ATLANTIC CIVIL PTY LTD v WATER ADMINISTRATION MINISTERIAL CORPORATION SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, MAHONEY P and BEAZLEY JA 4 June 1996, 4 June 1996 [1996] NSWCA 26 CONTRACT — CONSTRUCTION — no question of general principle involved. In a dispute between a contractor and a public authority there was a dispute as to the interpretation of a clause in the contract - HELD - The interpretation of the primary judge was correct - No question of general principle involved. (After judgment on the first issue in the appeal, the case was settled). Gleeson CJ This is an appeal from a decision of Giles J in a case that was placed in the Court's Construction List back in 1991. The appellant entered into a contract with the respondent to construct a flood protection levee at Denman on the Hunter River. The contract was in part a lump sum contract and in part a schedule of rates contract. The part with which we are presently concerned involved a schedule of rates. Following the completion of the construction of the levee the appellant made a number of claims against the respondent and the claims that are relevant to the present appeal and cross-appeal fall broadly into two categories. The first category of claims relates to a contention on the part of the appellant that it was entitled to additional payment in respect of stripping operations of a kind that will be described further in these reasons for judgment. The second category of claims related to a contention on the part of the appellant that it had encountered certain latent conditions in respect of which it was entitled to additional payments under the contract. With one qualification, the appellant's contentions in respect of the second category of claims were accepted by the referee and by Giles J. The qualification can be put to one side for the moment. It forms a part of the appeal on which we have not yet heard argument. In relation to the first category of claims the appellant was successful before the referee, but the referee's report in this respect was rejected by Giles J on the ground that his Honour disagreed with the referee's interpretation of the relevant contractual provisions. The respondent has cross-appealed in relation to the appellant's success, or substantial success, on the latent conditions aspect of the case. It has been convenient before hearing any argument in relation to the latent conditions aspect of the case to hear argument from both sides in relation to the stripping claims. It is that aspect of the case with which these reasons are intended to deal. Item 1 in the contract was described as follows: "Stripping and stockpiling of topsoil, and excavation of other unsuitable materials, and their stockpiling or disposal as directed by the superintendent." A unit rate per metre was specified in relation to that item. As was explained by Jacobs P in Arcos Industries Pty Ltd v The Electricity Commission of New South Wales (1973) 2 NSWLR 186 at 193, a schedule of rates contract is used in circumstances where the parties are uncertain as to the quantities with which 2 UNREPORTED JUDGMENTS a contractor has to deal. So it was in the present case that the contract referred only to an estimated quantity which would be the subject of this item of work. The ultimate dispute between the parties turns upon the manner in which the actual quantity to which the specified unit rate was to be applied is to be calculated. The resolution of the dispute turns upon the construction of CLS2-3 of the contract which is in the following terms: "S2-3 STRIPPING (1) The entire areas to be excavated for the pipe culverts and the retaining wall or to be covered by the levee shall be stripped to a depth of 50mm or as determined by the Superintendent, to remove all unsuitable materials. The unsuitable materials shall include all debris, sand, topsoil, vegetable matter and root affected material and all other perishable and objectionable materials that may be unsuitable for use for permanent construction required under this Specification, or that might interfere with the proper bonding of the levee with the foundation, or the proper compaction of the materials in the levee, or that may be otherwise objectionable as determined by the Superintendent. (2) Where so directed by the Superintendent the Contractor shall excavate a cut-off trench to a depth unaffected by desiccation cracks as shown on the Drawings. (3) Material so stripped and excavated shall be dumped and spread in disposal areas approved by the Superintendent. Selected topsoil as described in CLS3-7 shall be temporarily stockpiled for subsequent spreading upon the faces of the levee so at to facilitate the establishment of vegetation. (4) Payment for stripping of topsoil, excavation of other unsuitable material and excavation of material for cut-off trenches including stockpiling and disposal thereof will be made at the unit rate tendered for Item 1 in the Schedule of Rates. Measurement for payment will be made in excavation only to the lines or batters shown on the Drawings or as directed by the Superintendent." More particularly the resolution of the issue turns upon the meaning of the last sentence of CLS2-3(4) read in the light of the opening sentence of CLS2-3(1) The evident purpose of these provisions is to provide a reasonable measure of certainty in the estimation of the quantities by reference to which the appellant was entitled to be paid for the stripping operation. The drawings which formed part of the contract showed what was required of the appellant, and, consistently with the first sentence of CLS2-3, showed that the area on which the levee was to be constructed was to be stripped to a depth of 50mm or, as was said in some of the drawings, a minimum of 50mm. In this respect it is significant to note that the first sentence of CLS2-3 contemplated that the Superintendent might determine that the areas were to be stripped at least in places to a greater depth than 50mm. Both the referee and Giles J took the view that something in the case also turned upon the construction of CLS3-10 which deals with a cognate issue. That clause is in the following terms: "S3-10 MEASUREMENTS AND PAYMENTS (1) Measurement for payment will be made to the lines and batters specified on the Drawings or as directed by the Superintendent, and on a basis of cross sections taken after stripping as specified in CLS2-3 and subject to SS15. The topsoil spread on the levee will not be included in this measurement. URUANTIC CIVIL PTY LTD v WATER ADMINISTRATION MINISTERIAL CORPORATION (Gleeson CJ) (2) Payment for supplying, placing and compacting Zone | material in the levee and access ramps except for the sections of the levee included for payments of items 3-6. will be made at the unit rate tendered for Item 2 in the Schedule of Rates. This unit rate shall include the cost of all operations required by this specification including supplying as applicable and spreading and placing of topsoil and pavement gravel, Borrow Area excavations, transportation of the materials to the site, and Borrow Area trimming and restoration. (3) The cost of supplying, placing and compacting Zone 2A and 2B materials, shall be included in the lump sum price tendered for Item 6 in the Schedule of Rates. (4) Payment for supply and placing Zone 3 material on the water face of the levee where shown on the Drawings or directed by the Superintendent except for the sections of the levee included for the payment at Item 6 will be made at the Unit Rate tendered for Item 8 in the Schedule of Rates. This Unit Rate shall include the cost of all operations required by this Specification including processing of the rocks stored at the quarry site and its transportation to the site." The point of departure between the referee, who adopted the appellant's construction of CLS2-3 and Giles J, who adopted the respondent's construction, may be summarised as follows. There was no dispute between the parties concerning situations in which excavation to a depth below 50mm had taken place pursuant to a direction of the Superintendent. The dispute arose because there were many situations in which the excavation had been to a depth below 50mm but not pursuant to a direction of the Superintendent. The referee construed the concluding sentence in CLS2-3(4) as meaning in effect the contractor is entitled to be paid for the stripping of such material as was removed and as it was reasonably necessary to remove without carelessness to get to a depth of 50mm. The referee expressed his views as follows: "\,.upon the true construction of the contract the plaintiff is entitled to be paid for all stripping measured to the lines and batters shown on the drawings and where there is no specific direction to go deeper an excavation which ensures minimum of 50mm depth but is also entitled to be paid for stripping in places in excess of that depth being in accordance with the lines shown on the drawings (which provided for "50mm') provided that this stripping has not been excavated carelessly so as to involve stripping more than was reasonably necessary to achieve a 50mm minimum depth of stripping in the circumstances... " As part of the factual background to that conclusion the referee recorded the following observations: 150.4 Such directions by the Superintendent's Representative were either oral or written. 150.5 The Superintendent's Representative inspected all the stripping and approved it or directed further stripping where he considered that necessary. After any further stripping was done the Superintendent's Representative inspected and approved it if he was satisfied. 150.6 The Superintendant's Representative was throughout the work aware of the stripping being carried out, how it was being carried out, the measurement of that stripping, and the depth of the stripping. 150.7 The Superintendent's Representative never informed the Contractor that the stripping was too deep and never instructed the Contractor to stop stripping to a depth greater than exactly SOmm. 4 UNREPORTED JUDGMENTS 150.8 The plaintiff perfomed the stripping from the area covered by the levee with due care and skill and using appropriate equipment in the circumstances and this stripping and removal of unsuitable was not excavated carelessly. 150.9 The defendant has paid the plaintiff for 4,222 cubic metres of stripping under Item | of the Schedule of Rates. 150.10 It was not possible to strip in grass-covered and weed-infested land of the type encountered at the levee site an exact 50mm. Thus, for practical reasons any operation which endeavoured to remove a minimum of 50mm below natural surface cannot avoid taking out an average of considerably more than that, even when due care is taken. 150.11 The stripping carried out by the plaintiff was reasonably necessary for the proper preparation of the levee foundation..." Giles J disagreed with the referee's interpretation of CLS2, essentially for two reasons. First, his Honour observed that the language of the relevant clause, and the language in particular of the last sentence, putting to one side the cases where there had been directions by the Superintendent, was such as to relate the measurement of quantities for the purposes of payment to the lines or batters shown on the drawings. In this respect his Honour emphasised the use of the word "only" in the relevant sentence. Second, his Honour observed that the evident purpose of the clause was to provide a reasonably precise mechanical basis for calculation of the quantities by reference to which the contractor was entitled to be paid. In that regard his Honour pointed out, rightly in my opinion, that the interpretation placed upon the clause by the referee introduced into its operations considerations of the exercise of due care and of reasonable necessity which were capable of bringing into the administration of the contract substantial uncertainty, and scope for disputation. The introduction of those considerations does not reflect anything that is said in the wording of CLS2-3. Potentially, it is productive of uncertainty of just the kind that the language of the clause seems designed to avoid. The reasoning of the arbitrator indicated that he might have been minded himself to have a considerable degree of sympathy with that point of view if he had not also had to consider the language of CLS2-3. It appears that what induced him to take a different and rather more elaborate view of the clause was the construction he gave to the cognate provision in CLS3-10. In relation to the meaning of CLS3-10 the point of departure between Giles J and the referee turned upon their respective views as to the practical significance of the reference in lines 3 and 4 of subCL(1) to the matter of cross-sections taken after stripping. The referee gave that clause a wide-ranging operation whereas Giles J read it as applying in practice to cases where the Superintendent had given directions contrary to the drawings. In that respect his Honour pointed out that the reference to stripping is a reference to "stripping as specified in CLS2-3". In my view, insofar as it is material (I do not for my own part consider it decisive) the construction of CLS3-10 preferred by Giles J is the better one. I have come to the conclusion that the reasons given by Giles J for his construction of CLS2-3 are persuasive and the appellant has not shown his Honour to have been in error in relation to this aspect of the case. Accordingly I will propose in due course in relation to this aspect of the case that the appeal be dismissed. URUANTIC CIVIL PTY LTD v WATER ADMINISTRATION MINISTERIAL CORPORATION: (Beazley JA) It follows from what I have said that I agree with the construction of the contract expressed by Giles J at 19 of his reasons for judgment, and not only his conclusion as to the application to the areas described as (a), (b), (c), (d) and (e). As I noted earlier, there is an outstanding point of appeal upon which we have not heard argument upon yet. Mahoney P I agree with what has been said by the Chief Justice. I do not desire to add anything myself. Beazley JA I agree with the reasons of the Chief Justice. It follows from what I have said that I agree with the construction of the contract expressed by Giles J at 19 of his reasons for judgment, and not only his conclusion as to the application to the areas described as (a), (b), (c), (d) and (e). As I noted earlier, there is an outstanding point of appeal upon which we have not heard argument upon yet. Counsel for the appellant: M J Neil QC / R J Wright Solicitors for the appellant: John Carmody and Co Counsel for the respondent: M D Young / S Climpson Solicitors for the respondent: Solicitor for Water Administration Ministerial Corporation