programme by adopting another far more expensive procedure. CLAIMS FOR LOSSES UNDER CL30(H) OF THE CONTRACT The third question is whether the sub-contractor can recover costs pursuant to CL30(h) of the contract extra costs incurred by reason of delay caused by an act of the contractor where that act does not either constitute a breach of the sub contract or give rise to an action in tort. URJ GRAHAM EVANS CO PTY LTD v S P FORMWORK PTY LTD (Clarke JA) 9 The question concerns a number of claims by the respondent including those which have already been referred to. I do not believe that anything is to be gained by giving further examples. The critical sub-clauses for consideration are 30(b) and (h) which read: (b) Where the Sub-Contractor is delayed in the execution of the Works by any cause arising out of any breach of the provisions of this contract or out of any other act or omission on the part of the contractor his employees or agents or by any act or omission on the part of the Principal the Superintendent or the employees professional consultants or agents of the principal or by any other cause (except a cause arising out of any breach of the provisions of this contract or any other act or omission on his own part of on the part of his employees, agents or sub-contractors or their employees or agents) and that delay might reasonably be expected to result in a delay in the execution of the Works, the Sub-Contractor shall if he desires to claim an extension of time for completion of the Works give to the contractor not later than fourteen (14) days after the cause of delay arose notice in writing of his claim for an extension of time for completion of the Works together with a statement of the facts on which he bases his claim. (h) No claim for extra cost incurred by the Sub-Contractor by reason of or as a result of or arising from the exercise by the contractor of the power to grant or allow any extension of time under any of the provisions of this clause shall be allowed by the contractor unless the need for the extension of time was due to either: (i) any breach of the provisions of this contract or out of any other act or omission on the part of the contractor his employees or agents; or (ii) any act or omission on the part of the Principal the Superintendent or the employees professional consultants or agents of the Principal and in the latter case then only to the extent to which such extra cost has been included in extra cost payable to the contractor in respect of the cause of delay giving rise to that extension of time under provisions of the Head Contract. It will be observed that the contractor is entitled to claim an extension of time under (b) if delay is caused by: (1) breach of contract or other act or omission of contractor and agents; (2) act or omission of principal, its consultants or agents; (3) any other cause (except breach of contract or other act or omission of sub-contractor or its agents). Two comments should be made about this sub-clause. In the first place the reference to any other cause would seem to indicate the earlier alternatives are unnecessary. In a sense they are not essential to the operation of the sub-clause but they emphasise those circumstances which entitle the sub-contractor to extra costs in sub-clause (h). In the second place the scheme is similar to that which appears in CL28 except insofar as what I have described as neutral factors do entitle the sub-contractor to claim an extension of time. But in relation to claims under CL30(h) for the extra cost flowing from extensions of time there is no difference. The sub-contractor must show that either alternative 1 or 2 is made out. In my opinion the reasoning which led me to my conclusion in relation to CL28 applies with equal force. If it is the conduct of the principal or contractor, or their agents, which causes the delay then the sub-contractor is entitled to claim the added cost arising from the delay. If the sub-contractor or his agent's conduct or a neutral factor leads to delay then no claim is justified. I say this despite the reference in CL30 to "breach of contract". I do not think that those words qualify the following words or provide a indication that sub clause (h) only applies in the case of breach of some (unidentified) duty or tortious conduct. They serve no 10 UNREPORTED JUDGMENTS greater purpose than to indicate a species of conduct which calls into play the provision of the sub-clause. After all sub-clause (h) (ii) does not contain any reference to breach of contract. This is clearly explicable as there is no contract between the principal and the sub-contractor. But no reason appears why the words "act or omission" in sub-clause (h) (ii) should be affected by the reference in (i) to a breach of contract. I believe that the sounder approach is that those words have the same meaning in (i) and (ii) and are not to be given a restricted meaning by "breach of contract" or "other" in (i). Accordingly, I would conclude that Smart J was correct and I would propose that the appeal be dismissed with costs. The appeal is dismissed with costs.