NUS INTERNATIONAL PTY LTD v MACQUARIE PUBLICATIONS PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SAMUELS, PRIESTLEY and HANDLEY JJA 4 April 1991, 9 October 1991 [1991] NSWCA 218 CONTRACT — construction of contract by which energy consultant undertook to investigate energy consumption costs of its client — meaning of "recommendation" in particular contractual context but no question of principle. APPEAL — application to amend grounds of appeal to raise point not taken at the trial refused: Coulton v Holcombe (1986-87) 162 CLR 1 applied. Samuels JA The appellant is an energy consultant whose business is to investigate and analyse the energy consumption costs of its clients for the purpose of submitting recommendations to them for the achievement of savings, or the recovery of readjustments in respect of costs already paid. The first respondent ("Macquarie") is a printer and publisher carrying on its business principally in Dubbo in the west of New South Wales, and is a subsidiary of the second respondent ("EECE"). On 12 August 1983 the appellant and Macquarie entered into a contract by which, in very general terms, the appellant agreed to make recommendations to Macquarie for "all possible savings and refunds" on its energy costs, including electricity and gas. In due course a dispute broke out between the parties and by a statement of claim dated 4 February 1986 the appellant claimed damages for Macquarie's repudiation of the contract. In addition it sought damages from EECE for wrongfully procuring a breach of its contract with Macquarie, and from each of the respondents for conspiracy, a claim which was not however pressed at the trial and about which I need say nothing further. By their further amended defence the respondents denied the allegations of repudiation, procuring a breach of contract and conspiracy, and Macquarie asserted that it was in fact the appellant which had repudiated the contract by failing to perform its obligations thereunder. It also asserted a total failure of consideration, but the learned judge, Rogers CJ CommD, concluded that this defence was insupportable and required no examination; and no challenge has been made to this mode of summary disposal of that issue. The agreement, so far as relevant, was in these terms: "1. We hereby authorise you to submit recommendations for all possible savings and refunds on our energy costs including electricity, gas, water, effluent disposal, oil, petroleum products, industrial gases and coal. You will make a detailed analysis of all factors in our costs and advise where refunds and reductions can be obtained. 2. Your initial examination will cover the past twelve (12) months' bills. Where applicable, you will review old bills as far back as possible for refunds. Your continuing analysis will cover our current bills, which we will send to you each month during the term of this agreement. 2 UNREPORTED JUDGMENTS 3. Any recommendation you make is subject to our approval. Any recommendation acted upon by us shall be deemed accepted, and if implemented, we will pay you as outlined below after such savings and refunds are achieved. We will promptly forward to you all information pertaining to your recommendations for your evaluation and further advice. 4. All negotiations with suppliers are to be conducted through us unless it is mutually agreed otherwise. 5. We agree to pay you as follows: a. A service fee calculated at 4% of our past twelve months' total energy expenditures (minimum service fee $700 - maximum $6,000). The service fee of $6,000 is due to you on acceptance of this agreement and is payable only once for the term of this agreement and all consecutive renewals. b. The service fee will be recovered by us in full from the first gross savings and refunds after they appear on our bills. After such recovery we will pay you fifty (50%) per cent of each refund secured. We shall also pay you fifty (50%) per cent of each savings secured for a period of sixty (60) months after which the entire savings will be ours. c. Payment will be made upon receipt of your invoice showing computation of savings and/or refunds." I must indicate at the outset that the engagement between the parties was intended to examine benefits which might be obtained for Macquarie by the appellant's analysis of prices paid both for electricity supplied by the Macquarie County Council ("the County Council"), and for LP Gas ("LPG") supplied by the Dubbo City Council ("the City Council"). Mr M Rodrigues was at the time a senior analyst employed in the Energy Division of the appellant, and it was he who dealt with Macquarie's problems and was responsible for organising the performance of the appellant's responsibilities under the contract. There were several people employed by Macquarie who, as it will appear, were involved in one way or another in the transaction with the appellant. Mr Wright was the company secretary with whom Mr Rodriques initially dealt. He left Macquarie's employment in October 1983 and was replaced by Mr Ramm. Mr Armati was the managing director and Mr McLellan the general manager. Mr Sheiles was the financial controller and Mr O'Brien was the chief plant electrician. Ihave already shortly indicated the issues which were litigated at the trial and it will be convenient to flesh them out a little at this stage. The appellant contended that it had made a "recommendation" which satisfied the relevant requirement of the contract, but that Macquarie, by failing to supply materials to enable the appellant to continue to perform its obligations, had repudiated the agreement. Macquarie contended that the appellant had not made such a recommendation and had failed to do anything capable of amounting to the "detailed analysis" which the contract demanded. Upon this point the learned judge found that the appellant had not made a recommendation of the contemplated kind, and that if it had, it was not causally related to the savings in the cost of electricity which Macquarie did in fact ultimately enjoy. Hence the appellant failed so far as its analysis of electricity costs was concerned. However, on the LPG front, Rogers J determined that the appellant's efforts had secured a reduction in cost, and although the appellant was in breach of its contractual obligations by failing to do the work required of it, and had thus repudiated its obligations under the contract, Macquarie had never unequivocally accepted that WRIB INTERNATIONAL PTY LTD v MACQUARIE PUBLICATIONS PTY LTD (Samuels JAB repudiation. So, in the result, the appellant was entitled to recover damages representing its successful efforts in reduction of Macquarie's expenditure for LPG. It will be convenient to deal separately, as his Honour did, with the issues relating to each energy component. I turn first to the cost of electricity, and take the facts largely from the judgment. After execution of the contract Macquarie provided the appellant with accounts covering its electricity and gas consumption for approximately the preceding thirteen months. Mr Rodrigues then reviewed this material and made some analysis of it, of a kind which the learned judge evidently thought both superficial and disorderly. For example, he made no effort to ascertain from Macquarie what its future energy consumption was likely to be, did not visit the premises in Dubbo, and made no attempt to ascertain the nature of the printing presses used or the hours during which they operated. In particular he was not aware, at least until January 1984, that Macquarie intended to install additional plant and equipment which would, of course, consume a larger amount of energy. Mr Rodrigues then sent to Macquarie a document headed "Rate Analysis Report" dated 29 August 1983 and relating to the electricity consumption at Macquarie's Wheeler's Lane premises in Dubbo. In that report he said: "Our investigations indicate that the low voltage maximum demand schedule should be investigated as a matter of urgency..." He indicated what he described as "a break even demand of 192KW", and expressed the view that the actual demand would be well below that break even figure. The report continued: "We recommend strongly therefore that the attached draft letter is released without delay on your stationery to the Macquarie County Council requesting a maximum demand test on-site through the installation of a maximum demand test meter and subsequently, should conditions be favourable as we expect, undertaking a transfer to the maximum demand low voltage schedule." In a paragraph headed "Action Required" Mr Rodrigues directed Macquarie to forward a copy of the County Council's reply and chart of maximum demands obtained "to enable our review and further comments." The draft letter was duly sent by Mr Wright on 8 September, and in it there appear these paragraphs: "We believe it is now opportune to investigate the viability of applying the Council's maximum demand low voltage schedule in view of the minimum chargeable demand of 30KW. The nature of our operations would appear to indicate a good load-factor which we believe is conducive to the adoption of your maximum demand rate and should you concur with our findings, relative to your knowledge of our supply circumstances, would you please arrange for the necessary maximum demand meter to be installed at our switchboard so that the total supply can be received and charged under the maximum demand terms." There were, I should add, other reports and draft letters concerning other premises at which Macquarie conducted its business. On 1 October the County Council carried out a pulsometer test, which I take to be the type of test which the report envisaged. It is, I think, worth noting, as the learned judge did, that Macquarie apparently failed to inform the appellant that the test had been carried out, and the appellant, in December 1983, forwarded a further draft letter, renewing the request for a pulsometer test, to be sent to the Council; and Macquarie did so. 4 UNREPORTED JUDGMENTS On 29 December 1983 the County Council wrote to Macquarie reporting the results of "the metering and maximum demand test". It appears that the October test was abandoned as the major plant (the Harris press) was not fully operational, and the test was done in November and indicated that "a saving of approximately fifteen per cent could be realised by transferring from Council's Commercial/Industrial tariff to the demand-energy tariff." It appears from a date stamp on the second page of that letter that a copy of it was received by the appellant on 5 January 1984. On 23 January 1984 Mr Rodrigues and Mr McLellan had a conversation in which the latter advised that Macquarie was currently undertaking a major extension at their principal plant in Dubbo. There was some reference also between them to the County Council's letter which Mr Rodrigues described in his file note as "the extremely favourable response from Council following the release of our draft letter regarding an investigation into the maximum demand tariff'. On 31 January Mr Rodrigues wrote to Mr McLellan, again referring to the maximum demand investigations conducted by the Council "following the release of our draft letter to them." A draft letter to go to the County Council was included and that was sent on 16 February 1984, signed by Mr Sheiles. It asked for the expeditious installation of the required maximum demand metering. On 9 March 1984 Mr Rodrigues telephoned Mr Sheiles "regarding our principal recommendation for their operations in Dubbo"; and he followed his file note with a letter dated 15 March, confirming that implementation of the maximum demand rate had been deferred until May when the new presses would be brought into service. On 22 March 1984 Mr Sheiles wrote to Mr Rodrigues asking for the names of electrical contractors in the district who could perform the installation work required. From a file note dated 2 April 1984 it appears that Mr Rodrigues carried out some inquiries and reported to Mr Sheiles; and, on 4 April 1984, he wrote to Mr Sheiles enclosing the names of contractors in Dubbo and attaching draft letters to be "released", one of which dealt with the power factor correction at the Wheeler's Lane premises. Macquarie's application to the County Council to change to the maximum demand tariff was made on 16 May 1984. On 19 June 1984 Mr Rodriques wrote to Macquarie, observing that it was important that the appellant should maintain its analysis "in view of the changes being undertaken by your company in line with the planned expansion", and asking for copies of electricity accounts from January 1984. On 23 July Mr Rodrigues and Mr Ramm, who had by then succeeded Mr Wright as company secretary, had a conversation on the telephone in which Mr Rodriques learned that Macquarie had by then transferred to the maximum demand category and had a full time electrical engineer on staff - that was Mr O'Brien, to whom Mr Rodrigues spoke later that day. Mr Rodrigues' note of these conversations indicates that the appellant had not received any electricity bills since January 1984 and had not been aware of the exact date when the maximum demand rate was applied until Mr O'Brien indicated that it had happened some time before. It is not without importance that it seems that Mr O'Brien had not been aware that the appellant was acting as Macquarie's energy consultant. On 26 July the appellant wrote to Macquarie asking, as a matter of urgency, for electricity (and LPG) accounts for the Wheeler's Lane premises from January 1984 "so that our records can be brought up to date and analysis re-established in respect of the LPG." The accounts in fact had already been sent under cover of a letter dated 24 July. UWRIB INTERNATIONAL PTY LTD v MACQUARIE PUBLICATIONS PTY LTD (Samuels JAB On 29 August 1984 the appellant wrote to Macquarie reciting the history of the matter and the advice they had given, and the action they had initiated, and asked for payment. It appears from a file note of 24 September 1984 that at that stage some question had arisen between the appellant and Macquarie as to whether the appellant's efforts had in fact been responsible for the savings in electricity charges which had been obtained. In December 1984 Macquarie suspended further payments to the appellant and ceased to forward accounts, arranging, as the learned judge pointed out, with the County Council that future accounts should be addressed to EECE. I quote a passage from the judgment: "The difference between the amount which would have been payable by [Macquarie] to the County Council under the old tariff and the amount actually paid by [EECE] to the Council for the supply of electricity was paid to [Macquarie] by way of administration charges. By this method of evasion it was hoped that [Macquarie] could show that it did not enjoy any savings." This ploy was the foundation of the appellant's claim against EECE for inducing a breach of contract. Before the contract was made with the appellant, there had been what the learned judge described as "repeated discussions" between Mr McLellan and Mr Cowan, the electrical engineer of the County Council, concerning the possibility of converting to maximum demand tariff. There is in evidence a letter dated 2 February 1981 written by Mr Pavey, the County Clerk, which sets out in detail investigations which the County Council had made into the possibility of applying its demand tariff to Macquarie's operations at Wheeler's Lane. The conclusion appears to have been that an improved load factor would, under the demand tariff, achieve savings in average cost. Mr Cowan gave evidence and, in introducing the tender of that letter, he said that during 1981 he went to Macquarie's premises for the purpose of "advising them on an installation of a large machine and part of a side issue of that was what tariff would be best applicable." He was then asked this question: Q. "From that date onwards did you have any further contact with Macquarie Publications? A. It was an ongoing contact." He added that whenever any major change in installation took place at Macquarie's premises a demand test was carried out. There was further evidence, to which the learned judge referred, that in January 1983 Mr McLellan raised the question with Mr Cowan whether on the installation of a large Harris press a transfer to demand tariff would be worthwhile. Mr Cowan's reply was that Mr McLellan's request for this information was premature "and after commissioning it should be re-evaluated because it would still depend under our tariff structure on the duty cycle, the load cycle of the entire plant." Most critically, as will appear, Mr Cowan expressed the view that the pulsometer test which was commenced in October 1983 and continued in November was not stimulated by the letter of 8 September 1983, to which I have referred and which was drafted by the appellant. That letter, Mr Cowan said, "was erroneous in what it was implying, the implication for maximum demand tariff was already under way, we were waiting on commissioning." He repeated this view with some further embellishments in re-examination. However, as the learned judge observed, the Council's reply to that letter of 14 September might be thought to be inconsistent with Mr Cowan's evidence because the letter said, amongst other things, "Investigations are proceeding in respect of your request for the application of 6 UNREPORTED JUDGMENTS the Demand tariff." However, the learned judge did not regard it in that light and accepted Mr Cowan and, I should add, Mr McLellan, as witnesses of truth. The appellant's argument was, in short, that the report of 29 August was a recommendation upon which Macquarie acted and was a cause of the application for change of tariff in May 1984, and of the savings in cost which ensued. The learned judge rejected both these submissions. Before examining these contentions in greater detail I should add that Rogers J found, and the finding is not disputed, that Mr Rodrigues never did anything that could be regarded as the making of "a detailed analysis of all factors in our costs" and, indeed, never intended to do so. Mr Staff QC, for the appellant, submitted that the rate analysis report of 29 August 1983 was the recommendation upon which the appellant's case depended. It satisfied the meaning of "recommendation" upon the true construction of the contract and also, it was put, because, by reason of the correspondence to which I have already referred and of two memoranda internal to Macquarie, the report "must be regarded as having been affirmed" as a recommendation. The memoranda, which were not mentioned in the judgment, were in the following terms. The first of them, dated 16 October 1984, and written by Mr Burton, Macquarie's accounts clerk, to Mr Armati, reported that Mr O'Brien was of the view that Macquarie's changeover to the maximum demand tariff occurred as a result of "application to MCC as advised by NUS." It continued: "Doug [that is, Mr O'Brien] would have advised us to do the same. However he was not employed until after the application had been made." In the second memorandum, also written in October 1984, Mr Ramm expressed the opinion to Mr Armati that the appellants should be paid their fee, thus implying that the reduction in electricity charges was the result of the appellant's efforts. However, the use which might be made of this material, and of the correspondence, in support of the appellant's construction of the contract was never adumbrated, save to the extent of the unadorned assertion which I have quoted. It was not suggested (and no authority was invoked) that the letters and memoranda constituted material which might be taken into account in resolving any ambiguity in the contract, such as the meaning of "recommendation": see generally, for a recent discussion of the admissibility of post-contract conduct in aid of construction, Hide and Skin Tradina Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310. I am far from making any criticism of counsel for not raising the point. I merely make it clear that it was not advanced, and that this evidence can be confined to the question of the causative effect of the report, to which I will come presently. The argument on construction was that the rate analysiS report contained two recommendations. The first was that a pulsometer test should be carried out to determine what the "real load and hours of use were'', and the second was that, if the results showed conditions favouring a change of tariff, then that change of tariff should be sought. I think that this submission depends upon a view of the contract which I cannot accept. The contract authorises (but it is not in contest that the word is used in a promissory sense) the appellant to submit recommendations "for all possible savings and refunds" on Macquarie's energy costs. That sets out the fundamental obligation which the appellant undertook. In order to enable it to make recommendations the appellant was to make a detailed analysis "of all factors in our costs", thus enabling it to advise "where refunds and reductions can be obtained." There was then provision that the "initial examination" should cover UWRIB INTERNATIONAL PTY LTD v MACQUARIE PUBLICATIONS PTY LTD (Samuels JAY the past twelve months' bills, and that continuing analysis would cover current bills which Macquarie was to send to the appellant every month. Clearly, it seems to me, the detailed analysis which the contract contemplated was not to be confined to a documentary examination of Macquarie's energy bills, whether for the past twelve months or for a period preceding them. A detailed analysis "of all factors" must have been intended to include some investigation of Macquarie's business and the way in which it was conducted, the type of plant it used, the hours during which the machinery operated, and other matters of that kind. Mr Jutsen, a highly qualified energy consultant, deposed without objection that examination of a client's energy costs would have entailed such investigations. The appellant was therefore to make a detailed analysis, which it never did, and (with one exception) never attempted to do, and having done that, was to make recommendations by which savings could be achieved. I do not mean by that that no recommendation could have been made within the contract until a detailed analysis had been completed. As the learned judge indicated, it might have been that what was described as the "initial examination" would itself have revealed areas in which savings could be achieved, and the availability of refunds. I do not think that there is any necessary dichotomy, as it were, between the detailed analysis and the initial examination. The scope of the initial examination was merely designed to set a limit to the extent to which the appellant was required to go back through Macquarie's records. The words "where applicable you will review old bills as far back as possible" assume a case where the detailed analysis suggested that such an investigation would be fruitful. So the detailed analysis, I think, was to start as soon as the appellant undertook the obligations of the contract; but, in the first instance, the appellant was not required to examine bills going back earlier than the preceding twelve months. The recommendations of which the contract spoke were intended to suggest courses of conduct which the appellant reasonably believed would produce savings in energy costs, or refunds of charges already paid. The second sentence of CL3 contemplates that action by Macquarie would, understandably enough, be required to effect a recommendation. Otherwise it is in rather curious terms. There could scarcely be any doubt but that Macquarie would be taken to have accepted any recommendation upon which it acted. The words "if implemented" seem an unnecessary addition to "acted upon"; but mean perhaps successfully acted upon, since a recommendation might always have failed to achieve its objective. Reduced to basis terms what the appellant did was this. It advised that a pulsometer test should be performed (and not by itself but by the County Council - it appears that Mr Jutsen's practice was to carry out such tests himself) as a means of ascertaining whether the maximum demand tariff would produce savings in energy costs. Macquarie accepted the appellant's advice and requested the test, which was performed, and which, as the County Council itself pointed out, indicated "that a saving of approximately fifteen per cent could be realised by transferring from Council's Commercial/Industrial tariff to the demand-energy tariff." In due course, that intimation was adopted by Macquarie. Hence, it could not unreasonably be said that all that the appellant did was to suggest a method of ascertaining whether a saving might be available, and that it was the County Council itself which provided the affirmative answer. In my view, the rate analysis report was not a recommendation contemplated by the contract. It was the first step (and, as it turned out, the only step) in the detailed analysis which 8 UNREPORTED JUDGMENTS the appellant was to undertake. It did not itself involve any question of detail, but it represented an important preliminary examination of the factors which influenced Macquarie's energy costs. Mr Rodrigues' evidence does not go to the construction of the contract, but it tends to indicate what he thought he was doing. Referring to the rate analysis report, he said: "My recommendation was to conduct further maximum demand tests" and added that he was not asking them "to change tariffs from one to the other at that point in time." Indeed, a little later, he said: "I was only testing the wind by making a recommendation to test the demand levels." The document he sent itself contemplates further advice. The last sentence says: "......... We would appreciate being kept informed of developments so that we can provide you with the required assistance in ensuring that the best possible rate is applied to your supply situation." I read that as indicating that it was contemplated that once the results of the pulsometer tests were known the appellant would be in a position to recommend what steps should be taken to exploit a favourable finding. In the event the County Council Itself provided that advice, leaving no room for any recommendation from the appellant. In my opinion, the rate analysis report upon which the appellant relies was not a recommendation within the contract. In any case, the learned judge found that the change to maximum demand tariff and the resultant savings were not brought about by the appellant's efforts. If, of course, the rate analysis report was not a recommendation, which is the view I take, it is unnecessary to consider whether it had any causative effect. But since the point was argued, I will express my opinion upon it. The learned judge's conclusion depends upon the evidence, which I have already summarised, of contacts between Mr McLennan of Macquarie and Mr Cowan of the County Council, both before and after the appellant arrived on the scene. The learned judge accepted both of them as witnesses of truth, and thus accepted their account of what had taken place between them and what had been done as a result. It is true, and the learned judge acknowledged, that there is documentary evidence to indicate that Macquarie implemented the appellant's suggestions and, in particular, sent on to the County Council the various letters drafted by Mr Rodrigues. Even more to the point, Macquarie paid a number of the appellant's accounts, and there is evidence of dubious materiality that Mr O'Brien, for example, thought that the change to the maximum demand tariff had been a result of the appellant's suggestion. I have quoted the internal memoranda upon which some reliance was placed. But Mr O'Brien was not to know of the conversations which had taken place, before his arrival at Macauarie, between Mr McLennan and Mr Cowan. Mr McLennan specifically said that he had not been consulted by Mr Ramm, when the latter was company secretary during 1984 and 1985, about whether accounts forwarden by the appellant should be paid; and, presumably, his Honour's finding about credit covers this evidence as well. Mr Rayment QC for the respondents submitted that the learned judge's findings about causality constituted findings of fact which were not reviewable, being matter of credit overed by well known authorities to which I need not refer. In my view, that submission is correct. I do not think that it is open to this Court to reject Rogers J's conclusion upon this aspect of the matter; I do not consider that there is any contrary evidence of the degree of clarity and persuasion necessary to impugn his findings. That leaves the question of the LPG. The learned judge found that the appellant was entitled to some payment in this respect and the arbitrator determined the amount. Macquarie's answer to this claim was to argue that the UWRIB INTERNATIONAL PTY LTD v MACQUARIE PUBLICATIONS PTY LTD (Handley JAD appellant, by failing to undertake a detailed analysis within a reasonable time, say, by January or February 1984, had repudiated the contract. This was the defence run at the trial and came to grief upon his Honour's finding that the repudiation had not been accepted, since Macquarie had maintained an equivocal posture in this respect throughout. Appreciating that that finding was as intractable as the finding about Messrs Cowan and McLennan's credit, Mr Rayment sought to extricate himself by seeking to amend to advance a defence based upon Foran and Anor v Wight and Anor (1989) 168 CLR 385. But the Court refused the application to amend on the ground that had the point been raised at the trial, there might well have been evidentiary consequences; so that on that account and because of the considerations of fairness referred to in Coulton v Holcombe (1986-87) 162 CLR 1, it should not now be entertained. The cross appeal and notice of contention sought to take the same point and meet the same fate. In my view, the appeal and cross appeal should each be dismissed with costs. Priestley JA I agree with Samuels JA. Handley JA I agree with Samuels JA. The appeal and cross-appeal are each dismissed with costs. Counsel for the Appellant: DA STAFF QC/P HALLEN Counsel for the Respondent: BW RAYMENT QC/D CONTI Solicitors for the Appellant: ALLEN ALLEN and HAMSLEY Solicitors for the Respondent: BOOTH BROWN SAMUELS and OLNEY