Continental Ace Pty Ltd v Flender (Australia) Pty Ltd [2002] NSWCA 184

New South Wales Court of Appeal

CITATION : Continental Ace Pty Ltd v Flender (Australia) Pty Ltd [2002] NSWCA 184 FILE NUMBER(S) : CA 40622 of 2001; 40624 of 2001 HEARING DATE(S) : 2 May 2002 JUDGMENT DATE : 24 June 2002

Continental Ace Pty Ltd (Appellant) PARTIES : v Flender (Australia) Pty Ltd (Respondent) JUDGMENT OF : Handley JA at 1; Stein JA at 2; Brownie AJA at 3

LOWER COURT JURISDICTION : District Court LOWER COURT 47 of 2000 FILE NUMBER(S) : 54 of 2000 LOWER COURT Delaney DCJ JUDICIAL OFFICER :

COUNSEL : Appellant: Mr G K Burton Respondent: Mr G A Sirtes SOLICITORS : Appellant: Thompson Norrie Solicitors Respondent: ALR Lawyers CATCHWORDS : Contract - construction - no question of principle. LEGISLATION CITED : N/A CASES CITED: N/A DECISION : The appeals dismissed with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40622/01 40624/01

HANDLEY JA STEIN JA BROWNIE AJA

Monday 24 June 2002 CONTINENTAL ACE PTY LTD v FLENDER (AUSTRALIA) PTY LTD

JUDGMENT 1 HANDLEY JA: I agree with Brownie AJA. 2 STEIN JA: I agree with Brownie AJA. 3 BROWNIE AJA: The respondent sued the appellant in two District Court actions, claiming the balances due for work done and materials supplied in respect of three different engineering projects. The two actions were heard together by Delaney DCJ, and the respondent succeeded, except in respect of some items no longer in issue. The two appeals were also heard together. The principal matters argued on appeal concerned two grounds of defence and a cross-claim, asserted in relation to one project, concerning the provision of machinery for a mine in Thailand. 4 To state matters shortly, the appellant contracted with the Electricity Generating Authority of Thailand ("EGAT") to provide a conveyor system for the mine, and the appellant subcontracted out to the respondent the task of providing some conveyor drive units. The terms of the subcontract incorporated the terms of the head contract. Putting aside for the moment some issues concerning relevantly minor matters of detail, there were two principal questions that were argued on appeal. 5 First, the appellant relied on a provision in the subcontract, to the general effect that it was only liable to pay money to the respondent when EGAT had approved of the Subcontract Work, and when EGAT had paid the appellant for that work; and neither of these conditions was satisfied. This was referred to, for brevity, as the "pay when paid" clause, and defence. 6 Secondly, EGAT had foreshadowed that, pursuant to the terms of the head contract, it would make a claim for liquidated damages against the appellant, but it had not actually made a formal claim, by the time of the hearing, and there was evidence from the appellant itself to the effect that EGAT's claim would be disputed, and that the appellant hoped to compromise the claim. The appellant said that, pursuant to the terms of the subcontract, it was entitled (up to a certain limit) to be indemnified by the respondent in respect of any liquidated damages it had to pay to EGAT. It raised this matter as a defence of set off, and in the alternative, it made a cross-claim against the respondent for damages, equivalent to any liquidated damages it would later have to pay to EGAT. At trial, the respondent asserted that, at worst from its point of view, there should be a finding in its favour on the question of liability, and the further hearing adjourned, until the appellant was in a position to have its damages assessed. 7 Amongst the documents forming part of the head contract there was a "Volume 1 Commercial Conditions". Within that volume there was a Section E headed General Conditions and a Section F headed Special Conditions. Clauses within those two sections of the volume were prefixed with the letters E and F. 8 Clause E-2 provided: - "The intent and spirit of the Contract is to provide for the Work, herein specified, to be executed within the time specified in the contract, to the detail and for the purpose designed. It is hereby understood that the contractor, in accepting the contract, agrees to supply everything necessary to accomplish this, notwithstanding any omission(s) in the Specifications or Drawings …" 9 Clause E-9 provided generally that the Engineer appointed by EGAT was to perform technical inspections and to supervise the Work, and to have what might be described as the usual authorities given to supervising engineers in relation to a contract of this type; and clause E-17 provided for inspection of the work whilst it was in progress. It continued:- "After the work had been completed, the Contractor shall inform EGAT to that effect. After being so informed, EGAT may make all necessary inspections and tests to determine whether the completed Work conforms to the requirements of the Specifications. Should the result of the inspections or tests fail to satisfy the requirements of the Specifications, EGAT may at its own volition and option refuse to accept the work and require the defective portions to be corrected. Until the necessary corrections, re-inspections, and re-tests have been made to EGAT's satisfaction, the terms and conditions of the contract shall not be considered fulfilled." 10 Clause E-23 provided:- "All Equipment and materials supplied and all work performed under this Contract shall be subject to inspection by EGAT, the Engineer, or the Inspector. EGAT, the Engineer, or the Inspector shall have the right to inspect all Equipment and materials during manufacture and prior to preparation for shipment and to witness any and all tests and examinations which are required under this Contract to be approved by the Engineer. Final inspection will be made in accordance with approved drawings, a copy of which shall be made available by the contractor for reference by EGAT's Inspector. The Contractor shall notify EGAT, the Engineer, and the Inspector at least twenty-one (21) days in advance when and where the Equipment or materials will be available for each inspection, test, or examination. EGAT's acceptance of any services, Equipment, or materials covered by the Contract Documents, or any inspection or witnessing of any test or examination, shall in no way relieve the Contractor of his responsibility to supply services, Equipment, or materials as required by the Contract. Unless otherwise provided, whether inspections take place at the Contractor's factory or at the factory of a subcontractor, the Contractor shall supply all labor, materials, apparatus, and instruments necessary for performing the inspections or tests required by EGAT's the Engineer, or the Inspector."