THIESS CONTRACTORS PTY LTD and ANOR (T/AS THIESS THYSSEN NORTH SHORE TUNNELS JOINT VENTURE v PETER GROGAN (T/AS P GROGAN AND CO) SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY P, PRIESTLEY and SHELLER JJA 11 December 1995, 24 July 1996 [1996] NSWCA 526 Building Contract — Sub-contract "terminated" by head contractor — Whether breaches of sub-contract warranted termination of sub-contract: Termination of sub-contract not justified — Calculation of damages for termination APPEAL from Common Law Division, Construction List — Building Contract — Sub-Contract — Sub-contract "terminated" by Head Contractor — Whether breaches of sub-contract warranted termination of sub-contract — Whether termination to be construed as merely exercising contractual power to remove sub-contractor from site — Held: Termination of sub-contract not justified. Calculation of damages for termination of sub-contract — Profits earned by sub-contractor after removal from site — Whether assumptions may be made by arbitrator or judge in relation to profit content of work done. ORDER Appeal dismissed with costs. Mahoney P This appeal gives rise to questions of law and questions of fact of some difficulty and complication. The proceedings between the parties have had a long history; they have been before four judges and a referee. Mr Hutley, for the appellants, has sought to reduce the statement of the appeal to its essentials. However, as experience has shown, the issues for determination and the conclusions arrived at by the Court are liable to misunderstanding. That could occur, a fortiori, in this proceeding. Accordingly, at the risk of further burdening the proceedings with a detailed judgment it is, I think, prudent to record at least the essentials of what has taken place, the issues raised for argument, and the conclusions which I have reached. The chronology tendered by Mr Hutley records the following: 27 April 1989 The appellants ("Thiess") entered into a sub-contract with the respondent ("Grogan") for mucking-out work for the Sydney Harbour Tunnel project. 1 August 1989 Thiess purported to terminate the sub-contract. 5 February 1992 Grogan commenced proceedings in the Construction List of the Court against the appellants claiming damages for wrongful repudiation. 10 April 1992 Giles J referred issues of liability to a referee Mr McDougall for inquiry and report: Pt72. 2 UNREPORTED JUDGMENTS 20 August 1992 Referee reports to the Court. 22 September 1992 Giles J remits two matters for reconsideration by the referee. 16 November Referee submits supplementary report. 4 December Cole J adopts referee's reports. 14 December Cole J refers quantum to referee for inquiry and 1992 report: Pt72. 6 December Referee reports on quantum of damages. 31 August 1994 O'Keefe CJ of Comm D adopts referee's report except for two issues remitted for reconsideration. 10 November 1994 Referee submits supplementary report. 10 April 1995 Hunter J indicates he will accept the report and direct short minutes of orders. 19 April 1995 Hunter J refuses leave to re-open. 20 April 1995 Hunter J gives judgment for Grogan in the amount of $825,295.30 and orders appellants to pay respondent's costs. 17 May 1995 Appellants file notice of file to Court of Appeal. In order to understand what took place it would, of course, be necessary to examine in detail the reports of the referee and the judgments of the judges by whom they were considered. However, I shall assume that what has been said in relation to them in argument may be taken as a sufficiently substantial summary of them and I shall not record the details of them in this judgment. I shall refer to them only as far as is necessary to deal with the arguments submitted. In order to understand the arguments submitted by Mr Hutley for Thiess, it is necessary to refer to the terms of the sub-contract. So far as is here relevant, it provided: "1. The Subcontractor shall entirely at its own expense and assuming all risks in any way connected therewith perform the work set out in Schedule A below such work being part of the contract (hereinafter called the "Head Contract"...) to be performed by the Contractor and shall supply all labour, equipment and materials required therefor. 2. The Subcontractor shall perform such work to the complete satisfaction of the Contractor and the Principal's Engineer or Architect in accordance with all the terms, provisions, conditions, plans and specifications of the Head Contract so far as they may be applicable thereto and also in accordance with the general conditions of acceptance of this Subcontract as shown overleaf and any other special conditions as may be annexed hereto. The work was described as: "Transportation of excavated muck within tunnel and loading to barge in accordance with special conditions." The document provided for a commencement date of 24 May 1989 and a completion day of July 1990 (approx). Payment under the sub-contract was to be by instalments and there was no retention provision. The special conditions of the contract included: URUESS CONTRACTORS PTY LTD and ANOR (T/AS THIESS THYSSEN NORTH SHORE TUNNELS JOINT VENTURE v PETER GROGAN (T/AS P GROGAN AND CO) (Mahoney P) "1. Excavated material from tunnelling operations will be taken from the tunnels and stockpiles and loaded, hauled and filled into barges provided by others. 2. Barges of 750 cu m bulked capacity are to be loaded within a maximum of 3 hours between 7.00 am and 11.30 am. 3. The following equipment is to be supplied at the rates shown..." The referee found that one of the allegations of breach made by Thiess, viz, a breach of special condition 2, had been established: he found that the sub-contractor "took 5.5 hours between the hours of 7.00 am and 12.30 pm on Saturday, 22 July 1989, to load a barge..."; and that on 15 July 1989 the loading took 7.5 hours. Cole J accepted the finding of the referee and these are the only two alleged breaches which are now in question. Cole J held that these breaches did not constitute repudiation of the contract at common law by Grogan. That finding is not challenged in this appeal. As the chronology indicates, Thiess purported to terminate the sub-contract on 1 August 1989. The terms of that purported termination are not before the Court: the Court has merely the statement to that effect in the documentation. It is accepted that Thiess did not purport in terms to rely upon such powers as were given to it under special condition 8 of the sub-contract in doing what it did. But, as the result of the action of Thiess, Grogan was excluded from further work upon the project. In this context, Thiess has, by its written submissions, posed for consideration in relation to liability three issues: (a) whether the breach found by the Court was a "default on the part of the Sub-Contractor in observing, performing or fulfilling any of the terms or conditions of this sub-contract..." within the meaning of cl8; (b) whether the termination of the sub-contract by the appellants was the exercise of a power "to determine the employment of the sub-contractor" within the meaning of CL8(a); and (c) whether there was an implied obligation requiring the CL8 power to be exercised reasonably. In addition to the issues in relation to liability, Thiess has raised issues in relation to the calculation of damages. It will be convenient to come to these in due course. 1. LIABILITY: (a) Mr Hutley for Thiess submitted that what Grogan had done in relation to the matters found against it constituted a "default" within general condition 8: he referred to Woolworths Ltd v Crotty (1942) 66 CLR 603 at 620, 621. In that case, the Court saw "default" as meaning "not doing something that you ought to do, having regard to the relations which you occupy towards the other persons interested in the transaction". The circumstances in which the alleged defaults occurred have not been canvassed before this Court. It is possible to envisage circumstances in which a mere failure to comply with the terms of the special conditions in this regard would not be a "default": the default may have occurred as the result of the obstruction of the other party to the contract. But nothing of that kind has been argued: at least, the relevant material is not before this Court in such a form as, in my opinion, to enable any view to be expressed in that regard. I shall therefore accept that what Grogan failed to do constituted a default for this purpose. 4 UNREPORTED JUDGMENTS (b) The real difficulty lies in deciding what Thiess did and whether what Grogan did empowered Thiess to "terminate" the contract. In my opinion, it did not. It is now not unusual to find in contracts, particularly contracts envisaging an ongoing relationship between the parties, two kinds of remedies for breach or default: remedies which authorise the innocent party to bring the contract to an end; and remedies which, whilst assuming the contract to remain on foot, authorise the innocent party to take such steps as are provided for in the contract, eg, to continue the work contracted to be done and to recover damages. Provisions of this kind may be found in some forms of contracts for the sale of land; hire purchase and similar contracts; and building contracts. See, for example, Balog v Crestani (1975) 132 CLR 289; Amga Pty Ltd v Michie (No 2) (1978) 1 BPR 9566. Stated in summary terms, the difference between clauses of these two kinds is that in the one, the innocent party may bring the obligations of both parties under the contract to an end and, special cases apart, has as its remedy the right to sue for damages for breach. In the other class of case, the power which the innocent party exercises does not bring the contract to an end but brings into force the rights given to it under the contract itself. The contract is not brought to an end but remains in force and the innocent party is not entitled to sue for common law damages for termination or repudiation for such a breach. At least, it is not, by virtue of its election to act under the contract, entitled so to do: see generally the distinctions discussed by Gibbs J in Balog v Crestani at 296-300. Whether a contractual provision is of the one or the other kind depends, of course, upon its construction in the context of the contract as a whole and its surrounds. There is, I think, no single criterion which, in every case, will determine whether the clause is the one or the other. In my opinion the provisions of special condition 8 indicate that it was not the purpose or effect of the contract to authorise the contractor, Thiess, to terminate the contract for the reasons set forth in special condition 8. Read literally, the special condition does not authorise termination of the contract: it authorises the contractor only "to determine the employment of the Sub-contractor... and complete the Subcontract work at the expense of the Sub-contractor". For this purpose moneys and tools otherwise the property of the sub-contractor might be used; the right to use such depends on the contract and accordingly suggests that the contract is to remain on foot. The right to exercise the power does not arise only upon a substantial breach of the sub-contract or a breach of sufficient seriousness to constitute, under the general law, a basis for termination of the contract for breach: cf Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537. The contractual right arises "in the event of any default...", whether that default be serious or not serious. It is unlikely that the craftsman intended a right of termination at law should arise because of, as in the present case, a comparatively minor "default". Mr Hutley, in his submissions, referred the Court to Re Stewardson Stubbs and Collett Pty Ltd (1965) NSWR 167 1 at 1680-1; Hooker Construction Pty Ltd v Chris's Engineering Contracting Co Pty Ltd (1970) ALR 821; LV Simon Builders Pty Ltd v HD Fowles (1992) 2 VR 189 at 193; and Mancorp Pty Ltd v Baulderstone Pty Ltd (Debelle J, South Australian Supreme Court, 5 June 1992, unreported). It was submitted that although what was done by Thiess was to "terminate" the contract, its action could and should be seen merely as an exercise of the power given to it by general condition 8. This submission should not, in my opinion, be URVJESS CONTRACTORS PTY LTD and ANOR (T/AS THIESS THYSSEN NORTH SHORB TUNNELS JOINT VENTURE v PETER GROGAN (T/AS P GROGAN AND CO) (Mahoney P) accepted. Two things may be said. First, the only evidence before this Court is that the sub-contract was purported to be "terminated". In the instant context, the primary meaning of that term is the bringing of the contract to an end. There is no context to suggest that the term was used in a different way. As I have indicated, the Court has no evidence as to the manner in which Thiess did what it did. It does not, for example, appear whether there may have been, in what Thiess did, acts or statements which would be inconsistent with the exercise of the contractual power. Accordingly I do not think that the Court should infer that the contractual power was exercised. Second, Thiess suggested that it might rely on other breaches of the sub-contract. It is well settled that if a breach has occurred which will justify action in relation to a contract, eg, its termination, or if the innocent party believes that such has occurred, and he terminates the contract, he may subsequently rely upon breaches, then unknown to him, which would have justified the termination of the contract: see Commonwealth Homes and Investment Co Ltd v MacKellar (1939) 63 CLR 351 at 378, applying the general principle to which his Honour had referred in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 377-8. In Minion v Graystone Pty Ltd (1991) 1 QR 157 this principle was applied to the exercise of a contractual power analogous to the present. present case. An unknown ground for the exercise of a power may be called in aid to justify the exercise of that power. It does not follow that a ground, known or unknown, can be relied upon to justify a subsequent claim that a power not purported to be exercised was in fact exercised. The results of the two alternative powers in the present case - the contractual power and the common law power to terminate - were significantly different. It does not appear whether faced with the duty to account which the contractual power involved ("at the expense of the Subcontractor") Thiess would have acted to exercise the contractual power. But, however that be, I do not accept that what was done should be taken retrospectively to be an exercise of the contractual power. (c) In the proceedings below, it was held in favour of Grogan that, if what Thiess did was to exercise the contractual power, it was required to act after, as it has been put, reasonable consideration or the like. It was submitted that Thiess had acted peremptorily and not in accordance with such a requirement. Reliance was placed on Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. The implications of that decision, and in particular of some of the observations of Priestley JA, may be far-reaching. I do not desire to dissent from what his Honour there said. However, I do not think that this is the appropriate case for the Court to consider what was there decided and the extent of the principles there laid down. As I have concluded that Thiess did not, in the present case, exercise the contractual power, it is not necessary for me to consider the submissions of Mr Hutley in this regard. 2. DAMAGES PAYABLE TO GROGAN: As I have indicated, Hunter J gave judgment for Grogan for $825,295.30. Thiess submits that certain errors occurred in the calculation of those damages. The remaining submissions are directed to those alleged errors. The context of these submissions is as follows. It was, for present purposes, accepted that, if the submissions to which I have referred failed, damages were to be assessed upon the basis that Thiess had wrongly repudiated the contract and that that repudiation had been accepted by Grogan, thus bringing the contract to an end. 6 UNREPORTED JUDGMENTS The basis for this part of Grogan's case was: that had the contract not been wrongly repudiated by Thiess, Grogan would have performed it and made profits accordingly; it lost those profits; and its damages should be calculated accordingly. Thiess's submission is that, because of its wrongful repudiation, Grogan was released from performance of the sub-contract and was able to and did earn other profits; and that those other profits should be deducted from the damages which would otherwise be awarded to it. They were profits which, tad it continued with the sub-contract, it would not have made. To this point there is, I think, little difference between the parties. It is in the calculation of the (as I shall describe it) deduction that difference occurs. It is now agreed that the plaintiff, Grogan, earned $302,514 from contracting activities after termination of the contract by Thiess. This amount was earned during the period November 1989-February 1991. That finding is not disputed by the appellant. But it would not be correct merely to deduct $302,514 from the damages to which Grogan was entitled by reason of its loss of the tunnel contract. It is agreed that certain costs are to be deducted from the income so earned. It has been accepted that the costs incurred by Grogan during the period during which $302,514 income would have been earned may be divided into two classes: fixed costs and other costs. The fixed costs are not in question. The other costs were seen as costs which would not have been incurred if the tunnel contract had not been terminated and Grogan had not been required to undertake the alternative income earning activities. It is the calculation of these non-fixed costs (they were referred to by terms such as "variable" and "differential") which has caused the present difficulty. Stated generally and therefore perhaps somewhat inaccurately, the referee arrived at these differential costs as follows. He calculated what were the differential costs incurred in relation to the tunnel contract. He found these to be 38.24% of the gross income to be derived from the tunnel contract. He examined the work done by Grogan following the termination of the tunnel contract. He concluded that that work was sufficiently analogous to the tunnel contract for him to adopt the same percentage. 38.24% of gross income, for the purpose of calculating the differential costs in relation to that income. Thiess contends that the adoption of that method of calculation of the differential costs was wrong. Its contention was, in the main, that it was wrong to use this method because there were such differences between the tunnel contract and the alternative work that it could not be assumed that the differential costs in the one provided a measure of the differential costs in the other. In putting the matter this way, I do not state all of the detail of the argument of Mr Hutley but essentially this is, I think, his main contention. The referee was conscious of the need to be satisfied that the two sources of income were similar to the extent that it was proper to infer that if the differential costs in the one were of the order of 38.24% of gross income, the differential costs in the other could be so measured. He was, I think, satisfied that the two were sufficiently similar by reason of his own experience and expertise. That may well have been a sufficient basis upon which to apply the 38.24% basis in the instant case. But, as I understand the thrust of his report, he went further. In order to test whether the two were sufficiently similar, the referee, as Mr Hutley put it, looked at a sample of the work actually done by Grogan after the termination of the tunnel contract and compared it with work done or apt to be done in the tunnel contract. The assumption was, I infer, that if in that regard the two were URVJESS CONTRACTORS PTY LTD and ANOR (T/AS THIESS THYSSEN NORTH SHORE TUNNELS JOINT VENTURE v PETER GROGAN (T/AS P GROGAN AND CO) (Mahoney P) sufficiently similar, that would confirm his view that they could be taken to be sufficiently similar generally. To do this, he examined the work done by one of the excavators used by Grogan, a Komatsu PC300 excavator. In his supplementary report the referee made mathematical calculations which he concluded supported the view that this measure could properly be adopted. When the referee's report came before Hunter J for consideration and adoption, it was contended for Thiess that the referee's conclusions were erroneous in principle and in detail. The referee's mathematical workings were not available, except insofar as they were embodied in his report. But the judge made calculations of his own in relation to the excavator which were directed to determining whether what the referee had done was correct. He considered the revenue and costs associated with the use of the Komatsu PC300 excavator during the period after termination of the tunnel contract. He took an income rate for the machine and a cost rate. The cost rate was, as counsel suggested, some 28.4% of the relevant income. His Honour then made adjustments to the cost rate and from the result obtained arrived at the conclusion that the referee's adoption of 38.24% of income was appropriate. On this basis he decided to adopt the report. Objection was taken to the basis on which his Honour made his detailed calculations. But an objection of that kind mistakes the nature of the judge's role in deciding whether to adopt a referee's report. It is, in my opinion, sufficient for this Court to conclude that the attacks made for the appellant do not warrant the conclusion that it was not open or proper for the judge to adopt the referee's basis of calculation. The essential question before Hunter J was whether, given all of the calculations that had been made by the referee, he should adopt the referee's report, in whole or with qualifications. The basis on which a judge acts in making a determination of this kind is not in issue: see Pt72 r13. The principles were discussed in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. In that case the Chief Justice, in a judgment with which Clarke JA and I agreed, determined the effect to be given to that part of the law in this State. The Chief Justice: at 562 et seq; set forth the principles applicable where a judge comes to consider whether the report of a referee is to be adopted. As his Honour there said, the judge has a discretion given in the terms of Pt72 r13: "\.. it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised: cf Nicholls v Stamer [1980] VR 479 at 495 per Brooking J. The nature of the complaints made about the report, the type of litigation involved, and the length and complexity of the proceedings before the referee, may all be relevant considerations. The purpose of Pt72 is to provide, where the interests of justice so dictate, a form of partial resolution of disputes alternative to orthodox litigation, and it would frustrate that purpose to allow the reference to be treated as some kind of warm-up for the real contest. On the other hand, if the referee's report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it: cf Jordan v McKenzie (1987) 26 CPC (2d) 193. So also would perversity or manifest unreasonableness in fact-finding. As to the last-mentioned matters, I refer again to the history of the tules and to Buckley. On the particular question, relevant to the present case, of the approach to be taken to disputed findings of fact, where there is shown to be evidence available to support such findings, or the issue involves a choice as between conflicting 8 UNREPORTED JUDGMENTS evidence, I agree with the views of Giles J as expressed in the extracts from his reasons for judgment quoted earlier. I also agree with what was said by Cole J in Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd. In that case Cole J made extensive reference to, and relied upon, what was said by Marks J in integer Computing Pty Ltd v Facom Australia Ltd (Marks J, Supreme Court of Victoria, 10 April 1987, unreported). Those two last-mentioned judgments are of particular relevance to reports involving technical (non-legal) expertise." In a case such as this, the judge may, and ordinarily will, adopt a more general approach to the referee's report. In my opinion, it was not necessary for the judge to scrutinise and then check the precise detail of the reasoning - or, at least, the calculations - of the referee. Upon this basis, it was open to Hunter J to adopt the referee's report and to conclude that the 38.24% measure was correct to a sufficient degree of approximation to warrant its use. Moreover, it is to be borne in mind that the question which was to be determined in pursuing the testing of the referee's decision to adopt that measure was one which did not, on the evidence before the referee and the judge, admit of conclusions of precise accuracy; estimates or judgments and general measures of approximation were required to be made and adopted; in my opinion, it was proper to approach the matter upon that basis. I do not think that, for example, it was necessary for the judge, in a case such as the present, to undertake for himself the calculations which he saw fit to make. But however that be, I see no sufficient disparity between the reasoning and the results of the referee and the conclusions at which the judge arrived, based on his own calculations. In making his calculations, by reference to the revenue and costs of the Komatsu PC300 excavator, the judge had regard inter alia to, as they have been described, maintenance costs and labour costs. The maintenance costs calculation did not, I think, on whatever view, indicate significant error by the referee or the judge. It was to the labour costs that attention was mainly directed in the argument. The judge, in considering the cost of operating the plant, was of the view that the operating costs should be increased by $20 per hour. His Honour indicated, in general, why he was of this view. It was contended that his Honour was in error in adding this amount. It was, it was suggested, added as the cost of a "second" operator. It was suggested that, if a further operator was required, he was required for part of the time only and that the addition of $20 per hour was accordingly not, or not fully, justified. (The matter was referred to variously in the reasons which the learned judge gave on 12 and 19 April 1995). In considering the correctness and the significance of what the judge did, it is as I have indicated, to be borne in mind what the referee and the judge were doing The referee had tested his overall conclusion that the tunnelling contract and the alternative works were sufficiently comparable to warrant his adopting the percentage measure to which I have referred. In order to test the validity of that the referee took, as it has been said, a "sample". The decision to test such a matter by taking a sample made it necessary for the referee to make assumptions and calculations which could, at best, have only an approximate degree of accuracy. For example, the referee had to assume that the result obtained from the sample would be true for the whole of the contract. When the judge came to examine what the referee had done, he did not have the detailed mathematical calculations which the referee had made and accordingly he tested the conclusions that had been arrived at by the referee in this regard by making assumptions and calculations of his own. It could not be suggested that for the testing adopted by the judge it was necessary that the mathematical results that he obtained be URVJESS CONTRACTORS PTY LTD and ANOR (T/AS THIESS THYSSEN NORTH SHORE TUNNELS JOINT VENTURE v PETER GROGAN (T/AS P GROGAN AND CO) (Sheller JA) precisely those achieved by the referee and recorded in his report. If, in his own calculations, he arrived at a result which was, within the acceptable limits, the same as that arrived at by the referee, he was, in my opinion, justified in thinking that the test he had made was sufficient to confirm his adoption of the view that the two contracts were sufficiently similar to be comparable. I see in this no error of principle. The referee, in the exercise of his own expertise, thought it an appropriate method of testing the matter and of arriving at the percentage which he was to adopt. I am not satisfied that it has been shown that the referee was wrong or, equally important, that the judge was wrong in adopting the referee's report. This ground of appeal should fail. For these reasons, I am opinion that the appeal should be dismissed with costs. Priestley JA For the reasons given by Mahoney P and Sheller JA I agree that the appellant did not terminate the subcontract as it claimed. This conclusion is sufficient to support the result reached below, that the appellant had repudiated the contract and on that ground the respondent had brought it to an end, entitling it to damages. This result makes it unnecessary to consider the other grounds on which the respondent supported the judgment in its favour. I agree also with the reasons given by Mahoney P for refusing to uphold the appeal on damages. In my opinion the appeal should be dismissed with costs. Sheller JA I have had the benefit of reading the judgment of Mahoney P. Pivotal to the appellant's argument on liability was the meaning of general condition 8 of the sub-contract which was in the following terms: "In the event of any default on the part of the Subcontractor in observing, performing or fulfilling any of the terms or conditions of this Subcontract or in the event of the Subcontractor being unable or unwilling to meet its debts as and when they fall due the Contractor shall have the right at its discretion: (a) to determine the employment of the Subcontractor and to employ and pay other persons to carry out and complete the Subcontract work at the expense of the Subcontractor; (b) to appropriate and use any retention monies and/or any monies owing to the Subcontractor for the purpose of paying any wages owing to the Subcontractor's employees and any other debts owing by the Subcontractor in respect of this agreement; (c) to use all tools of the Subcontractor to carry on or complete the Subcontract work." The appellant submitted that this condition enabled it to terminate the subcontract on | August 1989. A right to determine the employment of the subcontractor was read as a right to terminate the subcontract. The appellant referred to cases to support this contention. In Re Stewardson Stubbs and Collett Pty Ltd (1965) NSWR 1671 Moffitt J at 1680-1 treated the right of a proprietor to determine the employment of the builder under a building contract as a right to terminate the contract. Similarly in Hooker Constructions Pty Ltd v Chris s Engineering Contracting Co (1970) Argus LR 821 at 822, Blackburn J proceeded on the basis that a builder's right by notice in writing to determine the employment of a subcontractor was a right to terminate the subcontract. More recently, so too did Smith J in LV Simon Builders Pty Ltd v HD Fowles (1992) 2 VR 189 at 193. 10 UNREPORTED JUDGMENTS Termination of a contract for breach or repudiation excuses the innocent party or, in some cases, both parties from further performance; Heyman v Darwins Ltd [1942] AC 356 at 399; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 844 and 850. The primary obligations of the party in default give way to an obligation to pay damages. But as Lord Porter pointed out in Heyman v Darwins Ltd at 399, the contract is not rescinded and remains in existence. Contractual terms intended to deal with the consequences of breach or termination must be taken into account; see generally JW Carter, Breach of Contract, 2nd ed, at 435 and following; Greig and Davis, The Law of Contract, (1987) at 1290 and following. Whether general condition 8 enabled the appellant to terminate the contract in this sense depends upon its proper construction. Under the subcontract, the subcontractor agreed to perform certain work. In the event of default general condition 8 enabled the contractor to do one or more of several things. A power to determine the employment of the subcontractor standing alone might be read as a power to terminate the subcontract in the sense I have described. The fact that the subcontract provided itself for the consequences of the determination of the employment does not mean that the power was not one to terminate the subcontract. Moreover, if the notice purported to terminate the contract, that is to say to assert that it was at an end, it would not matter, in the circumstances of this case, that no reference was made to general condition 8 or that in fact the appellant relied upon an unexpressed and unjustified right to terminate at common law; see generally Rawson v Hobbs (1961) 107 CLR 466 at 480 and 492. However general condition 8 (a) allowed the contractor, having determined the employment of the subcontractor, to employ and pay other persons to carry out and complete the subcontract work at the expense of the subcontractor. If general condition 8 (a) enabled the contractor to terminate the contract thereby excusing itself, as the innocent party, from any further performance, it would have the effect of requiring the subcontractor to pay for the work to be completed for the benefit of the contractor and leave the subcontractor without recourse under the contract to recover the balance otherwise due to it under the contract for doing so. Such a draconian consequence could not have been intended. Only by reading general condition 8 as giving the contractor the lesser right of completing the subcontract work itself at the expense of the subcontractor without terminating me subcontract is this consequence avoided. For these reasons I agree with the President that the powers conferred upon me contractor under general condition 8 did not enable it to terminate the contract. For the reasons given by the President I also agree that the appeal against the quantification of damages fails. The appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for the appellant: NC Hutley/P Braham Solicitors for the appellant: Clayton Utz Counsel for the respondent: JC Campbell QC/RA Morling Solicitors for the respondent: Gadens Ridgeway