New South Wales Court of Appeal CITATION : Abigroup Contractors Pty Ltd v ABB Service Pty Ltd (formerly ABB Engineering Construction Pty Ltd) [2004] NSWCA 181 HEARING DATE(S) : 10,11,12,13 May 2004 JUDGMENT DATE : 15 June 2004 JUDGMENT OF : Giles JA at 1; Tobias JA at 187; Cripps AJA at 188 DECISION : In the proceedings below, dismiss the cross-claim. In the appeal, appeal dismissed with costs. CATCHWORDS : CONTRACT - tender for construction works - letter of intent issued - formal contract to be entered into - letter of intent envisaged commencement of work prior to formal contract - work commenced and carried on while negotiations continued - whether on construction of letter of intent and with regard to the parties' prior and subsequent conduct a fourth class Masters v Cameron contract had come into existence upon commencement of work - whether party's case in a reference had included that the contract had come into existence - PROCEDURE - contractual claims abandoned in submissions in favour of quantum meruit claim - abandonment conditional on leave to amend - leave opposed - in the event, not necessary to decide question of leave or quantum meruit claim - whether judgment should have been given on contractual claims against abandoning party - COSTS - whether evidence relevant to abandoned claims remained relevant for other purposes - whether error in failing to give other party a costs benefit referable to the abandonment of claims. D. Australian Broadcasting Corporation v XIV Commonwealth Games Ltd (1988) 18 NSWLR 540; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (Giles J, 14 October 1993, unreported); B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 97011; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647; Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622; Blair v Curran (1939) 62 CLR 464; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Brooks Robinson Pty Ltd v Rothfield (1951) VLR 405; Coulton v Holcombe (1986) 162 CLR 1; Cretazzo v Lombardi (1975) 13 SASR 4; Cummings v Lewis (1993) 41 FCR 559; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 97023; Fox v Star Newspaper Company (1898) 1 QB 636; Graham Evans Pty Ltd v Stencraft Pty Ltd (2000) 16 BCL 335; House v The King (1936) 55 CLR 499; Hunter Douglas Australia Pty Ltd v Perma Blinds (1968) 122 CLR 49; Lodder v Slowey (1904) AC 442; Lustre Hosiery Ltd v York (1935) 54 CLR 134; Macquarie Bank Ltd v National Mutual Life Association of Australasia Ltd (1996) 40 NSWLR 543; CASES CITED : Masters v Cameron (1954) 91 CLR 355; Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274; Multicon Engineering Pty Ltd v Federal Airports Corporation (2000) 47 NSWLR 631; Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd, CA, 8 June 1994, unreported; NRMA Ltd v Morgan (No 3) [1999] NSWSC 768; Pagnan SpA v Feed Products Ltd (1987) 3 Ll R 601; Pertsinidis v Australian Credit Union Ltd (2001) 80 SASR 76; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; R W Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 32 NSWLR 152; Renaud Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Republic of India v India Steamship Co (1993) AC 410; Roads and Traffic Authority of NSW v Wellings [2000] NSWCA 360; Segur v Franklin (1934) 34 SR 67; Sinclair Scott & Co v Naughton (1929) 43 CLR 310; State of Queensland v J L Holdings Pty Ltd (1997) 141 ALR 353; Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Thoday v Thoday (1964) P 181; Thrasyvoulou v Secretary of State for Environment (1990) 2 AC 273; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; Water Board v Moustakas (1988) 180 CLR 491; Waters v P C Henderson (Aust) Pty Ltd (CA, 6 July 1994; unreported). PARTIES : Abigroup Contractors Pty Ltd - Appellant ABB Service Pty Ltd (formerly ABB Engineering Construction Pty Ltd) - Respondent FILE NUMBER(S) : CA CA 40970/03 COUNSEL : R Macfarlan QC & P Durack - Appellant B Collins QC & M Orlov - Respondent SOLICITORS : Clayton Utz - Appellant Abbott Tout - Respondent LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT ED 55033/98 FILE NUMBER(S) : LOWER COURT Einstein J JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40970/03 ED 55033/98 GILES JA TOBIAS JA CRIPPS AJA Tuesday 15 June 2004 ABIGROUP CONTRACTORS PTY LTD v ABB SERVICES PTY LTD Judgment 1 GILES JA: Judgment was given for the respondent for $4,773,962.47 on a quantum meruit claim and the appellant was ordered to pay the respondent's costs. The first issue in the appeal was whether a contract between the appellant and the respondent had come into existence; a sub-issue was whether it was open to the appellant to contend for the particular contract on which it relied. The second issue was whether the appellant was entitled to judgment on other claims which it said the respondent had abandoned. The third issue was whether the order for costs should have been moderated to reflect that abandonment. Background 2 The appellant, a substantial construction company, was engaged to design and construct the Multi Use Arena ("the MUA") within the Sydney Olympic Park precinct at Homebush Bay in Sydney. The MUA was to be the major indoor venue used for the Sydney 2000 Olympic Games, and is now known as the Superdome. It is a bowl shaped concrete structure with tiered seating around a rectangular arena floor, fully enclosed by a steel framed roof providing a completely column-free space beneath. The roof structure includes sound absorption and reflecting elements providing required acoustic qualities. 3 The respondent, also a substantial construction company, was experienced in the design, fabrication and construction of large steel structures. It gave assistance to the appellant in the preparation of the appellant's tender for the work of designing and constructing the MUA. When the appellant sought tenders for various sub-contract works, the respondent tendered for the fabrication and construction of the roof works. 4 Initially the appellant sought tenders for a different roof structure without the acoustic elements. The respondent provided a quotation. The roof works were revised and fresh tenders were sought. The respondent submitted a tender on 9 February 1998. The tender was discussed at a post-tender meeting on 12 February 1998. The appellant asked for and received further information from the respondent by fax and telephone calls on 18 February 1998. Following an intimation that a reduced price would be likely to secure the job, on 19 February 1998 the respondent reduced its tender price to $14,000,000. The tender was further discussed at a meeting on 19 February 1998, and at the end of the discussions the respondent was told that it was the successful tenderer and was given a letter of intent. 5 The letter of intent will be set out in full later in these reasons. At its commencement it described the appellant's acceptance of the respondent's tender as conditional upon entry into a formal subcontract based upon amended SC.JCC-D 1994 conditions and Project Related Conditions of Contract ("the general conditions"). Paragraph 9 authorised commencement of the works in accordance with the letter of intent prior to the execution of the formal subcontract, and included that the roof structure was to be completed by the middle of October 1998. Paragraph 10 included that commencement "is deemed to be full acceptance of the terms of this subcontract agreement and confirms the existence of a subcontract between our two companies". 6 On the respondent's quantum meruit case, it began work on the fabrication and construction of the roof works on 25 February 1998. The appellants submitted on appeal that by virtue of paras 9 and 10 of the letter of intent a contract came into existence upon the respondent commencing the works on 25 February 1998, the terms of which were found in the letter but did not include the general conditions ("a limited conditions contract"). 7 The respondent proceeded with the works concurrently with ongoing communications and discussions with the appellant upon the terms of a formal subcontract. There were many letters and meetings. Agreement came close, but could not be reached. In mid-June 1998 the respondent asserted that a formal subcontract could not be agreed and that it was carrying out the works on a quantum meruit basis. The appellant asserted in response that there was a contract, although the contract it identified was not a limited terms contract. There were further discussions, but still agreement could not be reached. 8 On 6 August 1998 the respondent commenced proceedings in which it claimed declarations that there was no contract and that it was entitled to be paid on a quantum meruit basis, alternatively if there was a contract a declaration as to its terms. The appellant filed a defence in which it alleged that a contract had come into existence on 19 February 1998, alternatively that the respondent was estopped from asserting otherwise. 9 In mid-October 1998 the appellant asserted that the respondent had repudiated the contract in existence between them and gave notice that it terminated the contract. The repudiation was announcing that the works could not be completed until a date in August 1999. The appellant cross-claimed against the respondent in the proceedings, claiming damages for repudiation of the contract and damages under the Trade Practices Act 1974 for misleading and deceptive conduct in misrepresentation of the respondent's capacity, resources and ability to perform the roof works. 10 There were then a number of amendments to the claims and cross-claims in the proceedings. The respondent added to its primary case that there was no contract, a claim to a money sum on a quantum meruit basis. It added to its alternative case if there was a contract, claims to money sums for delay and variation costs under any contract which had come into existence, a claim to damages for repudiation by the appellant of that contract, and a claim to an order under s 87 of the Trade Practices Act varying that contract as to the date for completion. The repudiation alleged was the appellant's termination of the contract. The appellant came to allege eight alternative versions of contracts, coming into existence on 19 February, 5 May and 7 July 1998 and the day the respondent commenced the works, in some cases by estoppel if not directly. It added claims to damages for breaches of the contract independently of repudiation. The respondent's defence to a 7 July 1998 contract included that the appellant was estopped from alleging it. 11 On 3 November 1999 the whole of the proceedings was referred to Mr Robert Wensley QC for inquiry and report pursuant to Pt 72 r 2(1) of the Supreme Court Rules. 12 The hearing before the referee began in March 2000. There were openings and an inspection, various conclaves of experts and a contested amendment application. The first witness was called on 19 May 2000. Evidence was taken over a period extending until 11 September 2001. The reference occupied 151 sitting days. There were numerous witness statements and reports and a large number of exhibits. Something like 200 lever arch folders of documents and a transcript in excess of 10,000 pages weighed upon the referee. The written submissions thereafter exchanged occupied over 20 volumes. 13 The referee delivered a report of 953 pages dated 9 December 2002. He noted that the respondent "did not pursue" its claims to money sums under and damages for repudiation of a contract, its Trade Practices Act claim, or its estoppel defence. He concluded that no contract had come into existence and the respondent was entitled to $3,215,771.70 plus interest on its quantum meruit claim, and that all the appellant's cross-claims should be dismissed. He did not report as to costs, expressly leaving that for the Court. 14 By a notice of motion filed on 13 December 2002 the respondent applied for an order that the report be adopted, and for declarations and orders consequential on its adoption. By a notice of motion filed on 25 March 2003 the appellant applied for an order that the report be rejected so far as the referee had concluded that no contract had come into existence and had upheld and quantified the quantum meruit claim, and for judgment on claims abandoned by the respondent. 15 The notices of motion were heard by Einstein J over six days in July 2003. The appellant did not contend for the same raft of contracts, but only for a contract coming into existence on the day the respondent commenced the works ("a commencement contract"). It propounded two alternative versions of the contract, one which included the general conditions ("a general conditions contract") and the other a limited terms contract. In the course of the hearing it confined itself to a limited terms contract. There was dispute over whether the appellant's case before the referee had included a limited terms contract. 16 On 30 July 2003 the judge published reasons of 184 pages in which he decided that the report should be adopted. In September 2003 he heard further submissions as to judgment on abandoned claims and as to interest and costs. On 24 September 2003 he published reasons in which he decided that judgment on abandoned claims should not be ordered, how interest should be calculated, and that costs should follow the event. He resolved an outstanding matter in reasons published on 16 October 2003. On that day his Honour made the orders for judgment and costs. Costs from 11 April 2000 were payable on an indemnity basis, and they must have been considerable. 17 Many more matters were in issue before the referee than before the judge, and more matters were in issue before the judge than on appeal. The referee made comprehensive findings of fact, and so far as relevant to the appeal none of his findings of primary fact was challenged. In written and oral submissions we were taken at length to the findings in and other contents of the referee's report and the judge's reasons, and to pleadings, openings, and submissions. There is no need, and it is undesirable, to repeat in these reasons all that was thus exposed. Sufficient reference will be made to explain the decision of the appeal. The letter of intent 18 Omitting formal parts, the letter of intent read – " MULTI USE ARENA PROJECT – OLYMPIC SITE – HOMEBUSH BAY LETTER OF INTENT FOR THE MAIN ROOF STRUCTURE AND ROOF CLADDING Abigroup Contractors Pty Limited hereby accept your offer of $14,000,000 (Fourteen million dollars) to supply, deliver and install all roof structure and roof cladding components to complete the main roof at the above mentioned project, all as per the contract drawings, specification and construction schedule as amended from time to time by Abigroup. Our acceptance is conditional upon the parties entering into a formal subcontract based upon 'Amended SC JCC-D 1994' and Project Related Conditions of Contract. 1. Contract Agreement A copy of the standard subcontract agreement has been forwarded to you. We will now proceed to prepare the subcontract agreement and will forward this document to you for signing. 2. Letter of acceptance This letter of acceptance dated 19 February 1998 will be included in and form part of the contract agreement. 3. Rise and Fall Rise and fall is not applicable and the price stated above is firm for the duration of the project and is inclusive of all site and industry allowances. 4. Progress Payments To be on a 45 day basis related to completed works as at the 20th of each month. 5. Retention Retention is to be in the form of two (2) Bank Guarantees to the value of $350,000.00 each, the first one to be released at the Head Contract Practical Completion. Balance to be released upon completion of the defects liability period. 6. Defect Liability Period Fifty two (52) weeks from date of Practical Completion of the Head Contract. 7. Liquidated Damages Actual costs to a maximum of $1,400,000.00. 8. Insurances Prior to any works commencing on site, the subcontractor shall provide copies of the actual certificate and the following information. · Current Certificates of Unlimited Workers Compensation, Top Up, Public Liability having minimum cover of $10,000,000.00, contract works Insurance with Public Liability to include the respective interests and rights of Abigroup Contractors Pty Limited and any benefit in terms of premium reduction due to Abigroup head contract insurance shall form a credit variation. · Approved Superannuation and Redundancy schemes along with current evidence of contribution by your company to the funds. · Appropriate PPS taxation requirements. 9. Program of Works In order to meet program target dates, you are authorised to commence and proceed with the works to [sic] in accordance with this letter of intent prior to the execution of formal copies of the subcontract documents. The works are to be carried out in accordance with the tendered Programme, which will be with completion of the roof structure by the middle of October 1998. Drawings and Specification The trade works relative to this contract are indicated on the following schedule of drawings and specification. Drawings Architectural drawings by Cox Richardson Architects and Taylor Thomson Whitting. As per Abigroup transmittal No. 164 dated 19/1/98. Specifications Taylor Thomson Whitting: SPA – 3K Structural Steel Roof Steelwork No 96319A 24 November 1997 Page 2 to 31 inclusive. Cox Richardson Architects: SPA-4C Roofing. No 961033 29 January 1998 Pages 1 to 12 inclusive. Addendum No 1 – gutter on Main Roof No 96319A 23 January 1998 Pages 1 to 3 inclusive of Plan Layout. 10. General Clauses Commencement by the subcontractor is deemed to be full acceptance of the terms of this subcontract agreement and confirms the existence of a subcontract between our two companies. We confirm that the subcontractor has examined the contract drawings and has allowed for everything necessary and incidental to carry out the work as required under this contract. No claims will be recognised as a result of the subcontractor's failure to allow for everything necessary to complete the works. Where work commences prior to the execution of the subcontract agreement, no monies will become due and payable until the subcontract agreement has been executed. You are required to comply with the current law in respect of the Prescribed Progress Payments Act and we further confirm that all progress payment claims are to be accompanied by the appropriate Prescribed Progress Payment Tax Form, or a copy of your deduction certificate. Debris – the subcontractor shall daily clean up all debris created by his work and, at a time nominated by the builder, the subcontractor shall deposit such debris into the site rubbish chute, where applicable, or in a position pre determined by the builder. The said debris shall then be removed from the site by the subcontractor at no further expense to the builder. The subcontractor is to provide all necessary storage facilities for his materials and equipment. Fixing on, near or adjacent to works performed by others is deemed to be acceptance of the suitability of the works performed by others to accept the works contained under this Subcontract Agreement. The subcontractor is to comply with the "Occupational Health & Safety Act" of the safe working practice of his employees as well as himself as it applies to the work of this subcontract. The subcontractor will supply all materials and equipment necessary to facilitate such safe working practice. Particular attention is drawn to the specific requirements of the Act in relation to electrical equipment and power leads used on site. Failure to comply with this could invoke heavy fines or industrial disruption on site. Compliance is therefore compulsory. Where the word 'tradesman' is referred to in this contract this work is deemed to mean the tradesperson (male or female). We would like to take this opportunity to thank you for your interest in this project and we look forward to mutually rewarding association on this and future projects." 19 The appellant submitted that upon the respondent commencing the works on 25 February 1998, a limited terms contract came into existence with the terms - "(a) a price of $14m with no rise and fall (as specified in the first paragraph and Clause 3); (b) ABB to supply, deliver and install the roof structure and cladding to complete the main roof in accordance with the drawings and specification referred to in the letter as amended by Abigroup from time to time and to do all necessary work to achieve that end; (c) completion was to be by the middle of October 1998 in accordance with the tendered program as specified in Clause 9 (the tendered program was a reference to the program described in Abigroup's letter to ABB of 21 January 1998); (d) progress payments as described in Clause 4; (e) terms as to retention, defect liability period, liquidated damages, insurance and other general clauses as described in Clause 5, 6, 7, 8 and 10 of the letter." 20 It submitted that the contract was of the kind described in Sinclair Scott & Co v Naughton (1929) 43 CLR 310 at 317 as - " … one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms." ` In Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 and many later cases this has been called a fourth class contract, additional to the three classes described in Masters v Cameron (1954) 91 CLR 355 at 361. The decisions of the referee and the judge 21 The appellant's pleading of a commencement contract, in para 5 of its defence and para CIAA of its cross-claim, alleged that the letter of intent was an offer to the respondent to carry out the roof works "on the terms and conditions of [the letter of intent]" and that the respondent accepted the offer by commencing the works. No further particulars were given of commencement of the works or of the terms of the contract. 22 The referee doubted whether in the end the appellant put a case of a commencement contract. He noted that the appellant's submissions in chief had included that the letter of intent "constituted an offer to ABB to carry out the roof works on the terms and conditions contained in that letter which ABB accepted by commencing the roof works", but said that this was not further explained. He said that the submissions then focussed on acceptance, and that the appellant had not "articulated the way in which the letter of intent was capable of constituting an offer which could be accepted by ABB by commencing work" or "articulated what were the terms of the agreement said thus to have been made, other than to point in the pleadings to the terms and conditions of the letter and in the submissions to the terms discussed at the meeting". Referring to the appellant's submissions in reply, the referee said that they "intermixed" a contract alleged to have come into existence on 19 February 1998 with a commencement contract, and - "In fact, Abigroup's reply to reply submissions seem to abandon the case that the letter of intent was an offer which was accepted by commencement. In paragraphs 73-77 of Abigroup's reply to reply submissions, the letter of intent is relied upon as something provided to formalise and reflect an agreement reached between the parties set out in the minutes. What seems to have happened is that the clause - 'Commencement by the subcontractor is deemed to be full acceptance of the terms of this subcontract agreement and confirms the existence of a subcontract between our two companies.' no longer is relied upon as making commencement the conclusion of an offer and acceptance process, which concludes a contract. Rather, commencement evinces full acceptance of terms of a contract already made, ie evidentiary in effect. This does not seem properly to reflect the use of the word 'deemed' but in any event it seems to be Abigroup's the [sic] final case." 23 The referee nonetheless considered a commencement contract over nearly forty pages of the report. In summary, he was of the opinion that - (a) on the construction of the letter of intent and without regard to the circumstances in which it was handed over at the meeting of 19 February 1998, the letter did not operate as an offer by the appellant to the respondent to perform the works which the respondent could accept by commencing the works; (b) regard to the circumstances in which the letter was handed over made this "even clearer" and "negate[d] the contention that the letter of intent was such an offer"; but (c) if the letter did operate as an offer there was no acceptance because – (i) picking up drawings by the respondent on 20 February 1998 was not commencing the works within the meaning of the letter of intent, the drawings being "useless for [the respondent] in the sense of enabling it to take some positive and productive step, for instance ordering steel or commencement of the shop drawings process"; (ii) picking up the drawings and other acts of the respondent on 20 February 1998 "could not, in all of the circumstances, be regarded objectively as referrable to the letter of intent"; and (iii) the respondent had not commenced the works prior to the receipt by the appellant of the respondent's letter of 20 February 1998, which letter amounted to a rejection of the offer and constituting a counter-offer by the respondent to the appellant. 24 If the letter of intent did not operate as an offer, what was the effect of its paras 9 and 10? The referee said - "The arrangements or intention which the earlier parts and, indeed, the whole of, the letter of intent plainly contemplate are a conditional acceptance by Abigroup of an ABB offer to perform roof works, the condition being that a subcontract document will be prepared, forwarded and signed, at which time a contract will be formed. The letter of intent also contemplates and authorises that, in order to maintain programme, the addressee may commence and proceed with the works before the moment of contract. Given these two matters, it seems to me that what the deeming provision is trying to do, despite the obvious drafting and construction difficulties, is to ensure that, when and if the agreement is made (which the letter seems confidently to contemplate will occur), and if work begins earlier than the moment of contract, the terms and conditions of the contract will, by deeming, apply as between the parties from the moment of commencement as opposed to from the moment of contract. Such an arrangement makes sense; in effect, it would give retrospective effect to the agreement, from the time when made back to the time when work commenced, but only when and if the agreement, actually was made. This would mean that, provided the agreement was concluded, matters which had occurred after commencement and before the conclusion of the agreement could be dealt with in accordance with the provisions of the contract – for instance provisions relating to variations, extensions of time and contractual payment entitlements. Such a construction would fit nicely with the provision that no contractual entitlement to payment would arise 'until the subcontract agreement had been executed' (referred to above), with such entitlements arising after the time of contract by virtue of the contract created at that time and also being deemed to have arisen after commencement and before that time, in accordance with the retrospective operation of the deeming provision. The second effect of the deeming clause, with commencement confirming 'the existence of a subcontract', on this approach to the meaning of the clause, is of similar effect. The deeming clause read narrowly creates acceptance of the subcontract terms, as and from the time of commencement, when the contract is concluded and the confirming clause, in a complementary way, confirms that the contract terms, agreed at the date of contract (a date later than commencement on this scenario) take effect from the time of commencement, rather than from the time of signing but, importantly, only when and if the agreement is concluded. Such a construction leaves intact the conditional acceptance structure of the letter and makes an attempt to an obviously sensible and important provision for the contract terms, when and if ultimately agreed, to apply to the work done after commencement and before agreement. Obviously, the letter - which, with respect to its author, Owen, not a lawyer, is not entirely happily drafted – was drawn with a confident expectation that the conditional acceptance would become unconditional and its words paid little or no attention to the logically available possibility – which is ABB's case here – that the condition might not be satisfied. However, if I am right about the way in which what I have called the deeming clause is to be construed, the deeming clause has no operation if, for some reason, the condition should not be satisfied because, simply, there would be no agreement or terms of agreement available to relate back to the period after commencement and before agreement." 25 When the report came before the judge there was added the dispute over whether the commencement contract litigated before the referee had included a limited terms contract. The dispute involved the two aspects of (a) coming into existence when the respondent commenced the works on 25 February 1998, as distinct from on 20 February 1998 ("a 25 February commencement contract"); and (b) being on the limited terms earlier set out, as distinct from terms which included the general conditions ("a general conditions commencement contract"). 26 The referee's reasons for rejecting a commencement contract did not involve whether it was a 25 February commencement contract. There was no offer capable of acceptance by commencement of the works, and if there had been it was sufficient that there had not been commencement of the works prior to rejection of the offer through the letter of 20 February 1998. Nor, save in the respect next mentioned, did the referee's reasons for rejecting a commencement contract touch upon whether it was on the limited terms earlier set out. His reasons were destructive of a commencement contract, whether a contract on those terms or a general conditions commencement contract. 27 It is evident, however, that the referee thought that the appellant was propounding a general conditions commencement contract. He saw the appellant as intermixing a commencement contract and a contract coming into existence on 19 February 1998. The latter contract, also said to be a fourth class contract, was pleaded as a contract on terms found in the discussions on 12 February 1998 and various documents including invitations to tender, tenders, a specification, drawings, "General Conditions of Subcontract SC.JCC-D 1994 as Amended", "Project Related Conditions", and the letter of intent itself. Notwithstanding the words "one or more of the following documents … " in the particularisation of the contract, it was on terms going far beyond those of a limited terms contract. One of the referee's reasons for declining to characterise the letter of intent as an offer was obscurity or incongruity in the terms of the contract to be found in the letter, and in that connection he questioned whether the version of the SC.JCC-D conditions was the December 1997 version known to the respondent or "[t]he revised version which [the appellant] probably was finalising at the very time of the meeting … ". For present purposes it does not matter whether the referee was correct in his reasoning in this respect. He plainly thought that the commencement contract for which the appellant contended included the SC.JCC-D conditions. 28 If the judge adopted the referee's report, therefore, or for his own part took up the referee's reasons, he would also reject a commencement contract without having to decide whether the commencement contract litigated before the referee had included a limited terms contract. This he did. The judge noted the appellant's submission that in arriving at his conclusions the referee had erred in nine respects and, in extensive discussion, held that the referee had not erred and effectively endorsed the referee's conclusions and the reasons for them. At an early point, prior to the explanatory discussion, the judge said that he had reached - " … the very clear conclusion that neither errors of principle, nor patent misapprehension of the evidence, nor perversity, nor manifest unreasonableness in fact-finding, nor any of the other miscellaneous complaints put forward by Abigroup justify rejection of the findings in the report. Indeed and to the contrary. I have come to the very clear conclusion that the findings in the report were correct." 29 The judge also found, however, that the appellant had not litigated a limited terms contract before the referee. He said that the appellant had not submitted to the referee that picking up drawings on 25 February 1998, as distinct from 20 February 1998, was commencement of the works and an acceptance of any offer. He said, with reference in particular to the SC.JCC-D, conditions and the Project Related Conditions, that the appellant had not put submissions to the referee in support of a contract "on some, but not all of the terms of the letter of intent". He said that in both respects the appellant had not prosecuted a case of a limited terms contract. 30 The judge did not expressly hold that the appellant was therefore precluded from relying on a limited terms contract for adoption or rejection of the report or the orders to be made in the proceedings. Given his endorsement of the referee's conclusions, it was not necessary for him to do so. But the judge recorded the respondent's submission that the appellant "is precluded from endeavouring to pursue such a case for the first time before this Court", and by brief references to a party being "bound by the manner in which it litigated its case" and to "the elementary principle that parties are bound by the conduct of [their] case" appears to have accepted that submission. 31 The judge said that the parties should bring in short minutes of orders "providing for the adoption of the Report and ancillary relief", but no order adopting the report was made. It was undoubtedly intended, but the orders moved directly to the judgment for the quantum meruit amount. Apparently by oversight, no order was made dismissing the appellant's cross-claim. It was agreed that, if the appeal as to a limited terms contract was dismissed, this Court should so order. Whether a limited terms contract had come into existence 32 The judge set out in some detail the principles by which he should be guided in deciding whether to adopt or reject the referee's report. It was not suggested that he misapprehended or failed to give effect to those principles. He was exercising a discretion, but one under which he should consider and determine afresh any complaint that the referee had erred in law or in the application of legal standards to the facts (see in particular Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563). The appeal was from the discretionary decision of the judge, not from the conclusions reached by the referee (see Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd, CA, 8 June 1994, unreported). It attracted the appellate restraint described by Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504-5. 33 The respondent did not submit that the appeal on whether a contract had come into existence was answered by the discretionary nature of the judge's decision. It was common ground that whether a contract between the appellant and the respondent had come into existence was to be determined objectively, by a consideration of the relevant documents in the light of the surrounding circumstances, and that evidence of the parties' prior negotiations and their subsequent conduct was admissible as an aid to determining the objective intention of the parties at the time of the alleged contract. The appellant submitted that, so determined on the facts found by the referee, a limited terms contract had come into existence, and that the judge had erred in his application of the established approach. The respondent submitted to the contrary. The error, if made, was taken to vitiate the judge's exercise of discretion. 34 The competing submissions did not greatly involve whether the contract was a limited terms contract as distinct from some other commencement contract. The appellant's submissions included that, even if the letter of 20 February 1998 would otherwise have been a rejection of any offer in the letter of intent, it should be found that the respondent had by commencing the works on 25 February 1998 "elected to accept [the appellant's] terms", referring to Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [71]-[81]. The respondent's submissions included that this submission itself was not open to the appellant and that, whether or not any offer had been rejected through the letter of 20 February 1998 there was no commencement of the works on 25 February 1998, by way of acceptance of the offer. 35 Behind the pleaded formula of offer and acceptance there must be found in the words and conduct of the parties, understood in the circumstances in which they were acting, an intention to make a concluded and immediately binding contract upon commencement of the works. In my opinion that should not be found, and the referee and the judge were correct in their conclusions. In coming to that opinion I am content to assume that a limited terms contract was open to the appellant. 36 The appellant accepted that, if the letter of intent had been confined to the conditional acceptance described in its first two paragraphs, a contract would not have come into existence until the parties had entered into a formal subcontract. It submitted that para 9 envisaged a preliminary agreement to govern relations, to be found in the letter itself and not in any formal subcontract, and that para 10 directly provided for a contract to come into existence upon commencement of the works. It submitted that the referee and the judge had erred in disregarding the "clear words" of para 10 and misconstruing the letter's meaning, in failing to pay sufficient regard to the parties' commercial situation, and in giving excessive significance to the parties' prior discussions and insufficient significance to their later conduct. 37 The words of paras 9 and 10 of the letter of intent must be given effect, but their meaning and operation must be found against the circumstances in which the letter passed between the parties. 38 The appellant first invited the respondent to tender in November 1997, the works at that stage being the roof steelwork only. Its invitation stated that the subcontract would be on the SC.JCC-D 1994 conditions and the Projected Related Conditions, and a draft subcontract agreement was provided. The draft subcontract made extensive reference to the head contract. Neither the head contract nor the Project Related Conditions was provided. The respondent's then quotation included that it had "concerns regarding a number of your proposed conditions of Subcontract, therefore, if our offer is of interest to you, we would require to discuss and resolve our concerns before entering into any contract". 39 The appellant invited the respondent to tender for the combined roof steelwork and acoustic elements in late January 1998. Its invitation reiterated the general conditions to form part of the subcontract agreement. The respondent's tender reiterated its concerns as to the proposed conditions and its desire to discuss and resolve the concerns. There were also a number of qualifications in the tender, some technical and some commercial. 40 At the post-tender meeting of 12 February 1998 the respondent asked to see the head contract and the Project Related Conditions. The appellant said it would provide them. The respondent told the appellant that it was not prepared to contract otherwise than with a limitation of liability and an exclusion of consequential loss, and undertook to provide a suggested wording. It said that it would accept liquidated damages of $40,000 per day for costs actually incurred, capped at ten per cent of the contract sum, which the appellant said would be acceptable. It said it wanted provision for milestone payments, which it was agreed would be later considered. Discussion of the other qualifications in the tender could not take place through lack of time. 41 The appellant said at the meeting that it wanted to award the subcontract by 20 February 1998. The respondent's representatives expressed doubt, saying something like "Are you fair dinkum about it" or "Good luck. You've got eight days." A period of 36 weeks for fabrication and erection was discussed, and was recognised as a tight schedule. In the communications of 18 February 1998 the appellant said that it was "committed to placing an order with one of the three tenderers today". The referee found that this was probably a piece of commercial pressure used to get the tender price down, but there had been earlier references to a tight timetable for completion of the roof works and no doubt there was an atmosphere that the appellant was anxious to have the roof works under way. 42 At the meeting of 19 February 1998 the respondent insisted on seeing the head contract and the Project Related Conditions, which had not yet been provided. The appellant said that everything material to the head contract was in the Project Related Conditions and that it would provide the Project Related Conditions the next day. The respondent made plain that its tender was conditional upon receiving the Project Related Conditions and either accepting that they were not commercially adverse or working out any concerns by agreement. 43 The respondent told the appellant that it had concerns about the SC.JCC-D conditions and other contractual matters, and provided a document setting out two clauses limiting liability and excluding consequential loss which it said were non-negotiable and had to be in any subcontract. The non-negotiable clauses were - 'Notwithstanding anything to the contrary herein contained, the total liability of the Subcontractor shall be limited to the Subcontract Sum.' 'Notwithstanding anything to the contrary contained in this Subcontract Agreement and the Head Contract, the Subcontractor shall not be liable for any indirect, consequential or economic losses whether in contract or in tort (including negligence) such as, but not limited to, loss of profit, loss of use, cost of replacement production, business interruption and the like.' 44 Milestone payments were discussed, but without finality and with the appellant to provide its programme to the respondent and the respondent to put forward a specific proposal. Liquidated damages of actual costs to a maximum of $40,000 per day was again stated and agreed. 45 The appellant told the respondent that the respondent's reservations could not be discussed at that time, and that the appellant's representatives at the meeting would have to take the non-negotiable clauses higher because they did not have authority to agree on matters of that kind. 46 The respondent was then told that it was the successful tenderer. Arrangements were made for it to collect some drawings the next day so that it could start the shop drawings. There were numerous matters remaining for discussion and resolution, notwithstanding that, as the referee said, "the parties confidently hoped, if not expected, that they would be able to attend to and resolve the matters which remained outstanding before a contract could be concluded". The outstanding matters included that the respondent was still to see the Project Related Conditions, which it had made plain was essential, and that the appellant had to agree to the non-negotiable clauses upon which the respondent insisted. 47 To this point in the meeting nothing had been said of a letter of intent. One of the appellant's representatives left the meeting and returned with the letter. It was handed to the respondent's representatives without comment. They briefly looked at the first page, but none of them read it. The appellant did not draw attention to what the letter said about commencement of the works. Before the meeting ended, it was repeated that there were outstanding contractual issues to be resolved. 48 In my opinion, these circumstances tell against the parties intending that the letter of intent operate as an offer open to acceptance by commencement of the works. The circumstances were not consistent with commencement of the works binding the parties to an immediate contract. 49 Notwithstanding that there was a confident hope, perhaps expectation, that agreement could be reached, and a willingness on the respondent's part to get the works under way, there could not reasonably be attributed to the respondent willingness to contract on terms of general conditions some of which it had concerns about, or to the appellant a belief that the respondent was willing. To repeat, the respondent had made plain that seeing the Project Related Conditions was essential, and its concerns about the SC.JCC-D conditions had been made known but had not been considered. At best the letter of intent was unclear upon whether a commencement contract would include the general conditions, to which the appellant's reliance before the judge on a general conditions commencement contract is testimony. A contractual bond possibly on terms to which one party objected as unknown or unacceptable was not consistent with the respondent's position, as made clear to the appellant, even as an interim bond in anticipation of a formal subcontract. 50 Still less could there reasonably be attributed to the respondent willingness to contract, even on an interim basis, on terms which flew in the face of terms on which it insisted and in part had been agreed, or to the appellant a belief that the respondent was willing. The non-negotiable clauses were not part of the terms in the letter of intent, para 4 of the letter was inconsistent with milestone payments and para 7 of the letter was inconsistent with the accepted $40,000 per day. 51 Even before the letter of intent it was contemplated that the respondent would commence the works prior to the formal subcontract. Arrangements were made for that to occur. The arrangements were made without any mention of contractual consequences of commencing the works, and the parties to that point must be taken to have accepted that the works could be commenced on a non-contractual understanding. When the letter of intent was handed over, nothing was said about contractual consequences of commencing the works. It must have been apparent to the appellant that the respondent was not then aware of what the letter said. That indicates that the appellant did not treat, or expect the respondent to treat, the letter of intent as carrying with it the making of a contract upon commencement of the works. 52 Nor was the content of the letter of intent consistent with its terms being the terms of a contract coming into existence upon commencement of the works. On the appellant's case, the contract thus formed was a contract under which the respondent was not entitled to any payment until the formal subcontract had been executed (see the last subparagraph of para 10 of the letter of intent). If so, there could be no question of progress payments or retention as provided in paras 4 and 5 of the letter: yet these were said to be part of the contract. Under the contract thus formed the liquidated damages in para 7 would apply if a formal subcontract was not entered into, which meant that the respondent would be paid nothing but would be fully liable to the appellant, including for liquidated damages. The terms of the contract did not make sense. 53 There may be difficulty in a court attributing significance to less obvious aspects of a commercial situation, since the court is not necessarily in a position to appreciate the commercial forces. But the commercial disadvantage to the respondent in an immediately binding commencement contract was plain. Perhaps, as the appellant submitted, the appellant would have wished to avoid the risk of its chosen sub-contractor withdrawing from the project more or less at will, and perhaps also the respondent may have wished to have the contractual certainty of recovering its investment of time and money in assisting the appellant in the tendering. But there had been agreement on starting work without any contract. To the point when the letter of intent was handed over, each party conveyed to the other that it was content for work to start and to take the commercial risk that they would fail to come to a concluded agreement on the formal subcontract. For the appellant, in the absence of a contract that risk would continue. For the respondent, a commencement contract would substitute for its risk a different and far greater risk of being bound in contract to carry out the works, without payment but exposed to liability which it had non-negotiably refused. So viewed, the commercial situation did not favour an intention to make an immediately binding contract. The respondent would be delivering itself into the appellant's hands. 54 The appellant sought to counter this by suggesting that it would be obliged to act reasonably in the negotiations towards the formal subcontract. I have difficulty in seeing the legal principle which would so oblige it, and there could be reasonable failure to agree on (for example) the non-negotiable clauses. In my opinion, regard to the parties' commercial situation tends against an intention of the parties to make an immediately binding contract. 55 None of this can stand against sufficiently clear words of the letter of intent. The appellant fastened upon the first subparagraph in para 10 of the letter, which it submitted was in words too clear to be ignored. It said that "this subcontract agreement" meant a separate contract coming into existence upon commencement of the works, and that "confirm" referred to the contract so coming into existence. 56 The word "deemed" may create a fictitious situation, or it may simply state an indisputable conclusion (Hunter Douglas Australia Pty Ltd v Perma Blinds (1968) 122 CLR 49 per Windeyer J at 65-7). In para 10 it seems to have the former usage, since commencement of the works is an act rather than a statement of a conclusion. The word "confirm" would normally suggest that what is confirmed is already in existence, but on any view no subcontract was in existence prior to commencement of the works and the word seems to have been used to emphasise the existence of "this subcontract agreement", whatever that may have meant. 57 The words "this subcontract agreement" did not clearly mean a separate contract coming into existence upon commencement of the works. They could readily enough be read as referring to "the subcontract agreement" in para 1 of the letter of intent, the formal subcontract following agreement in further negotiations. If the words had been "the sub-contract agreement" much of the appellants argument would be lost, and "this" had to do a lot of work in the argument. Where in the penultimate paragraph of the letter of intent the words "this contract" were used, they most naturally referred to the foreshadowed formal subcontract, of which the letter of intent and thus the expanded meaning of "tradesman" would form part (see para 2 of the letter). It may be noted that the word "tradesman" was not used in the letter. The same reference of "this subcontract agreement" was well open. 58 Going beyond these textual considerations, the first subparagraph in para 10 of the letter of intent was one part of what para 10 describes as "General Clauses". The general clauses were to be provisions of a contract, and the natural understanding of the letter was that they were to be provisions of the formal subcontract via incorporation of the letter in the contract as envisaged in its para 2. On the appellant's argument, however, the first subparagraph of para 10 was not a provision of a contract, but a potentially contract-creating offer. The structure of the letter of intent was to the contrary. 59 I do not accept that the first subparagraph in para 10 of the letter of intent has the clear meaning necessary for an intention to make an immediately binding contract. It must be understood as part of the letter of intent as a whole and in the circumstances in which the letter of intent passed between the parties. 60 The referee correctly referred to the letter's "obvious drafting and construction difficulties". In essence, he considered that its function was to ensure that work done prior to the formal subcontract envisaged in the letter would, by incorporation of the letter of intent in the contract, be taken to have been performed under that subcontract although the subcontract was not in existence at the time of performance. On this view, the deemed acceptance was not intended to be acceptance of an offer to be allowed to perform the works, for no payment, under a fourth class contract. It was acceptance in the sense of agreement in the formal subcontract upon its retrospective operation, giving sense to "deemed" as creation of a fictitious situation. The statement that no payment would be made until the formal subcontract had been executed then also made sense. It was not an immediate contractual provision. Rather, when it became a provision of the formal subcontract it prevented claims that money should have been paid at earlier times. In my opinion, the letter of intent is readily open to this construction and operation. 61 Subject to regard to the parties' subsequent conduct, in the circumstances in which the letter of intent passed between the parties I consider that an intention to make a concluded and immediately binding contract upon commencement of the works should not be found. 62 The appellant relied on cases such as Pagnan SpA v Feed Products Ltd (1987) 2 Ll R 601 and Graham Evans Pty Ltd v Stencraft Pty Ltd (2000) 16 BCL 335, particularly for finding an intention to be bound notwithstanding that important matters remained to be agreed and for entry upon performance of the works of itself supporting the existence of a fourth class contract. Each case must be decided on its own facts. The law reports contain many illustrations of work begun in anticipation of a contract, as was to occur in the present case before the letter of intent was produced and passed over. I do not think these cases govern the facts of the present case. 63 Evidence of subsequent communications between parties is admissible for the light it casts upon their dealings from which a contract is alleged to have arisen: for example, it may show that apparently concluded negotiations were in fact continued, or were not regarded by the parties as contractually binding until entry into a formal contract (B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 97011 at 9149, 9155; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 97023 at 9255; Brambles Holdings Ltd v Bathurst City Council at 163-4). Evidence of the parties' subsequent conduct is also admissible as an admission by conduct of the existence or non existence of a subsisting contract (Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668-9, 672; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd at 9255). The probative force of an admission may not be great. If the direct evidence is complete and enables a conclusion, an indirect admission may count for little. Similarly, if an admission is of a matter of law or legal consequences, as to which the admitting party has no expertise or is otherwise to be seen as uninformed or unreliable, the admission will not carry much weight (see for example Lustre Hosiery Ltd v York (1935) 54 CLR 134 at 138-9, 143; R W Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 32 NSWLR 152 at 155-6). And as Gleeson CJ said in Australian Broadcasting Corporation v XIV Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550, "it will often be necessary to identify with some care the fact which is said to have been admitted". 64 Of particular importance in the subsequent conduct of the parties, in my view, is the respondent's letter of 20 February 1998. Even if it was not a rejection of any offer in the letter of intent it was a continuation, after receipt of the letter of intent and before any commencement of the works, of the negotiations left over from the meeting of 19 February 1998. 65 Again omitting formal parts, the letter read - "Further to our meeting at your offices on Thursday 19 February 1998 and following further post tender discussions, we were most pleased to receive your letter regarding the Main Roof Structure and Roof Cladding on the above project. You will recall that there are a couple of outstanding commercial matters to be resolved regarding the subcontract and these are detailed below for your consideration. 1 We have not had sight of the sections of the Head Contract document that may be applicable to the above subcontract works nor have we received a copy of the Project Related Conditions marked 'D'. Our offer is therefore based on the proviso that there are no adverse commercial considerations within these documents. (We still await such documents from Abigroup.) 2. As an amendment to clause 8 of the Subcontract we would require the following clauses covering exclusion of consequential losses and a cap on total liability. 'Notwithstanding anything to the contrary contained in this Subcontract Agreement and the Head Contract, the Subcontractor shall not be liable for any indirect, consequential or economic losses whether in contract or in tort (including negligence) such as, but not limited to, loss of profit, loss of use, cost of replacement production, business interruption and the like.' 'Notwithstanding anything to the contrary herein contained, the total liability of the Subcontractor shall be limited to the Subcontract Sum.' 3. We require clarification of clause 9.03.02 and 10.11 whereby the Builder may, due to any act, default or omission by it, or it's designers, or any of it's subcontractors or suppliers etc. cause delay to the works of this Subcontractor and in such a case, the Builder is not entitled to an extension of time under the Head Contract. In such a scenario, how does this subcontractor recover lost time and any associated costs? Will the Builder seek agreement and pay this subcontractor for acceleration measures if necessary and/or any associated reasonable costs for delay? Obviously, we cannot be expected to pay liquidated damages where the delay was caused by Abigroup. The condition precedent in clause 10.2.01 and 10.12.08 should not apply to the above case. 4. Clauses 10.15 and 10.16 refer to liquidated damages 'or otherwise'. As discussed, we would agree to actual costs incurred by Abigroup, subject always to a maximum daily rate of damages inclusive of both clauses, combined at $40,000 per day and capped to a maximum of 10% of the Subcontract Sum. 5. As soon as we are in receipt of the Project Schedule from Abigroup, we will propose a payment schedule for your consideration, which would include payments linked to milestone achievements and a provision for payment in respect of design and engineering works progressing off site and purchase of raw steel. 6. Programme/Drawings We acknowledge receipt of tender drawings, but these are not Approved for Construction and therefore we cannot proceed using such drawings. Due to Abigroup's very tight schedule for this work, Abigroup will need to provide the Approved for Construction drawings (correct, complete and with no 'holds') within two weeks of 20 February 1998. Obviously, the sooner this occurs, the better, because our period of 26 weeks cannot commence until we have received such drawings. In addition, we request your clarification of the following matters which we did not have the opportunity to discuss at the meeting: (a) the provision by Abigroup of a form of surety that ABB will be paid. (b) administration of the BHP Free Issue Steelwork option. (c) Clause 10.30 of the Subcontract conditions should be qualified with the words "Subject to clause 3.02" at the beginning. We trust the above matters are acceptable for inclusion in the subcontract documentation and look forward to your further correspondence." 66 The letter did not identify an offer in the letter of intent, or in any other way recognise that commencement of the works would bring a fourth class contract. In para 1 the respondent described its "offer", that is, its tender, as subject to the proviso that there were no adverse commercial considerations in the head contract or the Project Related Conditions. It still insisted on the non-negotiable clauses (para 2) and liquidated damages at $40,000 per day (para 4), and proposed milestone payments (para 5). The statement that the period of 26 weeks could not commence until it had received drawings (found to be an error for 36 weeks) (para 6) was scarcely consistent with preparedness for time to begin running under a commencement contract upon any commencement of the works, for example, by establishment. 67 The appellant did not in response draw attention to what the letter of intent said about commencement of the works. It did not point out that the respondent's "offer" would effectively become unconditional and immediately binding upon commencement of the works. On 24 February 1998 the appellant sent the Project Related Conditions to the respondent. Some drawings were provided on 25 February, purportedly as drawings Approved for Construction but in fact of a roof structure of a different design from that on which the respondent had tendered. A "kick-off" meeting was held on 24 February 1998 and a "site introduction" meeting was held on 26 February 1998. On 12 March 1998 the respondent raised a number of concerns with the Project Related Conditions, and on 18 March 1998 the appellant sent to it a significantly amended version of the SC.JCC-D conditions and a revised set of Project Related Conditions. The respondent raised many matters of concern and asked for a "further post-tender meeting prior to agreement on the terms of the subcontract". There were then further negotiations. 68 The conduct of the parties evidenced in and in response to the letter of 20 February 1998 was not that of offeror and acceptor of a commencement contract. They continued negotiations, and got on with the works as a practical matter not withstanding that they were still considerably apart as to the terms on which they would contract. Not until the litigation was under way did the appellant assert that a commencement contract had come into existence. As will be seen, it had specific occasion to state its contractual position in June 1998, and the contract it then asserted was not a commencement contract. 69 The referee did not specifically advert to the parties' subsequent conduct when considering a commencement contract. He did so when considering a contract coming into existence on 19 February 1998, responding to the appellant's submission - " … to the effect that, in the course of conduct and, in particular, in documents which were generated by and between the parties, after 19 February 1998 and in the months that followed, there were indicia consistent with the formation of an agreement on 19 February 1998 and pointing to and evidencing the fact of formation of such an agreement." 70 The referee said of the subsequent conduct, in particular that of the respondent, that - "Most, if not all, of the 'indicia' relied upon by Abigroup fall into this category, ie they seem to me to simply be consistent with ABB having been selected as the successful tenderer, asked to get on with the works, working at one level with Abigroup to conclude the terms of an agreement which both hoped, if not expected, to be made and, from ABB's point of view, taking steps and doing things which it was prudent to do on the assumption that a contract would be concluded and would have retrospective effect. Thus, to give a simple example, it would not be surprising for ABB, in circumstances where there was no dispute that a term of contract which the parties expected would be made would require the lodging of bank guarantees, to lodge those guarantees before the contract negotiations actually were concluded; nor would it be surprising for Abigroup to accept them while both parties intended and expected that they would bring their contractual negotiations to a conclusion." 71 The judge said - "122 Notwithstanding that one can of course find indications to the contrary as for example the procuring by ABB of bank guarantees in favour of Abigroup, and an e-mail of 27 February 1998 internal to ABB referring to ABB having been awarded the fabrication and erection of the subject structure, to my mind the overwhelming burden of the subsequent conduct of both parties is against any inference confirmatory of their having entered into a binding contract of the type and that the time for which Abigroup contends or at any time. That the case is unusual for reasons I have earlier outlined [essentially concerning findings as to the communicated and accepted inhibitions of ABB on entering into any contract in the absence of clarification of the matters to which I have referred] is clear." 72 A full detailing of the parties' conduct is not required. It is sufficient to go to conduct of the respondent on which the appellant principally relied in the appeal, and in the course of doing so to note some relevant conduct of the appellant which weighs quite strongly against a limited terms contract. 73 In internal documents the respondent said that it had been awarded a contract. For working purposes that was accurate enough, and it was of negligible weight as an admission. As the referee observed, words of contract used by the parties between themselves and otherwise were "being used as a shorthand reference to the working relationship between the parties at the time and/or prospectively, to the contract which everyone expected would be made". 74 The respondent let contracts to sub-subcontractors, for example to engineers to prepare workshop drawings. The appellant submitted that it would not have done so unless it thought it had a binding contract with the appellant and so could safely engage the sub-subcontractors. This also has negligible weight. The putative binding contract with the appellant was one under which the respondent was not entitled to any payment. Payment was dependent on reaching further agreement with the appellant. The safety was illusory, and the letting of the sub-subcontracts was sufficiently explained by getting on with the job in anticipation of the formal subcontract. 75 One of the sub-subcontracts recited that the respondent "has entered into an agreement as follows", then referring to the roof works. The appellant submitted that this was an express admission. The evidence established that, although dated 26 March 1998, the sub-subcontract was entered into in August 1998, at a time when the respondent was clearly maintaining that no contract had come into existence. This adds point to the referee's observation concerning use of the words of contract, and again the matter is of negligible weight. 76 On 20 March 1998 the respondent claimed an extension of time and delay costs. The appellant submitted that this acknowledged a contract, because otherwise there was no occasion for the claim and no entitlement to an extension of time and costs. In passing, if this be correct the contract had to be a general conditions contract rather than a limited terms contract. However, the claim included that "[i]n the absence of a formally executed Contract Agreement, this notification is issued in accordance with the requirements proposed to be incorporated in a formalised Contract Agreement between AEC and Abigroup for these works". The claim was in truth inconsistent with the existence of a commencement contract, since it asserted that a contract was yet to be made. I do not think that the appellant was correct in submitting that "formalised" implied an existing informal contract. The appellant did not in response assert that there was an existing contract. 77 On 17 March 1998 the respondent provided two bank guarantees to the appellant, each to the value of $350,000. Paragraph 5 of the letter of intent had provided for retention in the form of two bank guarantees to that value. The appellant submitted that this acknowledged a contract on the terms of the letter, and pointed also to the reference in the guarantees to security for the performance of a contract entered into between the appellant and the respondent. However, the bank guarantees could have no place in a commencement contract, under which the respondent was not entitled to payment at all. Retention was meaningless for that contract, and the provision of the bank guarantees and their reference to a contract could be material only to the formal subcontract or to a course of conduct outside any contract. 78 The bank guarantees were handed over at a meeting on 25 March 1998 held as part of the ongoing discussions towards the formal subcontract, and the referee correctly said that it would not be surprising for the bank guarantees to be provided and accepted in anticipation of the formal subcontract. In the circumstances next described, the provision of the bank guarantee is readily explicable as part of a course of conduct outside any contract. 79 On 19 March 1998 the appellant wrote to the respondent outlining how progress claims were to be administered. It said that they were due by the twentieth of each month, projected to the end of the month, and listed what was to be included in and with a progress claim. It also said that no progress payment would be made until the bank guarantees had been provided. 80 On 19 May 1998 the respondent submitted a progress claim for work to 20 May 1998. The appellant submitted that this recognised a contract, although it acknowledged that it was not consistent with the statement in the letter of intent that no money would become due and payable until the formal subcontract had been executed. What followed is particularly instructive. The appellant responded to the progress claim on 17 June 1998. It said that "[i]n reference to clause of the subcontractors [sic] post tender interview your claim is rejected", the clause being blank, and that "In the interest of a working relationship we are prepared to make a one off payment on account" of $100,000. It was added, "You should not [sic] that no payments are made until the sub contract agreement is signed". This may have been a reference to the letter of intent, but it was not an assertion of a currently binding contract and was consistent with the operation of para 10 of the letter earlier described. 81 At this time came the respondent's letter of 17 June 1998, saying that it had commenced work following the letter of intent in the expectation that agreement could be reached, and that it was evident that agreement could not be reached "and thereby no formal contract is in existence". The letter said that the appellant should decide whether it wanted the respondent to discontinue work and invoice for the reasonable cost of the work done or continue work to completion within a reasonable time and at a reasonable cost. 82 A meeting followed. The appellant's letter of 24 June 1998 summarised "the major issues discussed and the proposed steps forward to resolution". It said that "in our view the contract remains in place", although it was not more specific. The proposed steps included that contractual negotiations would be maintained and work would continue. 83 The respondent's letter of 26 June 1998 rejected an existing contract, saying that "[w]hat is in place is merely an open 'contract', on the basis of your instructions for AEC to commence work pursuant to your letter of 19 February 1998". The appellant's reply asserted - ""The contract which exists between our two organisations is one which reflects our agreement to matters which arose between (and including), the original request to bid and the awarding of the subcontract. The documentation to form the subcontract was clearly described in the correspondence issued during the tender and negotiation periods; The 'Minutes of Subcontract Post Tender Interview' also reflect the documents to be included in the Subcontract". 84 The appellant paid the respondent "on account", although it was not obliged to do so – an illustration of getting on with the job in anticipation of a formal subcontract. Of more significance, at a time when the appellant should clearly have asserted a commencement contract, it did not do so. The failure to assert a commencement contract, let alone a limited terms contract, is stark. 85 The respondent made another progress claim, for work to 30 June 1998. In a certificate dated 23 July 1998 the appellant approved payment of $824,290.96 "notwithstanding that there is no contractual requirement to provide a payment certificate … ". At this time the parties were manifestly at issue over whether a contract had come into existence. To the contrary of the appellant's submissions, the parties conducted themselves inconsistently with a commencement contract. The findings negated any other contract, and they were conducting themselves outside any existing contractual rights and obligations. Their conduct did not support, but was contrary to, a limited terms contract or any commencement contract, and amounted to getting on with the job concurrently with negotiation and disputation. 86 Reverting to the bank guarantees, the stipulation for their provision in order to obtain payment fully explains why they were provided. 87 On 8 April 1998 the respondent provided the appellant with a Project Execution Plan for the roof works. It included that the respondent "has undertaken a review of the Contract on the basis of AEI letter of acceptance and produced/amended the relevant project plans accordingly", and that "[t]he Project Execution Plan (this document) has been revised to reflect the requirements contractually agreed". The appellant submitted that this acknowledged an existing contract. It is of little weight, attracting the referee's observation earlier noted. 88 On 21 April 1998 the respondent claimed extensions of time and delay costs. The claims were said to be "pursuant to such entitlements contained in the Subcontract Agreement" and "in accordance with the provisions of the Subcontract Agreement". The appellant submitted that these were unequivocal statements by the respondent as to the existence of a contract between them. Again in passing, if so the contract was not a limited terms contract. The claims did not repeat the reference to a proposed formal agreement found in the claim of 20 March 1998, but nothing had contractually changed and the "Subcontract Agreement" to which they referred was the proposed formal agreement. 89 The appellant rejected the claims, saying it was "unable to make a reasonable assessment" because the respondent had "failed to comply with its contractual obligations to produce a suitable programme … as per Item 13 of the Minutes of Subcontract Post Tender Interview". Whatever contract this assumed, it was not a limited terms contract. 90 The appellant's best support came from the respondent's letter dated 29 April 1998, in which it objected to entering into a supply agreement with BHP because - "1. A contract exists between Abigroup and ABB Engineering Construction to the exclusion of other parties. Therefore any alterations or variations to the contract must be similarly restricted to Abigroup and AEC only. In the circumstances the agreement between BHP, SOCOG and Millenium, cannot be transferred over to AEC." The appellant submitted that this was a clear statement that a contract existed, made by the respondent to protect its position. 91 The statement can be seen as an assertion of the incipient formal subcontract. The negotiations were ongoing, and it is understandable that the appellant should have asked the respondent to enter into the supply agreement and that the respondent should have declined, both against the background of a contract they anticipated would come into existence. That said, a natural reading of the letter is assertion of an existing contract. It must be taken into account, but only together with all else bearing upon the existence of a contract. 92 The referee said of this letter, together with other of the "indicia" - "While, on their face, some of the words used by ABB in some of the contemporaneous documentation point to a contract being in existence, these individual phrases appear in documents created by engineers, project managers, programmers and the like. I do not think that the use of some isolated phrases which, considered by themselves, speak of a contractual situation, can stand against the body of evidence which establishes that there was no agreement at 19 February 1998 and thereafter, on the defendant's alternative case, until at least 5 May 1998. The documents referred to can be classified as created in the course of the ongoing relationship between ABB and Abigroup, by non-lawyers and I do not attach contractual significance to isolated statements, made in such circumstances, which do not in fact reflect the true legal situation between the parties, particularly in circumstances where both of them were anxious to get on with the works and ABB was, as I read the materials, anxious to pay some attention to matters which were likely to be the subject of terms in any agreement which might be reached, such as the provision of bank guarantees, the notification of delays for claim purposes, the provision of a project execution plan, and so on." 93 In my opinion this is a correct assessment, equally applicable to a commencement contract. Moreover, in the manner I have explained the appellant's own conduct was inconsistent with the existence of a commencement contract. When it had occasion to explain the contract which it said was in place, that contract was not a commencement contract, still less a limited terms contract. On balance, the subsequent conduct of the parties is against rather than supportive of a concluded and immediately binding contract made upon commencement of the works. 94 I consider that the correct, indeed plain, conclusion is that a contractual intention should not be found and a limited terms contract did not come into existence. 95 It is not necessary to consider whether the letter of 20 February 1998 amounted to a rejection of any offer in the letter of intent. The referee's consideration was brief, his prior conclusions making it superfluous. He referred only to "the words of the letter and, in particular, the express reference in the first numbered paragraph of the letter to ABB's offer being based on the proviso that there are no commercial considerations within the head contract and the Project Related Conditions". The formula of offer and acceptance in the appellant's pleading of a commencement contract should not obscure true question, one of objectively ascertained contractual intention. The letter should be seen as part of the parties' dealings, rather than analysed for rejection of an offer which, if the opinion to which I have come is correct, was not there to be rejected. The letter's significance lies in its contribution to conduct of the parties otherwise than as offeror and acceptor of a commencement contract, not in its place in an offer and acceptance process. 96 Nor is it necessary to consider commencement of the works on 25 February 1998. Brambles Holdings Ltd v Bathurst City Council was a case of a contract implied from conduct, not a contract formed by acceptance of an offer. On the appellant's pleading and its conduct of the reference, commencement of the works may not have been available otherwise than as acceptance of an offer. It does not matter. Nor does it matter whether the respondent is unable to say for its quantum meruit claim that it commenced the works on 25 February 1998 but for contractual purposes that it did not. Whether the limited terms contract was open to the appellant 97 This does not arise, but the proceedings may go further and it is of importance to their future course. 98 The pleading of a commencement contract did not include when the respondent accepted the offer by commencing the works or, other than by the words "on the terms and conditions of [the letter of intent]", what its terms were. No particulars supplemented the pleading. 99 The appellant submitted that the judge was in error in finding that it had not prosecuted before the referee a case of a limited terms contract. It said that there was error both as to a 25 February commencement contract and as to a contract on the limited terms. The respondent submitted to the contrary. The appellant submitted that, even if a case of a limited terms contract had not been prosecuted before the referee, there was no prejudice to the respondent if it relied on it for adoption or rejection of the report or the orders to be made in the proceedings. It submitted that the judge had erred in failing to consider whether there was prejudice before apparently holding that it was precluded from relying on a limited terms contract. The respondent submitted that there was prejudice to it, and that in any event the appellant should be bound by the course it took in the reference. It did not suggest that the judge had exercised a discretion attracting the principles of appellate restraint earlier mentioned. (a) A 25 February commencement contract 100 After his findings of the events of February 1998, the referee said that commencement of work was an issue and - "The 'commence work' debate is considered later in this report; I mention it here simply to focus attention upon the fact that Abigroup's case is that ABB commenced work when Smith picked up the drawings on 20 February 1998 while ABB's case is that it did not commence work until it had received the AFC drawings on 25 February 1998, the significance being that Glanville's facsimile of 20 February 1998 was sent and received between those two dates." 101 There is no doubt that the appellant contended before the referee that the respondent began work when it picked up drawings on 20 February 1998. It can readily be appreciated that the appellant would put that at the forefront of its submissions, in order to overcome a rejection of any offer in the letter of intent by the respondent's letter of 20 February 1998 if that were found by the referee. 102 The appellant could not point to a submission to the referee that, for a commencement contract, there was commencement on 25 February 1998. It would be remarkable, however, if the appellant tied itself to commencement of the works on 20 February 1998. Plainly the respondent began work at some point, and on its quantum meruit claim the respondent said it began work on 25 February 1998. There is no suggestion that the appellant conceded that the letter of 20 February 1998 amounted to a rejection, and it had good grounds for a fall-back of later commencement on 25 February 1998. 103 It is understandable that counsel for the respondent said before the judge that opposing counsel "always put that his commencement of work case was not limited to the 20th, and the case was fought before the referee on the basis of the 20th and a later date, and that generally settled around about the 24th or maybe the 25th". It was sought in the appeal to explain this statement as a concession only as to a general conditions commencement contract, not as to a limited terms contract. It was said that conduct constituting commencement of the works could differ depending on the terms of the contract. That may or may not be so, but if it is so the question becomes one of the terms of the commencement contract. It remains that a fall-back of later commencement on 25 February 1998 was appreciated. 104 The judge did not refer to this concession. It was correct that the appellant had not submitted to the referee that picking up drawings on 25 February 1998, as distinct from 20 February 1998, was commencement of the works and acceptance of the offer, in that no express submission was made. That was not of great significance, however, if the fall-back of later commencement was appreciated and on the respondent's case there was commencement on 25 February 1998. The judge seems to have been particularly influenced by the absence, in a comprehensive report, of any consideration of commencement on 25 February 1998. The referee did not have to go to later commencement, the conclusions to which he came making it irrelevant. At pages 513 and following of the report, having concluded that there was no offer and if there was it had been rejected by the letter of 20 February 1998, it was not surprising that the referee decided to go no further. 105 I respectfully do not think the judge's finding was warranted. Notwithstanding the absence of a submission, the forensic stances meant that the appellant's case extended to commencement on 25 February 1998, and the concession supported that it did. The finding that the appellant did not prosecute such a case was erroneous. (b) A contract on the limited terms 106 There was no like concession as to the terms of the commencement contract. Again, the appellant could not point to a submission to the referee that the commencement contract was on the terms of a limited terms contract, save that it said that pleading "on the terms and conditions of [the letter of intent]" and repeating those words in submissions itself propounded those terms. The appellant said that this was sufficient. That begged a large question. On one view the general conditions identified in the letter were amongst its terms and conditions, and as has been seen, for a time before the judge the appellant propounded a contract which included the general conditions. There was ambiguity, and it is necessary to go further in order to determine what case was prosecuted before the referee. 107 The appellant submitted that it made clear that it was propounding a fourth class contract, and thus a contract on essential terms with the formal contract on more complete terms still to come. It submitted that this showed that the terms of a commencement contract did not include the general conditions. The submission can not be accepted. Other contracts alleged by the appellant were also said to be fourth class contracts and to be on terms which included the general conditions. The respondent and the referee could not have understood that a fourth class contract necessarily excluded the general conditions. 108 There were some indications in the reference that the commencement contract propounded by the appellant was a general conditions commencement contract. 109 The cross-claim alleged repudiation of "the Agreement" and breach of "the terms of the Agreement pleaded at para C2 above". The expression "the Agreement" as defined took in, through other defined expressions, the contracts alleged to have been made on 19 February, 5 May or 7 July 1998, but not a commencement contract. The contract pleaded in para C2 was the contract alleged to have been made on 19 February 1998, which as has been seen was a contract which included the general conditions. 110 The pleading was imperfect. The appellant plainly meant to allege repudiation of the commencement contract as well as the other contracts, and to allege breach of the terms of contracts other than that alleged to have been made on 19 February 1998 including of the commencement contract. Any other view would leave the allegation of a commencement contract without purpose. The breaches alleged were of terms going beyond those of a limited terms contract, including failure to conform with the directions and requirements of the Project Related Conditions. On a natural understanding of the cross-claim, the commencement contract was a general conditions commencement contract. 111 When in the course of its opening the appellant's counsel was expounding the fourth class of contracts, the referee observed that he "still [had] to point to whatever the terms were of that core contract". At a later point, and after going through the letter of intent, counsel said - "MR CORSARO: It will be Abigroup's contention that there was an agreement in respect of each of these matters: the scope of the work; the contract price of $14m; the period of the performance of the works; the date for commencement of that; the date of completion of that; the ABB construction sequence and methodology as shown in the tender in broad terms only – that is, one centre segment followed by the construction of the perimeter, and I will take you to some diagrams which will assist in relation to that construction methodology in due course – limited and ascertained damages capped at 10 per cent of the price of $1.4m; and that the parties agreed that there were minor contentions between them – edge points or matters that were around the edge of that essential agreement which would be negotiated and agreed. A classic fourth class Masters v Cameron . But, in particular, that agreement, if there were differences they were minor in respect of the JCC subcontract, that the JCCD contract would be, at least to a substantial and significant extent, a contract that would represent the substantial terms of this agreement. So there were perhaps wording changes, or minor changes to be agreed in respect of some clauses, but that was all that was remaining to be done. So it is classic, we would say, Masters v Cameron in the sense that I referred to and described when I started the opening, Mr Referee." 112 The parties differed over what counsel meant. The respondent said that he included the SC.JCC-D subcontract conditions in the essential terms; the appellant said that he treated those conditions as distinct from the essential terms. It is most unclear, although probably the respondent is correct. The obscurity is such that I put it aside. There was no better statement in the appellant's opening of the terms of any fourth class contract. 113 In the appellant's submissions, however, it asserted that the fourth class contract made on 19 February 1998 was wide-ranging, on "all areas, with minor machinery provisions and ABB's proposed two clauses for further negotiations". The minutes of the meeting of 12 February 1998, as updated at the meeting of 19 February 1998, were said to be "a clear statement of the 'core agreement'". The minutes incorporated the general conditions. It was said of the letter of intent that if the respondent's representatives had read it fully they "would have known that to start work would be taken by Abigroup as a full acceptance of the terms which had been discussed (on Abigroup's case already agreed)". These submissions conveyed that by commencing the works the respondent accepted terms going beyond the terms of a limited terms contract, because the letter of intent said so. If it said so for a contract made on 19 February 1998, it said so for a commencement contract. 114 Both parties referred to other matters which I do not think are of material assistance. The indicators are less than explicit, but it is readily understandable that the referee thought that the appellant was propounding a general conditions commencement contract. 115 The appellant was reduced to the submission that the pleaded commencement contract was "broad and general", that it was not incumbent on it to identify the terms of the contract, and that while it had not propounded a limited terms contract beyond "on the terms in [the letter of intent]" it had not confined itself so as to exclude a contract on the limited terms contract. 116 In the circumstances I have described, the absence of a submission that the commencement contract was on the limited terms was of particular significance. Seen past the pleading imperfections, the pleaded contract was on terms going beyond a limited terms contract. That seems to have been the way the appellant put its case, but more important it did not make clear that it put a case of a contract on the limited terms. It is incumbent on a party to make clear the case it puts. Where the terms of a contract matter, it must make clear what the terms are. The referee's understanding is a valuable guide. In my opinion, the judge was correct in finding that the appellant had not prosecuted a case of a contract on the limited terms. (c) Prejudice 117 Although I have differed from the judge as to a 25 February commencement contract, I do not doubt that he would have held that the appellant was precluded from relying on a limited terms contract if the only departure from the case prosecuted in the reference had been as to the terms of the contract. 118 The judge acted on the principle that parties are bound by their conduct of their case, but did not elaborate. That principle, for which University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483 may be cited, does not wholly exclude raising a new point at a later time. A party may be permitted to raise a new point on appeal unless it could possibly have been met by calling evidence at the hearing or the other party might otherwise have conducted itself differently at the hearing (Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; Coulton v Holcombe (1986) 162 CLR 1 at 7-9; Multicon Engineering Pty Ltd v Federal Airports Corporation (2000) 47 NSWLR 631 at 645). The general principle that parties are bound by the course they took at the trial is subject to the appellate court finding it "expedient and in the interests of justice to entertain the point" (Water Board v Moustakas (1988) 180 CLR 491 at 497; Multicon Engineering Pty Ltd v Federal Airports Corporation at 645-6). 119 Further, the principles applying in appeals are not necessarily applied in the consideration of a referee's report. There has not been a judicial decision, the proceedings at first instance are still current and may be incomplete, and the courses available to the court include deciding any matter on the evidence taken before the referee, with or without additional evidence (see Pt 72 r 13(1)(d) of the Rules). In Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (14 October 1993, unreported) I said - "The practice on appeals is not necessarily transposed to consideration of referees' reports pursuant to Pt 72 r 13. A referee's opinion has no effect unless and until adopted by the court ( Astor Properties Pty Ltd v L'Union Des Assurance de Paris (1989) 17NSWLR 483), and the exercise of the court's discretion is interposed between the referee's opinion and finality in resolution of the dispute. While Pt 72 provides means of dispute resolution in a manner not confined by traditional court processes, depending on the circumstances to permit a new point to be raised may either sit comfortably with, or be inimical to, achieving its purpose. Certainly a reference is not to be treated 'as some kind of warm-up for the real contest' ( Super Pty Ltd v SJP Formwork (Aust) Pty Ltd at 563), but whether a point not taken before the referee will be permitted to be raised when the report comes before the court must be determined in the exercise of the wide discretion conferred by Pty 72 r 13 (which specifically includes deciding any matter on the evidence taken before the referee: Pt 72 r 13(1)(d)), and the considerations according to which the discretion is exercised may differ from those arising when an appellate court determines whether a point not taken in the court below may be taken on appeal." 120 That the principles are not readily applied differently in the consideration of a referee's report is evident, however, from Roads and Traffic Authority of New South Wales v Wellings [2000] NSWCA 360. It is not necessary to go further. The reference was long and complex, and the appellant had full opportunity to put all possible versions of contracts before the referee. If the respondent could thereby be prejudiced, it would not be appropriate to permit the appellant to rely on a commencement contract on the limited terms. If the respondent might have conducted its case differently, the contract should not be open to the appellant, and it must be recognised that, as was said in Cummings v Lewis (1993) 41 FCR 559 at 567 - "It is very difficult for counsel, having conducted a case on one basis, to say precisely how the case would have been conducted if it had been put in a different way. Courts do not accept as of course statements made by counsel as to possible prejudice to their clients in circumstances such as this. Courts, however, recognise that counsel are placed in a substantial difficulty when asked to specify a claim of prejudice with any precision. If prejudice is claimed, a court is likely to give effect to that claim unless the circumstances clearly point to there being in fact no prejudice." 121 Counsel for the respondent instanced that the issue of the time for completion would have been approached differently, even on the question of repudiation alone, according to the contract's provisions for extension of time. A limited terms contract had no such provisions, and delay caused by the appellant could have put time at large. The focus on the oral communications prior to and on 19 February 1998, and on the parties' subsequent conduct, may have been different if the contract in question was on the terms of the letter of intent as now put forward by the appellant. A simple illustration has been seen in the subsequent conduct on the basis of the general conditions. I do not think it can properly be found that the respondent would not be prejudiced. 122 In my opinion, therefore, had it arisen the appellant should not have been permitted to rely on a limited terms contract. Although I have supplemented his reasons, the judge correctly so held. Judgment on abandoned claims 123 Section 91 of the Supreme Court Act 1970 and Pt 40 r 1 of the Rules respectively provide - "91 Judgment (1) The Court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires. (2) Where there is a claim by a plaintiff and a claim under section 78 by a defendant, the Court may: (a) give judgment for the balance only of the sums of money awarded on the respective claims, or (b) give judgment in respect of each claim, and the Court may give judgment similarly where several claims arise between plaintiffs, defendants and any other parties." "40.1 General relief The Court may, at any stage of any proceedings, on the application of any party, give such judgment or make such order as the nature of the case requires, notwithstanding that the applicant does not make a claim for relief extending to that judgment or order in any originating process." 124 The judge's reasons of 24 September 2003 were principally concerned with costs. He said that the considerations relevant to judgment on abandoned claims and costs overlapped, and that it was "convenient to deal with both these matters at the same time". The dealing with judgment on abandoned claims was interstitial, although the judge plainly stated that in the exercise of his discretion he would not order judgment for the appellant "on the issues abandoned". He said that his decision as to costs "would be no different even had judgment been entered for Abigroup in relation to the abandoned claims", and in summarising his reasons on both matters said of judgment on abandoned claims 4– "There is no utility as it seems to me in the Court at this stage, following the conclusion of the Reference and following the handing down of the reserved judgment on the adoption on 30 July 2003, now revisiting the manner in which the matter was treated by the parties and the Referee during the reference. There is no doubt but that the principles in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 at 602 - 603 would be applicable to raise an estoppel where either of the parties to the proceedings might endeavour in other proceedings were to re-litigate a relevant issue litigated in those present proceedings." 125 This is not entirely clear. On one view it meant that there was no utility in going into abandonment of claims at all ("revisiting the manner in which the matter was treated … "), but the appellant's application for judgment made it necessary. On another view it meant that there was no utility in giving judgment on abandoned claims because principles of Anshun estoppel sufficiently prevented relitigation in other proceedings, but this was not part of the reasons prior to the summary. It is not easy to discern the reasoning in the judge's exercise of discretion, nor were there clear findings of what occurred by way of abandonment of claims or an analysis of considerations bearing upon whether to give judgment on abandoned claims. 126 The appellant accepted that judgment on abandoned claims was discretionary. Repeating submissions made to the judge, it submitted that if the respondent had sought leave to discontinue the claims pursuant to Pt 21 of the Rules the leave would probably have been on terms that it could not bring subsequent proceedings on the same claims, and that this policy should have been followed. It said that favourable exercise of the discretion was called for so that by simply announcing that it did not pursue claims the respondent did not "escape by a side door and avoid the contest", words of Chitty LJ in Fox v Star Newspaper Company (1898) 1 QB 636 at 639. In that case the plaintiff lost in other defamation proceedings, then claimed to be non-suited in proceedings against the defendants on similar defamatory matter. It was held that the plaintiff was not entitled to be non-suited, that he could only discontinue, and that there should be judgment for the defendants. In the same case in the House of Lords, Fox v Star Newspaper Company (1900) AC 19, it was put more forcefully by the Lord Chancellor, with whom the other members of the House concurred, that "when it once comes into court, and when the plaintiff offers no support to his action, there must be a verdict for the defendant" (at 20). The appellant submitted that the judge erred in principle by not following the policy underlying discontinuance in these circumstances. 127 The appellant referred also to Pertsinidis v Australian Credit Union Ltd (2001) 80 SASR 76. The defendants called no evidence in support of the allegations in a cross-claim for orders varying the agreement on which they were sued, announcing that they "will not be pursuing our counter-claim in terms of rectification". No order was made on the cross-claim. In later proceedings the defendants relied on the same allegations, but in support of a claim for damages rather than variation of the agreement. Doyle CJ said that the defendants had to be taken to have finally abandoned the claim to vary the agreement and that the plaintiff "would have been entitled to a judgment on the counter-claim for rectification, had it sought such an order at the end of the first action" (at 80). He nonetheless held that they were not precluded from maintaining their claim for damages. Williams J said that the defendants "could hardly have resisted some form of order if it had been sought" (at 95), and that discontinuance would not have been allowed "without imposing terms which would prevent the subject matter from again being litigated" and "the proper exercise of discretion would require that judgment be entered for [the plaintiff] on the counter-claim in the first action if [the defendants] were unwilling to accept terms" (at 96). His Honour also held, however, that the defendants were not precluded from maintaining their claim for damages. 128 The respondent submitted that, the judge's decision being discretionary, the principles in House v The King applied, and that the judge had not erred within those principles. The submission would have had greater force if the judge had explained more fully his exercise of discretion. 129 It is necessary to describe what occurred by way of abandonment of claims, beginning with some amplification of what the claims were. 130 In its summons the respondent's primary position was that no contract had come into existence and it was entitled to payment for the work it had done on a quantum meruit basis. It had a fallback position in the event that, as alleged by the appellant, a contract had come into existence, with the elements of contractual payments for delay and variation costs, damages for repudiation, and Trade Practices Act variation of the date for completion. 131 The respondent's pleading was also imperfect. There was no pleading of entitlement to payment for the work done under the contract, indeed in the statement of relief there was no claim to contractual payments at all. A schedule to the summons, not referred to in its body, set out a calculation of "Costs and Damages claimed by AEC" which, as well as the pleaded amounts for delay and variation costs, had an amount for "value of work done based on a Tender Value of $14,000,000.00". It seems to have been accepted that the respondent's case in the reference had included, and had been understood as including, a claim to contractual payments for work done and for delay and variation costs. 132 Thus stood the respondent's claims until it came to submissions. If no contract, quantum meruit. If a contract, contractual payments and damages for repudiation. Put broadly, the familiar cross-allegations of repudiation involved whether, because of Trade Practices Act variation or outstanding claims for extensions of time or perhaps because time had been put at large, the appellant had wrongly treated completion in August 1999 as beyond the contractual pale. 133 In its submissions in chief served on 26 October 2001 the respondent foreshadowed amending the summons to substitute, on its fallback position, a claim on a quantum meruit basis consequent upon repudiation of the contract by the appellant ("a contractual quantum meruit"). It relied for the valuation of the claim upon the same evidence as that on which it relied for the valuation of its non-contractual quantum meruit claim. The submissions were not before us, nor was correspondence apparently on the same subject, but both were referred to in the discussion on 4 December 2001 to which I will shortly come. The respondent professed to elect to sue for a quantum meruit for the value of work done before repudiation in accordance with cases such as Lodder v Slowey (1904) AC 442; Segur v Franklin (1934) 34 SR 67; Brooks Robinson Pty Ltd v Rothfield (1951) VLR 405; and Renaud Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. 134 On the last sitting day of the reference, 4 December 2001 the appellant referred to "the foreshadowed application to amend", and said that the application was opposed and it would deal with the application when made. The respondent said to the referee, "You should treat our submissions on that subject as an application", and - "We have made our position clear in our submissions that, so far as the, if you like alternate case arising out of the summons is concerned, that is the case in the event that you find that there was a contract, we have put our case on the basis that if there was such a contract it was repudiated by the defendant, and we elect to cover seek to recover [sic] on a quantum meruit basis. The basis for that is spelt out in the submissions. You can treat it as a formal application." 135 At that time, it seems, there were to be oral submissions in February 2002, and the respondent said that the appellant was "on notice about" the amendment and that if it was to be opposed that could be argued during the oral submissions. The transcript continued - "THE REFEREE: All right. Can I just be clear about that. Does that mean that the various claims raised in the pleadings as they stand at the moment for damages for breach of contract, if there is a contract in respect of delay costs, money for variations and traditional damages for repudiation, are all abandoned? MR ORLOV: Not proceeded with, that is correct. We have made that very clear. THE REFEREE: I want to make sure that there is no doubt about it because I looked at it and to me there was a bit of obscurity about the last letter that was received, or what was copied from your side. MR ORLOV: As I am the author of the letter, I apologise for any obscurity. Let me make the position crystal clear as it appears that it is something that is going to be argued this morning. So far as the summons is concerned and the relief that the plaintiff seeks arising out of the summons, it seeks relief only on two bases: no contract; quantum meruit. If there is a contract, the contract is repudiated – quantum meruit. That is the only relief sought. 'Abandon' is a highly charged and emotional word. The claim is not abandoned. No relief is sought in respect of those other matters in the plaintiff's claim. I thought I had made that clear in various ways." 136 There was much further discussion: I will return to some of it when considering the appeal as to costs. So far as material to judgment on abandoned claims, the appellant pressed for a draft amended pleading, including "the amendment with respect to matters no longer proceeded with". The respondent said that it relied on the pleaded allegation of repudiation, applied only to amend the relief claimed in the summons, and did not have to amend to delete the allegations in the summons which as a consequence it did not pursue. Its counsel said - "MR ORLOV: I do not propose to amend in any other way. I have made our position clear that except where supported by the submissions we do not ask for any other relief in the submissions [sic: summons]. The cost consequences can be debated on another occasion, but I do not propose to amend. There is just no need to." 137 Eventually it was established that the respondent would provide a letter "which indicates those paragraphs of the summons in respect of which we ask [the referee] to make a determination", and that the referee did not need to address the other paragraphs. The appellant's counsel said - "MR ORLOV: There is the summons. This is what we seek: No contract, quantum meruit; contract, it is repudiated, quantum meruit. I have said it in letters. I have said it clearly. I can't be any clearer than that. If there is a need to sort of tick the paragraphs in the summons that relate to those allegations which we pursue, I will do it." 138 In a letter dated 4 December 2001 the respondent set out amendments to the summons to allege entitlement to and claim a contractual quantum meruit as a result of repudiation of any contract, in lieu of the allegation and claim going to damages for repudiation. The letter ended - "The plaintiff claims the declarations and other orders set out in paragraphs 1 to 6 (as proposed to be amended in the third further amended summons) and paragraphs 8 to 10. In accordance with the Referee's request, we confirm that the plaintiff's submissions in chief deal only with the issues raised by paragraphs 1 to 9, 10 (as proposed to be amended), 30, 31 and 32 (as proposed to be amended) of the Contentions. Those are the only issues arising out of the summons that the plaintiff requires the Referee to decide." 139 This would have removed from the referee's consideration the contractual payments, damages for repudiation, and Trade Practices Act variation of the date for completion. I will adopt the appellant's label of abandoned claims, without accepting its accuracy. 140 Although on 4 December 2001 the appellant said that it opposed the amendment application, it did not then say why. In its written submissions to the referee it asserted that it would be prejudiced because the valuation of a contractual quantum meruit claim differed from the valuation of a non-contractual quantum meruit claim. As it happened, there were no oral submissions. So far as appeared, nothing more was said of the outstanding amendment application. It was not necessary for the referee to decide it, because he found that a contract had not come into existence. He did not decide it. 141 The appellant applied for judgment on the abandoned claims so that it could rely against the respondent on principles of res judicata. It did not submit that there might be fresh proceedings brought by the respondent in which those principles would provide a defence, or that res judicata might operate outside the current proceedings. It wanted judgment so that, if it were held in these proceedings that a contract had come into existence, the respondent would be precluded by res judicata from maintaining the abandoned claims in the proceedings. With a qualification, the appellant said that the res judicata would prevent the respondent from maintaining its claims to contractual payments and to damages for repudiation, and also from "propound[ing] in a defensive way their quantification of delay costs and value of variations in answer to our cross-claim for damages for their repudiation". The qualification was that, because the claim to payment for work done under the contract had not been pleaded, the appellant conceded that judgment could not be given as to that contractual claim. 142 The respondent accepted that it would not be able to maintain the abandoned claims in fresh proceedings. That concession was made before the judge, and no doubt explains his reference to the principles in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. But the respondent wanted to keep the abandoned claims alive and maintainable in the unhappy event that it was held in the proceedings that a contract had come into existence. It did not accept that res judicata would preclude defensive use of the claims to delay and variations costs, but wanted to keep all the abandoned claims alive for offensive use. It submitted that it should not be shut out from the claims when its amendment application had not been decided, and pointed out that the application was still opposed and if it came for decision might fail. It said that in any event it would be unjust to deprive it of the ability to revoke its election and revert to the currently pleaded position if there came about the changed landscape of a contract in existence between the parties. 143 Res judicata is not a single doctrine. Where a plaintiff establishes his cause of action, upon judgment the cause of action "pass[es] into judgment, so that it is merged and has no longer an independent existence" (Blair v Curran (1939) 62 CLR 464 at 532 per Dixon J; see also Port of Melbourne Authority v Anshun Pty Ltd at 597). Where a plaintiff fails to establish his cause of action and there is judgment for the defendant, there is nothing to pass into judgment and the judgment operates as an estoppel. It is the estoppel per rem judicatam described by Diplock LJ in Thoday v Thoday (1964) P 181 at 197-8 - " ... The particular type of estoppel relied upon by the husband is estoppel per rem judicatam. This is a generic term which in modern law includes two species. The first species, which I will call 'cause of action estoppel', is that which prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non-existence or existence of which has been determined by a court of competent jurisdiction in previous litigation between the same parties. If the cause of action was determined to exist, ie, judgment was given upon it, it is said to be merged in the judgment, or for those who prefer Latin, transit in rem judicatam. If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam. This is simply an application of the rule of public policy expressed in the Latin maxim 'Nemo debet bis vexari pro una et eadem causa'. In this application of the maxim 'causa' bears its literal Latin meaning. The second species, which I will call 'issue estoppel', is an extension of the same rule of public policy. There are many causes of action which can only be established by proving that two or more different conditions are fulfilled. Such causes of action involve as many separate issues between the parties as there are conditions to be fulfilled by the plaintiff in order to establish his cause of action; and there may be cases where the fulfilment of an identical condition is a requirement common to two or more different causes of action. If in litigation upon one such cause of action any of such separate issues as to whether a particular condition has been fulfilled is determined by a court of competent jurisdiction, either upon evidence or upon admission by a party to the litigation, neither party can, in subsequent litigation between one another upon any cause of action which depends upon the fulfilment of the identical condition, assert that the condition was fulfilled if the court has in the first litigation determined that it was not, or deny that it was fulfilled if the court in the first litigation determined that it was." 144 This explanation of estoppel per rem judicatam has been adopted in Thrasyvoulou v Secretary of State for Environment (1990) 2 AC 273 at 295-6, Republic of India v India Steamship Co (1993) AC 410 at 416-7 and Macquarie Bank Ltd v National Mutual Life Association of Australasia Ltd (1996) 40 NSWLR 543 at 556-7. A judgment in favour of the appellant could operate as cause of action estoppel or issue estoppel. 145 For cause of action estoppel, the cause of action must be identified. As was said by Brennan J in Melbourne Authority v Anshun Pty Ltd at 610-11. there is imprecision in the meaning of the term which "tends to uncertainty in defining the ambit of the rule that judgment bars subsequent proceedings between the same parties on the same cause of action". It is necessary to "[examine] the factual circumstances relied upon to establish the right to relief in each case in order to determine whether there is a sufficient identity between them to found the conclusion that the same cause of action was in question in both cases" (Macquarie Bank Ltd v National Mutual Life Association of Australasia Ltd at 559). No submissions were addressed to whether the claims to contractual payments for work done and for delay and variation costs were the one cause of action or a number of separate causes of action. 146 More significant questions could arise for issue estoppel. There would be no findings or reasons for decision. The judgment would be akin to a consent judgment, which can give rise to issue estoppel, and materials beyond the pleadings could be examined to determine the matters in dispute: see generally Spencer Bower, Turner and Handley, Res Judicata, 3rd ed, pp 39-40. The learned editor notes that the extent to which a consent judgment may give rise to issue estoppel has not been finally determined. The significance, if any, of the circumstances of the abandonment to the extent of any issue estoppel, and what issues could be the subject of estoppel, were also not the subject of submissions. 147 It is not necessary to take these matters further, or to consider what is meant by "claim" in s 91(2) of the Supreme Court Act or the scope of Pt 40 r 1 of the Rules. They suggest caution in giving judgment in this case, a need to be sure that the judgment is permissibly framed, and that, so far as utility is relevant to the discretion, an appreciation of the effect of the judgment is called for. 148 In cases such as Fox v Star Newspaper Company and Pertsinidis v Australian Credit Union Ltd the party claimed against can reasonably contemplate that the claiming party may bring fresh proceedings, either on the same cause of action or on a cause of action an element of which is common to the abandoned cause of action. There is then good reason, in fulfilment of the policy behind the principles of res judicata, to give judgment on the abandoned claim. But the circumstances in the present case are very different. 149 When the application for judgment was considered by the judge, he had held that no contract had come into existence and that the respondent should have judgment on its non-contractual quantum meruit claim. There was no suggestion of fresh proceedings, and the parties were at issue over the future of the current proceedings. The outstanding amendment application did not arise. Subject to any appeal, there could be no detriment to the respondent in the proceedings if there was judgment on the abandoned claims. There was no question of it maintaining the claims to contractual payments or damages for repudiation in the proceedings, and no occasion for it to maintain the claims to delay and variation costs defensively. The Trade Practices Act variation received little attention in submissions, but it was of no consequence either offensively or defensively. On the other hand, and again subject to any appeal, there could be no benefit to the appellant in the proceedings if there was judgment on the abandoned claims, for the same reasons. This is probably what the judge had in mind in his reference to inutility. His Honour probably thought that the policy behind the principles of res judicata was not enlivened, because the claims had no significance to the current or any future litigation between the parties. If this understanding is correct, I consider it was open to the judge to exercise his discretion by declining to order judgment on the abandoned claims. 150 In my opinion, however, refusal of the appellant's application for judgment was warranted on further grounds. I do not think the label of abandoned claims was accurate. In Fox v Star Newspaper Company and Pertsinidis v Australian Credit Union Ltd the abandonment was unequivocal. Not so in the present case, and that would be important in the exercise of the discretion. 151 The abandoned claims had been fully litigated. The abandonment followed the late election for a contractual quantum meruit. The election was accompanied by an application to amend. Despite the rather absolute language of the respondent's counsel and in the letter of 4 December 2001, the election was implicitly subject to leave to amend. The label of abandoned claims was not accurate, nor indeed was the respondent's description of claims not pursued, because it had to be asked what would happen if leave to amend were refused. I do not think that at the time the respondent intended, or was taken to intend, that if the referee refused leave to amend the respondent should be entirely out of court in the event that it was then held that a contract had come into existence. 152 The judge noted a submission that "if leave had been refused it would have been necessary for the plaintiff to consider whether it wished to press its claim for damages", and that "[n]othing that the plaintiff said or did conveyed that if leave was refused the plaintiff would not proceed with its claims based on the defendant's repudiation of the contract". The respondent's submissions on appeal encompassed that position. The appellant did not submit that it had a different understanding; indeed, its application for judgment was intended to prevent the respondent from proceeding with the so-called abandoned claims. 153 If there were a successful appeal, leave to amend would arise. The appellant's counsel said, when asked if the appellant was still resisting amendment, that he had no instructions to the contrary. If leave to amend were refused, it can readily be seen that the respondent would seek to revert to its claims for contractual payments and for damages for repudiation. Consistently with holding that no contract had come into existence, the judge could recognise that an appeal could be brought and a different decision be reached. The question then would be whether the election had irrevocably committed the respondent to a contractual quantum meruit. It seems that no submissions were addressed to whether it had done so, either immediately or upon the appellant acting upon it, and that the judge was not asked to decide the question. Apart from inutility, the discretion should not have been exercised to give judgment on the abandoned claims and thereby effectively determine the question against the respondent. The so-called abandonment was conditional, and did not warrant judgment so long as the conditionality could arise. 154 There was more than inutility: in my opinion, there was good reason not to give judgment. That reason remains even if this Court is also of the view that no contract had come into existence. Although by special leave, there can be an appeal to the High Court where a different decision may be reached. Costs 155 The judge was provided by the appellant with a five-page schedule of "claims and allegations" abandoned by the respondent, and with an affidavit sworn by the appellant's solicitor attributing time in the reference to the abandoned claims and allegations. The claims and allegations, tabulated in paras (a) to (r), were a detailed subdivision of, and may have gone beyond, the abandoned claims earlier described. 156 The judge noted the appellant's submission that in deciding as to costs he should take into consideration three matters, the third being that the respondent "abandoned all of its claims except the claim which was truly its only case, namely that the parties never concluded a binding contract". Based on the solicitor's affidavit, the appellant submitted that approximately fifty per cent of the parties' time was spent "addressing issues which were ultimately abandoned by ABB". 157 It should be said that on no view was the respondent's only case that the parties never concluded a binding contract. It had the fall-back case if, as the appellant contended, a contract had come into existence, albeit a case which it sought to change by the election earlier described. The appellant's submissions to the judge went some way beyond the abandoned claims, but the focus was on waste of costs referable to the abandoned claims. The judge did not think the solicitor's assessment reliable, but also did not accept the underlying waste of costs referable to the abandoned claims. 158 At an early point in his reasons the judge said that - " … a thorough investigation by interrogation of counsel on the hearing of the instant application has entirely satisfied me that because of the way in which each side had pleaded and sought to litigate its respective case it cannot be said that the abandoned claims meant that very much at all of the evidence which both sides adduced would not have had be adduced in any event . The matter will be returned to below." 159 After outlining and citing from the parties' submissions the judge stated, under the heading "Holding" - "24 The proper exercise of the Court's discretion is to order that the defendant's pay the plaintiffs costs of the Reference. Notwithstanding the care with which each of the parties framed its pleadings the essential issue, albeit arising from a number of causes of action generally put by each party in the alternative, concerned the legal rights which the parties had in relation to the work done and materials supplied by the plaintiff for the benefit of the defendant. The fact that the plaintiff ultimately did not pursue some of its alternative claims which as a leg of a cause of action put as one alternative, depended upon the Referee finding that the parties had entered into a contract, does not, provide a proper basis for departing from the general rule that costs should follow the event. There is no basis upon which it can be concluded that the plaintiff acted unreasonably in pleading the claims and maintaining them at the hearing. The short position is that the parties each reacted to the stances taken by the other in protective forensic mode where contraposed positions were of the type often encountered in situations where high uncertainty prevails as to the correct legal analysis (so very dependent on the facts). 25 I further accept as correct and adopt the following submissions by ABB: · First, it was always open to the plaintiff to litigate a quantum meruit claim in the alternative to its damages claim for repudiation and to defer electing between the two remedies until the time for judgment. The course that the plaintiff adopted was no different in its effect. · Second, evidence that was relevant to issues that the plaintiff ultimately did not pursue was also relevant to other issues that remained to be decided. For example, evidence of the contract value of the work was relevant to the reasonableness of the remuneration claimed on a quantum meruit and to the valuation of the defendant's cross claim. Evidence relating to the progress of the works and the causes and extent of delay was relevant to the valuation of the plaintiff's quantum meruit claim, the defendant's Trade Practices Act case and to the valuation of the defendant's cross claim. · Third, some of the issues that were not pursued involved questions of argument only and had no bearing on the course of evidence or the length and cost of the hearing. 26 Each of those submissions were [sic] supported by carefully focused submissions which it seems to me are correct. Those submissions are as follows: … " 160 The judge then set out verbatim about ten pages of the respondent's written submissions, which he said "seems to me are correct". The thrust of the submissions was that the respondent could have pleaded alternative cases of claims for contractual payments and damages for repudiation, on the one hand, or a contractual quantum meruit claim, on the other hand, from the beginning, and could have delayed its election until shortly before judgment; that what had occurred was in substance no different; and that in any event the evidence going to issues not pursued was also relevant to continuing issues in the reference. The submissions went to the paragraphs in the appellant's schedule of abandoned claims and allegations, and said as to each either why there was continuing relevance or that the matter was one of argument only. For reasons which will appear, it is sufficient to note that the submissions included as paras 36 and 38, referring to paragraphs (n) and (p) to (r) in the schedule of abandoned claims and allegations - "36 . The issue of the cost consequences of delay suffered by the plaintiff referred to in (n) remained relevant both to the plaintiff's quantum meruit claim and to the valuation of the defendant's cross claim." "38. The issues raised in (p)-(r) concerning the value of variations remained relevant to the valuation of the defendant's cross claim." 161 The judge globally accepted paras 36 and 38 as part of what seemed to him to be correct. 162 The judge said, speaking of all abandoned claims and allegations - "29 In the result it may be seen that although at first blush the proposition that the plaintiff having pleaded albeit in the alternative, certain particular matters and having elected to abandon them following the adducing of the evidence, should likely bear the costs of and occasioned in relation to the litigating of those matters, this is not a case in which that result should follow. The question of progress on the job was integrally tied to the balance of the cases pursued by both parties. The mere fact that one subset of the plaintiff's evidence going to an assertion, if there had been a contract, of an entitlement to extensions of time under that contract, and that for example a programmer had given evidence to support this proposition, does not establish anything remotely like that for which the defendant contends presently." 163 In the summary earlier mentioned he said as to costs that "[t]he decision in relation to costs of the proceedings appropriately takes into account the whole landscape comprising the course of the proceedings, only one parameter of which includes matters abandoned by ABB." 164 The part played in the judge's exercise of discretion by continuing relevance to other issues of evidence relevant to abandoned claims is not entirely clear. The judge accepted that abandonment of claims meant that some evidence, although not much, had been needlessly adduced. In directing himself as to the principles on which he should exercise his discretion, the judge referred to cases suggesting caution against too ready apportionment according to issue-based outcomes, lest parties be dissuaded from canvassing all issues which might be material (Cretazzo v Lombardi (1975) 13 SASR 4; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Waters v P C Henderson (Aust) Pty Ltd (CA, 6 July 1994, unreported); NRMA Ltd v Morgan (No 3) [1999] NSWSC 768; Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282). He appears to have considered that, in conformity with this caution, where alternative claims and cross-claims had been reasonably brought by both parties in "protective forensic mode", the abandonment of claims should not bring adverse costs consequences, because on "the whole landscape" the abandoned claims were "only one parameter". 165 In my opinion, the preferable understanding of the judge's reasons is that he considered that costs should follow the event even if abandonment of claims meant that some of the evidence had been needlessly adduced. If that be a correct understanding, it did not matter that some evidence relevant to abandoned claims did not have continuing relevance to other issues. 166 The judge's decision as to costs was discretionary, and it was necessary that the appellant establish error within the principles in House v The King. 167 The appellant first submitted that, if the respondent had applied for leave to discontinue with respect to the abandoned claims, it would have obtained leave only on terms that it pay the appellant's costs and could not have expected an order in its favour for the costs of the discontinued claims. In summary, it submitted that the judge erred in principle in failing to follow the policy inherent in the Rules dealing with discontinuance, a policy that a party abandoning claims should pay the costs referable to the claims, and instead treated the respondent as successful overall in the proceedings. 168 There is nothing in this, for at least two reasons. First, as earlier explained the so-called abandonment was conditional. There was not the equivalent of an application for leave to discontinue, and the abandonment could not be likened to a discontinuance, so long as it might be found on consideration of the report or on appeal thereafter that there was a contract and the amendment application might be refused. To approach costs on the basis of a notional discontinuance would have been erroneous. Secondly, if there had been an application for leave to discontinue costs occasioned by the discontinued claims would not have been payable if the Court otherwise ordered (Pt 52A r 21). The judge would still have had to exercise his discretion by placing the discontinued claims in the "whole landscape comprising the course of the proceedings". He did that in relation to the abandoned claims, and a label of discontinued rather than abandoned would have been of no consequence. 169 The general discretion as to costs fell to be exercised with regard, amongst other things, to the abandonment of claims. The judge did not exclude consideration of the significance to costs of the respondent's abandonment of claims. He spent many pages dealing with it. There was no error in failing to regard the abandoned claims as discontinued claims. 170 The appellant did not otherwise submit that the judge misdirected himself as to the principles on which he should exercise his discretion. It secondly submitted that the judge's exercise of his discretion miscarried because he proceeded on an erroneous factual basis. The error was that by his acceptance of paras 36 and 38 of the respondent's submissions, he found that the cost consequences of delay and the value of variations, elements of the respondent's contractual claims, remained relevant to the valuation of the appellant's cross-claim. 171 This was a very limited challenge to the judge's exercise of discretion. The appellant expressly accepted that costs referable to the respondent's claim to contractual payment for work done remained relevant to the valuation of the appellant's cross-claim, on the basis that in arriving at the appellant's damages for repudiation the appellant had to give credit for the amount which would have been payable to the respondent if the contract had remained on foot. No point was made as to costs referable to the respondent's claim to damages for repudiation or its Trade Practices Act claim. Of the abandoned claims and allegations in paras (a) to (r) of the schedule provided to the judge, the challenge involved only para (n), the cost consequences of delay suffered by the respondent, and paras (p) - (r), really only (r), the value of variations. Further, the appellant said that it was unable to submit, and did not submit, that the amount of the delay costs was not relevant to the respondent's quantum meruit claim, so the cost consequences of delay remained relevant in the proceedings even if not relevant to the valuation of the appellant's cross-claim. 172 If my understanding of the judge's reasons earlier stated is correct, it may not matter if the judge erred in the manner suggested. Any error was as to part only of the much greater litany of abandoned claims and allegations on which the appellant relied before the judge. At one point the judge said, in describing the "landscape", that "the fundamental issue in the proceedings was the sum due from one party to the other, each claiming on alternative grounds that it was entitled to receive payment from the other". If the judge thought that the abandoned claims were "only one parameter" and accepted the abandonment of claims meant that some evidence had been needlessly adduced, he is unlikely to have thought of significance the costs referable to the cost consequences of delay and the value of variations. The appellant did not seek to resurrect the solicitor's affidavit, and those costs had to be seen in the context of huge expense a great deal of which, in the result, was not material to the outcome. 173 Further, it must be remembered that the so-called abandonment was conditional. Regard to the cost consequences of delay and the value of variations retained potential relevance beyond the valuation of the appellant's cross-claim, in the event that it was found that a contract came into existence and the appellant successfully opposed leave to amend. It was well open to the judge to take the view that, in the overall conduct of the proceedings, the costs referable to the cost consequences of delay and the value of variations were reasonably incurred as part of the respondent's fall-back case to which it might have to return if leave to appeal were refused. It is not clear that the judge reasoned in that way. Probably he did not: to the extent to which the continued relevance of the cost consequences of delay and the value of variations weighed in his consideration, he saw it as relevance to the cross-claim rather than potential relevance to the respondent's claims. 174 There being uncertainty in the judge's reasons, however, I go to whether the judge erred in the manner suggested. 175 The appellant submitted that on 4 December 2001 the respondent abandoned all regard to the cost consequences of delay and the value of variations, not only as to its contractual claims in the proceedings but also so far as relevant to the appellant's cross-claim. It said that, as a result, the cost consequences of delay and the value of variations, which would otherwise have been relevant as amounts for which the appellant had to give credit in the valuation of its cross-claim in like manner to contractual payment for work done, became irrelevant in the proceedings. 176 The discussion on 4 December 2001 so far as material to the cross-claim should be seen in its pleading context. In the cross-claim the appellant alleged that the respondent repudiated the contract by saying that it was unable or unwilling to complete the works until about August 1999. It alleged that as a result of the repudiation it suffered loss and damage, but the damages were not meaningfully particularised. The defence to the cross-claim included that under the contracts alleged to have come into existence on 19 February, 5 May and 7 July 1998 the respondent was entitled to extensions of time "by reason of causes beyond its control and/or for variations in respect of the Works". The allegation of suffering loss and damage was denied. The time consequences of delay and of variations were relevant to whether there had been repudiation, and the cost consequences of delay and the value of variations were relevant to valuation of the appellant's damages for repudiation. 177 In the discussion counsel for the respondent followed his clarification that relief was sought only by the alternative quantum meruit claims as follows - "[MR ORLOV:] So far as the defendant's cross-claim is concerned, the only matters that the plaintiff draws upon are those matters that are pleaded in its defence. That just raises quite different issues. THE REFEREE: That means, does it, that specific claims in respect of entitlements to extensions of time raised on various bases - MR ORLOV: You will not be asked to determine extensions of time on any basis. THE REFEREE: All right. But some of the allegations made in the pleadings with respect to entitlements to extensions of time and/or capacity to finish by a particular date by the plaintiff are raised as well in a defensive way - MR ORLOV: To the extent that those are relevant to deal with the way - THE REFEREE: - in response to the repudiation case, for instance. MR ORLOV: To the extent that any of the allegations in the defence are relevant to deal with the cross-claim in the way in which it is put in the defendant's submissions, we will rely upon that. There is certainly not abandonment of it. What I can foreshadow is that you will not be asked by us to determine any question of entitlement to extensions of time on either basis. I think there is a pleading in the defence to the cross-claim that relates to that, but we certainly will not be asking you to decide extensions of time. THE REFEREE: I thought also in the second further amended summons, in a defensive sense, there were issues raised in response to the repudiation claim which related to either an entitlement to an extension of time under a contract, if there was a contract, or an incapacity to finish by a certain time because of acts and omissions of the defendant. MR ORLOV: The only way we put our case in chief, Mr Referee, is on the basis that there is a contract, that, as we have spelt out in our submissions in chief, if here was a contract that contract was repudiated by the defendant's purported termination on 14 October. That is the way the case is put. That is the only way the case is put. There are a whole host of other variations put in response to the defendant's repudiation case. We have narrowed our response to that and that is the basis on which we have put it in the summons, so we have dealt with that case. What we are principally concerned with with the cross-claim is dealing really with the misrepresentation case." 178 At a later point counsel for the appellant drew attention to the respondent's assertion, in a document not in the appeal papers, that "it is entitled to additional time and therefore it did not repudiate". He asked for confirmation that "no submissions will be made in relation to that contractual entitlement". The transcript continued - "MR ORLOV: I will say it one more time: We will not be asking you to determine any extensions of time. I just can't be any clearer than that. THE REFEREE: But I think what Mr Corsaro is saying by way of submission there is by delivering a particular program which showed a particular completion date and then by making some statements about completion date, the plaintiff repudiated the contract, and a defensive response to that from the plaintiff is, 'No. Look at all of this. That conduct wasn't repudiatory, because, by reference to these circumstances which we contend, we were entitled to an extension of time.' Therefore, it wasn't a repudiation of the contract to say, 'We will finish later than the day on which you say we have to finish'. MR ORLOV: Sorry, I know what the pleadings say, but we have dealt fully with the repudiation case in our submissions in chief, and I'm saying again: we will not be asking you to determine any extensions of time. I understand that there are references in the pleadings to claims for extensions of time, but I say again: we will not be asking you to determine any extensions of time." 179 The appellant thereafter delivered its submissions on, amongst other things, damages for repudiation. The respondent's submissions in reply took issue with the appellant's attribution of seventy per cent of the appellant's delay costs to acts of the respondent, and as to variations said that if the appellant were liable for a variation an allowance should be made in favour of the respondent in the valuation of the damages for repudiation. A detailed schedule of variations and their values was provided. We were not referred to reliance on an entitlement to delay costs as part of the valuation of the appellant's damages for repudiation, and I infer that there was no such reliance. 180 In its final submissions the appellant said of the submissions last mentioned that "these matters have all been abandoned by ABB", without further explanation, but went on to respond to them. In the absence of oral submissions, there it was left. 181 Nothing said by the respondent on 4 December 2001 went beyond determining extensions of time as part of the defence to the cross-claim. All other matters were preserved. So far as the appellant relied also on the letter of 4 December 2001, its reliance was misplaced, because the letter was limited to issues arising out of the summons. 182 Consistently with what was said on 4 December 2001, the respondent could rely on an entitlement to the value of variations as part of the valuation of the appellant's damages for repudiation. It did so. The judge was not in error as to the value of variations. 183 The judge noted and apparently accepted submissions by the respondent that it made clear that, although the referee was not required to decide its claims for extension of time, that did not "relieve the defendant of the need to prove the matters upon which its cross claim depended", and that the evidence "going to the issue of delay … remained directly relevant to the cross-claim". The time consequences of delay remained relevant, at the least to attributing responsibility for delay as between the appellant and the respondent. The cost consequences of delay, meaning the consequences to the respondent, was a different matter. Assuming that abandonment is an accurate description of what occurred, the appellant was on firmer ground in its submission that regard to the costs consequences of delay was abandoned. The cost consequences to the respondent normally could not be found without determining its entitlement to extensions of time. That was fully abandoned, and entitlement to delay costs was not relied on for the valuation of the appellant's damages for repudiation. 184 Subject to the assumption, I conclude that the judge was in error in finding that the cost consequences of delay remained relevant to the valuation of the appellant's cross-claim. It does not follow that the judge's exercise of discretion is negated and the discretion must be re-exercised. The assumption is not correct, and I have already referred to its potential relevance to the respondent's claims. That aside, an error as to a fact which, if correctly found, would not have brought a different exercise of discretion does not trigger appellate intervention. The error must be as to a fact important to the decision (State of Queensland v J L Holdings Pty Ltd (1997) 141 ALR 353 at 372 per Kirby J), or a material fact (Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45] per Heydon JA), so that the discretion has thereby miscarried. 185 The error has come down to the one matter of relevance of the cost consequences of delay to the valuation of the appellant's cross-claim. The cost consequences of delay independently remained relevant in the proceedings to the respondent's quantum meruit claim. Any continued relevance was sufficient, since it meant that costs were not wasted through abandonment. Even if the judge had not accepted continuing relevance to the valuation of the appellant's cross-claim, his decision would have been the same. There is no occasion to intervene. The result 186 I propose the following orders - In the proceedings below, dismiss the cross-claim. In the appeal, appeal dismissed with costs. 187 TOBIAS JA: I agree with Giles JA. 188 CRIPPS AJA: I agree with Giles JA. ********** Last Modified: 06/15/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.