Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211

What the court decided

Peninsula Balmain Pty Ltd engaged Abigroup Contractors Pty Ltd under a contract dated 20 March 1998 to carry out works at Balmain for a guaranteed maximum price of $26.1 million, on the general conditions of AS2124-1992 with special conditions [3], [6]. The superintendent named in the contract was The East Asia Property Group Australia Pty Ltd (East Asia), a company related to Peninsula [5], [7]. Under a project management agreement of 28 May 1997, Peninsula had authorised East Asia to act as its agent in matters of the design and construction of the project [5]. The referee's report, as quoted by the primary judge, recorded that it was not in issue that Peninsula had not revealed that agreement to Abigroup before contract [35]. Clause 23 required Peninsula to ensure that the superintendent acted honestly and fairly [8].

The date for practical completion was 1 March 1999, and the superintendent extended it to 26 April 1999; no other extension was sought or granted [15]. On 1 December 1999 Peninsula terminated Abigroup's employment and later engaged another contractor to complete the works [19]. The whole proceedings were referred to a referee [20]. Abigroup claimed damages for misleading conduct and for breach of clause 23, both founded on the non-disclosure [22]. In the alternative it claimed contractual sums including variations and delay costs [22]. The misleading conduct claim engaged sections 4(2) and 52 of the Trade Practices Act 1974 (Cth) [34]. Peninsula cross-claimed for liquidated damages, completion costs and damages for delay [23].

The referee found that Peninsula had breached clause 23 and that its non-disclosure was misleading conduct, and that if Abigroup was entitled to damages on that basis, it was entitled to a quantum meruit of $2,874,817.00 [24]. He also found that the date for practical completion should have been extended to 5 June 1999 [25]. Subject to the consequences of those findings against Peninsula, he found that Peninsula was entitled to terminate for Abigroup's delay and to liquidated damages from 5 June 1999 to 1 December 1999 [26]. Barrett J upheld the claim for damages for misleading conduct, less an amount for variation VPR32, which he disallowed [3], [29]. Apart from that variation, he upheld the referee's findings on the other matters [29]. He gave judgment for Abigroup for $2,870,260.50 and dismissed the cross-claim, and Peninsula appealed [3]. Hodgson JA gave the reasons of the Court of Appeal, and Mason P and Stein JA agreed [1], [2].

On misleading conduct, Hodgson JA accepted the finding that, had Abigroup known of the agreement, it would have asked for at least one of three specified changes and, without Peninsula agreeing to at least one of them, would not have contracted [47]. The finding that non-disclosure was misleading was in a different position, because it rested on a view of the legal effect of the agreement [48]. Hodgson JA said that the authorities were not altogether clear, but that the better view was that a superintendent is the owner's agent in all matters only in a loose sense [50]. When certifying, a function requiring honesty and impartiality, it does not act as the owner's agent in the strict sense [50]. The owner's ability to challenge a certificate confirmed this [50]. The agreement authorised East Asia to act as agent, but required it to act professionally in administering and certifying under the building contract, and to that extent prohibited it from acting as Peninsula's agent in the strict sense [51].

Conduct had to be apt to mislead in some non-trivial respect, and the contract itself showed that the superintendent was engaged and paid by Peninsula and would act in some respects as its agent [54]. On that construction, non-disclosure could mislead only because commercial people might read the agreement as affecting East Asia's role, and no such case was suggested on the pleading [54], [55]. Hodgson JA saw "some force" in Abigroup's submission that the effect on commercial people was what mattered [52]. But he held that it should not prevail [53]. An express statement of the agreement's true effect could not have been misleading, and the position without any express representation was stronger [55]. The referee's finding was vitiated by an error of law and was set aside [55].

Hodgson JA identified further difficulties for Abigroup. The onus of proving causation was on Abigroup, and it had shown no basis for inferring that Peninsula would have refused the third change, which matched the agreement's true effect [57]. So far as the case rested on refraining from disclosure, section 4(2)(c) required actual advertence to the question and an intention that disclosure not be made, which the referee had not found [58]. A case that entering the contract was itself misleading would have required Abigroup to allege and prove the representation conveyed [59]. It followed that the agreement put Peninsula in no breach of clause 23 [60]. A failure to ensure a reasonable measure of time would be a breach of clause 23 by Peninsula, but it went only to extensions of time [61]. The views Hodgson JA went on to express about the measure of damages were therefore not necessary to the result [62].

On extension of time, the referee found that the clause 35 procedure for claiming an extension was mandatory and had not been followed [70]. He found that the superintendent could nonetheless extend time under a later paragraph of that clause, which allowed an extension for any reason even where the contractor had no entitlement [9], [71]. He found that extensions should be granted for all the delays Abigroup relied on [72]. Hodgson JA accepted that, without that power, Abigroup's failure to claim in time would have left it without an extension and liable for liquidated damages, even for delay caused by variations Peninsula required [78].

In Hodgson JA's opinion, the power could be exercised in the interests of either party, and the superintendent had to act honestly and impartially when deciding whether to use it [79]. A late claim that had become hard to decide because of the lapse of time might fairly be refused, but there was no suggestion of that here [79].

The power did not automatically end on termination for the builder's breach, because clause 35.6 operated after termination under clause 44 and so needed a date for practical completion [80]. It was not lost on termination even where the request to exercise it was first made after termination [80]. The referee could therefore decide what the superintendent would have done if acting fairly, and no error was shown in the primary judge's acceptance of the referee's conclusion [79], [81]. It was unnecessary to decide the referee's alternative finding of estoppel, but Hodgson JA saw force in Peninsula's submission that the facts needed for an estoppel had not been found [73], [82].

On variations, the referee had not addressed the time requirements of clause 40.2 for four variations, as he should have [84], [92]. Peninsula had not submitted that no price was submitted or that no direction to proceed was given [93]. In those circumstances, Hodgson JA held that, even if late advice and pricing breached clause 40.2, the builder was not thereby disentitled to payment, provided that at some stage it had submitted a price and been directed to proceed [93]. A finding of an "instruction" was enough to establish a direction under clause 40.1 for variation VPR51R [95]. No error was shown for VPR53, and if Abigroup's entitlement arose under clause 40 or outside the contract, clause 46 did not apply [99].

On delay costs, Hodgson JA read the contract material as replacing clause 36 with a special condition consistent with the daily limit in the tender document, and on that reading the primary judge was wrong not to apply the limit [100]. He accepted that he might be mistaken, as the point had not been argued, and reserved leave to Abigroup to make submissions on it [100]. The referee had also erred in holding that insurance cover alone prevented Peninsula from claiming the cost of rectifying water damage, and should have decided whether Abigroup's breach caused the burst pipe [106]. That question was remitted to the referee [107].

The appeal was allowed and the orders below were set aside [108]. The referee's reports were adopted, subject to the disallowance of VPR32 and to delay costs at $7,890.00 per day [108]. The referee's disallowance of $998,271.00 of Peninsula's costs and the finding of misleading conduct and breach of clause 23 were set aside [108]. The question of Peninsula's costs for the period from 16 January to 31 March 2000 was remitted to the referee, with the matter then to return to the Equity Division for judgment [108]. Abigroup was ordered to pay the costs of the appeal, with leave to apply for reconsideration of that order and of the delay costs rate [108].

Why it matters

On the contract and pleadings before it, the Court of Appeal construed an undisclosed agreement authorising the superintendent to act as the principal's agent as not requiring it to act as a strict agent when certifying, and held that the principal's failure to disclose it was not misleading. It also held that the superintendent's power to extend time without a timely claim had to be exercised honestly and impartially, and that it did not automatically end on termination for the contractor's breach.

The decision applied the Act, the contract terms and the authorities as they then stood. Readers should check the current legislation and later authority before relying on it.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.