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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Contract - Whether statements were promissory - construction - breach - estoppel or "unconscionable" conduct - duty to co-operate in the performance of the contract - "show cause" provision - whether Secretary of Department acting in arbitral or quasi-judicial capacity under show cause provision - measure of damages - whether chance of exercise of power to cancel under show cause provision should be taken into account in assessing damages - proper measure of damages - whether "reliance" damages available - whether permissible to "pierce the corporate veil" in assessing damages.Evidence - Inference that may be drawn from failure to call evidence - whether available in the case of expert testimony.
Evidence - Judicial notice - whether judicial notice may be taken of time of commencement of "wet" season in Northern Australia.
HEARING
SYDNEYCounsel and Solicitors for Applicant: L.C. Gruzman QC, D.A. Cowdroy and A.M. Gruzman
Instructed by: Owen Hodge Son
Counsel and Solicitors for Respondent: D.E. Grieve QC, S.D. Robb, P.A. Sharp and C.P. Comans
Instructed by: Australian Government Solicitor
ORDER
The respondent pay the applicant the sum of $410,000.00. The respondent pay one-half of the applicant's costs of and incidental to
the proceedings, to be taxed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
DECISION
Amann Aviation Pty. Limited ("the applicant") sues the Commonwealth for damages for breach of a contract made between them in March 1987. Under the contract, the applicant agreed to supply aerial coastal surveillance charter services to the Commonwealth. But on the day that the applicant commenced its air patrol operations, 12 September 1987, the Commonwealth purported to terminate the contract. The applicant claims that this termination was wrongful and was thus a repudiation of the contract by the Commonwealth for which the Commonwealth is liable in damages. The Commonwealth acknowledges the making of a contract, but contends that sufficient grounds existed to justify the termination. There is a contest between the parties as to the true meaning of their agreement and as to the level of performance offered by the applicant under it. If, contrary to its contention, the Commonwealth be held liable for breach of contract, there is a dispute as to the measure of the loss suffered by the applicant. It claims substantial damages, primarily by way of compensation for the loss of profits it claims it would have earned if it had been permitted to perform the agreement. The Commonwealth, on the other hand, says that the applicant suffered no loss because it would have lost money on the contract in any event. The applicant also sues for damages for negligent statements alleged to have been made on behalf of the Commonwealth.2. The Commonwealth has established a programme for the surveillance of
Australia's northern coastline. Its earlier history is described
in the
report by the House of Representatives Standing Committee on Expenditure (May
1986), especially ch. 2. The programme reflects
the Government's concern
about smuggling, unauthorised landings, quarantine breaches and other illegal
activities. From a quarantine
viewpoint, the most significant feature of the
surveillance arrangements is a daily aerial littoral search. The purpose of
the search
is to locate, and provide a basis for reaction to, unauthorised
landings and other activities which may pose a risk of the introduction
of
exotic diseases into Australia. The aircraft carrying out the littoral
coastwatch may also be required to provide a search and
rescue service in
emergencies.
The tender
3. On 27 August 1986, the Commonwealth called for tenders for the provision of aerial coastal surveillance in Northern Australia. The general area to be covered was from Karratha in Western Australia to Cairns in Queensland. The conditions of contract referred to in the tender issued by the Department of Transport ("the Department") will be discussed in detail later. They provided that the contract would be in force for the number of months of aircraft operation specified in the Notice of Acceptance. The contractor was to take over the sectors that it contracted for from the existing contractor on a sector by sector basis as soon as possible after receipt of the Notice of Acceptance and expiry of the existing contract. (The existing contract was that between the Commonwealth and Skywest Airlines Pty. Ltd. ("Skywest") then due to expire on 31 March 1987.) The task required of the charter aircraft was the visual search of a defined "Littoral Area" and certain other areas in sectors nominated by the Department during defined daylight hours. The surveillance portion of the task was to be flown at not less than 140 knots IAS (indicated air speed) nor more than 160 knots IAS, and normal operating altitudes were to be between 500 to 2,500 feet. The primary purpose of the aerial surveillance operations was to provide reports to the Department of vessels, aircraft and other activities sighted during the flights. The range of information was "wide and may relate to The Australian Federal Police, Health, Immigration, Customs, Fisheries, environmental and safety at sea aspects..." The littoral search was primarily concerned with the detection, for quarantine purposes, of unauthorised landings. The aircraft used was to be a "suitable multi engined aircraft" with the equipment and capabilities then specified. The aircraft had to have "endurance of 5 hours on task at an operating level of 500 feet AGL (above ground level) within the 140-160 knot range IAS plus transit of one hour at normal cruise plus IFR (instrument flight rules) reserves applicable to the entire flight carrying 5 people including the pilot". The contractor was to "provide sufficient aircraft to undertake the task making necessary allowance for scheduled maintenance". The contractor was to provide a specified minimum number of backup aircraft relative to the number of "contracted operating aircraft".
4. On 25 November 1986, Mr. Robert Amann, on behalf of the firm of R. & P.
Amann Aircraft Hire, submitted a tender. Mr. Amann stated
that it was
intended to import aircraft from the U.S.A. and then place them on the
Australian register; and that suitable aircraft
had been "sourced" and
"options placed for a period of ninety (90) days." The tender stated that the
bases tendered for were Broome,
Darwin, Gove, Weipa, and Cairns. The aircraft
proposed were said to be of the Rockwell Commander type, 680F and FL models,
manufactured
by "Gulfstream American"; registration numbers were to be
advised. To supplement these aircraft, a Beechcraft Queen Air and a
Beechcraft
Duke would be available. The time needed to make aircraft
available for commencement of air patrol from date of letter of acceptance
was
said to be six months "totaled (sic) (but is negotiable) and aircraft
availability will be progressive."
Elaboration of the tender
5. By letter dated 11 December 1986 elaborating his tender, Mr. Amann stated that the tender was "based upon utilising eleven operating aircraft and three 100% task ready backup aircraft and two other aircraft that can be quickly converted to task ready requirements.". Mr. Amann also stated that he "would...expect to become fully operational at all bases...within six months, with the operation of each base being progressive, the minimum time requirement".
6. Mr. Amann's tender was discussed at a meeting of representatives of the parties held on 7 January 1987. According to a report of the meeting by one of the Commonwealth's representatives, Mr. Amann said that it was "proposed to use 14 aircraft fitted out plus 2 spare aircraft not fully fitted out"; that the aircraft were "to be standardised (Aero Commander 680) and purchased from one source at this stage"; and that the aircraft "will be purchased and fully fitted out in U.S.A." Mr. Amann agreed that the report was substantially accurate. However, he also said that, after the meeting, he explained to some of the Commonwealth officers that only 11 aircraft would be committed to the coastwatch task and that "we will have an additional three aircraft that can be used for coastwatch, and additional two aircraft that can be made available for coastwatch, if required."
7. By letter dated 8 January 1987, Mr. G.B. Richardson, Director of Supply and Services, Department of Transport, wrote to Mr. Amann referring to the meeting of 7 January and seeking further details of the tender. A "more definitive work plan" was requested. By letter dated 12 January 1987, Mr. Amann informed the Department that, "(b)ased upon a contract award of early March 1987, we would become operational at our main base Darwin by the end of June 1987, Broom (sic) the beginning of July, Weipa by mid-end July, Cairns by the end of July, and Gove by the end of July early August." In this letter, Mr. Amann requested that any contract be awarded to the applicant rather than to his firm.
8. Mr. Amann and Mr. Richardson met on 16 January 1987. Several aspects of the tender, particularly Mr. Amann's costings, were discussed. On 17 February 1987, Mr. Amann applied to the Department of Aviation for permission to import 12 Rockwell Commander aircraft. They were said to be of the 680FL or 680W models but no other details were given.
9. By letter to Skywest dated 11 March 1987, the Department confirmed its
agreement with Skywest that the existing coastal surveillance
charter services
contract was to be extended for a three month period expiring on 30 June
1987.
Acceptance of the tender
10. By letter dated 12 March 1987, the Department informed the applicant that
its tender had been accepted "subject to your company
entering into a formal
agreement with the Commonwealth...The contract documents will be sent to you
shortly." (In fact, no formal
contract was executed.) The letter stated that
the contract would "be in force for a period of 8 x 36 aircraft months." It
was
also stated that the aircraft accepted were Rockwell Commander 680FLs to
operate out of bases at Broome, Darwin, Gove, Weipa and
Cairns at rates of
charge then specified. Receipt of the letter was acknowledged by Mr. Amann on
behalf of the applicant on 13
March.
Proposals for the commencement of operations
11. On 19 March, Mr. Amann gave the Department some of the serial numbers of the aircraft he proposed to import which were being modified in the U.S.A. He also provided the Department with a "Proposed Phase in Program" which contemplated starting operations at the five bases over the period from early May to early July. He said that these timings were subject to, inter alia, suppliers meeting deadlines.
12. On 24 March, at a meeting between representatives of the applicant and of the Department of Aviation, it was proposed by Mr. Amann that all bases be "fully operational" within six months of 12 March.
13. On 27 March, Mr. Amann wrote to Mr. Richardson amending the phase-in programme given on 19 March in minor respects. All aircraft were to be operating by 11 July but this was still subject to suppliers meeting deadlines and it was also said to be subject to the Department of Aviation's Airworthiness Certification.
14. The parties met again on 6 April. Mr. Amann said that the applicant had at least 11 aircraft available; that plans were "well in hand" to bring the aircraft into operation, and that firm phase-in dates would be given after meeting with officers of the Department of Aviation.
15. At a meeting of the parties held on 9 April to discuss progress, Mr. Rex Ramsey, Senior Executive Officer, Surveillance Resources, Department of Transport, said that the final date to have the organisation up and running completely was 12 September and if the applicant missed that date the contract would be "in doubt".
16. By letter dated 21 April, Mr. Amann provided the Department with a "critical path network programme". The programme suggested that the applicant would take over the existing bases from Skywest over a period ending in December. However, the letter stated that completion of all tasks would be prior to 12 September. Mr. Amann also stated that the dates in the programme "may be adjusted due to delays beyond our or our suppliers reasonable control."
17. Mr. Richardson sought clarification of what appeared to be some confusion in the programme. On 27 April, Mr. Amann informed Mr. Richardson that operations would start as follows: Darwin - 16 July; Gove - 17 July; Cairns - 18 July; Broome - 10 September; and Weipa - 12 September. Mr. Richardson said that he would inform the Minister and Skywest.
18. By letter dated 28 April, Mr. Richardson referred to the meeting held on
6 April and confirmed that the respondent required "the
3 additional aircraft
numbers for inclusion in the draft contract document to bring the total to 14
aircraft as per your tendered
offer." On 29 April, Mr. Amann informed Mr.
Richardson that he would provide the three additional aircraft numbers
requested on
his return from the U.S.A. Mr. Richardson's note of the
conversation continued:
"I indicated we would be writing for advice of
optimistic dates re transition - our particular19. By letter dated 30 April, Mr. Amann informed the Department of Aviation that the delivery date of the first five aircraft was 1 July and gave the serial numbers of the "first eleven aircraft". He added:
concern being lateness of September dates in terms of
contract milestone."
"I am planning on the aircraft being on the ground for20. In the first week of May, Mr. Amann notified the Department of a change of aircraft type from 14 Rockwell 680FLs (piston engined aircraft) to 11 Rockwell 690s and three Rockwell 680Ws (both turboprop aircraft).
one week after arrival in Australia. Two weeks are
available before operations start on 12 July..."
21. By letter to the Department dated 7 May, the applicant confirmed that it was purchasing 11 Aero Commander 690 series aircraft and three Aero Commander 680W aircraft.
22. By an agreement in writing dated 19 May, the Commonwealth and Skywest agreed that their contract be extended beyond 30 June. It was further agreed that Skywest would progressively reduce its services in the manner specified in the agreement; in addition, the Commonwealth might, prior to a specified closing date, upon giving Skywest not less than 60 days' notice, require Skywest to reduce its services.
23. By letter to the applicant dated 20 May, Mr. R. McNamara, the Regional Director of the South Australia/Northern Territory Region of the Department of Aviation, sought clarification of the particulars of the aircraft being purchased.
24. By letter dated 21 May, the Commonwealth gave notice of its agreement to the change of aircraft types proposed provided that the equipment was suitable and that no additional cost to the Commonwealth was claimed. Serial numbers were requested for insertion in the formal contract documents. Fourteen serial numbers were provided by the applicant by letter dated 24 May. The Commonwealth says that, with one exception, the serial numbers were not referable to any aircraft acquired by the applicant or by CVC Investments Pty. Ltd. ("CVC"), a company associated with the applicant. The applicant accepts this but says (a) that the applicant was passing on information received by it from the United States; (b) that the significance of this matter should be assessed in the light of subsequent events, to which it will be necessary to return later.
25. By a purchase agreement dated 25 May between Northeast Air, Inc. of Portland, Maine, U.S.A. ("Northeast") and the applicant, it was agreed that Northeast would sell and the applicant would purchase 11 Commander aircraft consisting of 680, 681 or 690 Series Turbo Commanders. Northeast agreed to deliver the 11 aircraft for no more than US$2,448,000.00 but stated it may exceed the "budgeted amount" with the prior approval of the applicant. This agreement was superseded by a brokerage agreement entered into on 15 June between Northeast and CVC, to be described later.
26. Representatives of the Department of Aviation met with representatives of the applicant on 26 May. Mr. Amann stated that the applicant had bought 14 aircraft - six 690s, three 680Ws and five 681s. In elaborating this statement, Mr. Amann said that the applicant hoped to acquire more 690s instead of the three 680Ws on which holding deposits had been paid. The applicant expected the first batch of three aircraft to arrive in Darwin on 23 June, and the second batch of three aircraft to arrive there on 6 July. Procedures to obtain Certificates of Airworthiness from the Department of Aviation were discussed.
27. By letter dated 1 June, the applicant informed the Department that "possible delays may be envisaged due to conflicting information given to us by the Department of Aviation in relation to the non-destructive testing of the wing spar for the aircraft we propose using...We will advise you of the expected time delays, if any,..."
28. By letter dated 2 June, the applicant applied to the Department of Aviation for permission to import l4 Aero Commander aircraft (six 690s, five 681s and three 680Ws). The applicant stated that, if possible, 690 or 681 aircraft would be purchased instead of the 680W models.
29. By letter dated 5 June, the Department responded to the applicant's letter dated 1 June and asked "to be kept fully informed of any delays immediately as they arise and the resultant impact these delays might have on the proposed timetable, (July to September), for handover of Coastal Surveillance Services."
30. On 9 June, the applicant replied to Mr. McNamara's letter of 20 May referring, inter alia, to the meeting held on 26 May.
31. By a further letter dated 9 June, addressed to the Minister for Aviation, the applicant stated that the planned arrival date in Darwin for the first six aircraft was 10 July and not 23 June as had been expected. The delay was said to arise from the wing spar inspection procedures. However, the applicant also stated that it "will still be in a position to take over all Coastwatch operations by 12 September..."
32. On 15 June, Northeast entered into a "brokerage agreement" with CVC. Under the agreement, CVC agreed to purchase and Northeast agreed to arrange the purchase, on behalf of CVC, of 11 Commander aircraft, consisting of 680, 681 or 690 Series Turbo Commanders for not more than US$2,448,000.00. Northeast agreed to use its best endeavours to ensure delivery of the first five aircraft by 30 July and the remaining six aircraft by 30 August. Pursuant to this agreement, CVC acquired a number of aircraft at about this time. CVC also acquired aircraft from other sources at other times.
33. By letter dated 19 June, Mr. Richardson sought the applicant's confirmation that it would commence operations at Darwin, Gove and Cairns on 16, 17 and 18 July respectively. The letter stated that "the Commonwealth would consider any failure of your suppliers to meet their agreed deadlines with you, should that occur, as a matter entirely within your control."
34. The applicant replied by letter dated 19 June stating that "(t)o ensure
Coastwatch Operations continue during the period from
l6 July...until (the
applicant's) aircraft are on-line in Australia, (the applicant) is considering
three options. These are:
a. to lease Skywest's Coastwatch aircraft;35. By letter dated 24 June, the applicant informed the Department that it would commence operations as follows:
b. to hire other aircraft for the task...
c. to request the Department...to arrange for Skywest to
continue operations until mid-August."
"Darwin: 16th July - in cross-hired aircraft36. This interim operations proposal was rejected by the Department by letter dated 30 June. The applicant was also informed that by 1 September it would be required to prove that it would be capable of performing the contract. This would involve flight trials in Australia witnessed by a Departmental officer. Further, the applicant was required to guarantee the supply of all fully fitted aircraft, including backup aircraft, in sufficient time to commence performance not later than 12 September.
Gove : 17th July - in cross-hired aircraft
Cairns: 18th July - in cross-hired aircraft
Broome: 10th September - in our own aircraft
Weipa: 12th September - in our own aircraft"
37. By letter dated 3 July, the Commonwealth gave notice to Skywest of its intention to vary the contract with Skywest by phasing out Skywest's operations progressively on the following extended dates: Darwin - 1 September; Gove - 4 September; Cairns - 7 September; Broome - 10 September; and Bamaga (Weipa) - 12 September. The Commonwealth informed the applicant of the Skywest extension by letter dated 14 July. The applicant was also informed that the Commonwealth required a minimum of 30 clear days' notice if any of the phase-in dates were to be further extended and that if the applicant was unable to achieve these dates, action might be taken in accordance with cl. 2.23. (Under cl. 2.23, if the contractor fails to make a flight in the manner required under the contract and the Secretary of the Department is not satisfied that the failure was due to accident or other reasonable cause beyond the control of the contractor, the contractor shall, without prejudice to any other remedy, pay the Commonwealth liquidated damages.)
38. By letter dated 15 July, the applicant accepted the provisions of the Department's letter dated 14 July, agreed to performance testing and modified the "initial start up date" for Broome to 12 September and for Weipa to 10 September. The applicant stated that "no default clauses should be implemented before 12 September, as we are confident that default will not occur."
39. On 22 July, Mr. McNamara, of the Department of Aviation wrote to the applicant informing it that, although approval was occasionally given by the Department for aircraft to operate in excess of the defined maximum take off weights in special circumstances, the applicant should not anticipate any such approval for the conduct of routine aerial work flights.
40. By letter dated 27 July, the Department of Transport and Communications (which from 24 July took over the functions of both the Department of Transport and the Department of Aviation) informed Skywest of the applicant's proposal to modify the initial start up date to 12 September at Broome and to 10 September at Weipa with the consequence that Skywest's closure dates at Broome would be changed to 12 September and at Bamaga to 10 September. Skywest agreed to these changes by letter dated 28 July.
41. By telex dated 29 July, the Department asked the applicant for details of its plans for aircraft delivery from the U.S.A. to Darwin and for details of the programme for the modification of the aircraft in this country. By telex dated 30 July, the applicant informed the Department that the first batch of three aircraft was expected to arrive in Darwin from the U.S.A. on 6 August; the second batch of five aircraft was expected to arrive in Darwin on 22 August; and the third batch of three aircraft was expected to depart the U.S.A. on 24 August. The applicant's plans were based on an average estimate of a seven day ferry flight and of 14 days for modifications and certification.
42. By letter dated 5 August, the Department agreed to the proposed modification of the initial start up date to 12 September at Broome and 10 September at Weipa, subject to Skywest's agreement (Skywest's agreement was confirmed in writing on 12 August).
43. By letter dated 7 August, the applicant informed the Department of delays in the ferry of the first two aircraft being imported from the U.S.A.
44. By letter dated 12 August, the applicant informed the Department that it was expected that the first two aircraft would arrive in this country before 14 August; the next four aircraft would depart the U.S.A. on 13 August, followed by another group of four aircraft departing on 18 August; the last two aircraft would depart on 21 August; so that the 12 aircraft purchased in the U.S.A. were expected to be here by 27 August.
45. By letter dated 12 August, the Department, referring to its letter dated 30 June, stated that no further extensions of time for the applicant's preparations would be permitted; if the applicant did not commence all its operations at all bases as the contract required by 12 September, the Commonwealth would immediately proceed to terminate the contract; in this respect, notice was given that time was of the essence.
46. By letter dated 13 August, Skywest informed the Department that it was willing to provide its services up to 12 September and "if necessary beyond that date."
47. By letter to the applicant dated 14 August, the Department, referring to its letter dated 5 August, confirmed the initial start up dates as 12 September at Broome and 10 September at Weipa.
48. By letter dated 17 August, the applicant, referring to the Department's letter dated 12 August, denied that the applicant was in breach of the contract and requested a meeting "to reach a common interpretation of the Coastwatch contract." By a further letter dated 18 August, the applicant also denied that the Commonwealth could make time of the essence.
49. Representatives of the parties met on 21 August. There is a dispute as to what happened at the meeting. This will be dealt with later. For immediate purposes, it is sufficient to note that by letter of that date, the Department set down the salient points of the discussion as follows: (a) the Department confirmed that its letter of 12 August was not intended to imply that the applicant was in breach of the contract; (b) the parties confirmed that the date at which the applicant was contractually committed to be fully operational at all bases was 12 September; and (c) the Department "emphasised the critical national importance of the coastwatch services, the need to avoid any discontinuity in surveillance operations and the essential requirement for full performance of the surveillance operations in accordance with the contract on and from 12 September..." By letter dated 27 August, the applicant agreed with the Department's summary.
50. By a further letter dated 21 August, the Department accepted the offer made by Skywest in its letter dated 13 August to continue its services up to 12 September in the event that the applicant was not operational by the dates previously arranged (i.e. Darwin - 1 September; Gove - 4 September; Cairns - 7 September; Weipa - 10 September; Broome - 12 September).
51. By letter dated 28 August, the applicant informed the Department that it proposed to commence operations out of Darwin on 1 September using an Aero Commander 690A aircraft; two other aircraft were undergoing inspections for Certificates of Airworthiness in Darwin and Cairns; another aircraft was remaining on the U.S.A. register for a short period and was being used for aircrew training in Darwin; another five aircraft were in transit from the U.S.A.; and the remainder were being prepared for ferrying to Australia.
52. At about this time, the applicant also sought from the Commonwealth concessions in respect of the regulatory requirements governing the use of aircraft for the purposes of the contract in the first 90 days of its operations. Shortly thereafter, the Commonwealth granted some of the concessions but refused others.
53. By letter to the applicant dated 31 August, the Department stated that, since the applicant could not give an unequivocal undertaking that it would be able to commence operations from Darwin as scheduled on 1 September and as required by the contract, the Department had asked Skywest to provide surveillance from Darwin until 11 September. The letter reiterated the importance of continuity of the operation and the need to avoid uncertainty in the provision of services. The applicant responded to this letter by telex dated 31 August informing the Department that the applicant would be in a position to undertake the coastal surveillance flight from Kununurra to Darwin on 1 September.
54. By letter dated 31 August, the Department informed Skywest that it required Skywest to undertake coastal surveillance operations from Darwin from 1 September until 11 September inclusive.
55. By letter to the Department dated 1 September, the applicant again offered to fly the Darwin sector that day, if the Department approved the commencement of operations. The Department replied by letter of that date requiring the applicant to commence operations in accordance with the contract. The applicant was asked to state whether, inter alia, its aircraft met the specifications in the contract.
56. By letter to the applicant dated 2 September, the Department required the applicant to demonstrate to the satisfaction of the Department that the full conditions of the contract would be met: (a) in relation to each base on the date scheduled prior to 12 September; (b) on 12 September; and that if the applicant had not established its ability to commence operations from each base a clear 36 hours before the first scheduled service, the Department intended to notify Skywest that it would be required to provide a service from that base until and including 11 September.
57. Also on 2 September, Mr. R.D.B. Beale, Associate Secretary to the Department, telephoned Mr. Amann and was informed that it was expected that the two aircraft for operation from Gove would be registered by 4 September but that some of the modifications to those aircraft required by the contract would not be completed until 9 September. The Department confirmed this conversation by letter dated 3 September. The letter also informed the applicant that the Department had asked Skywest to undertake the coastal surveillance from Gove from 4 to 11 September.
58. By letter to the Department dated 3 September, the applicant stated that of the applicant's six aircraft in Australia, one had received a Certificate of Airworthiness, and the others were undergoing inspections for that purpose; three aircraft were in transit from the U.S.A.; three aircraft were about to depart the U.S.A. and were expected to arrive in Australia on 13, 17 and 27 September; two other aircraft had been procured locally and were expected to be in Darwin on 5 September; and the applicant would be in a position to give the Department the required 36 hours' notice of its intention to start operations at all five bases on 12 September.
59. By letter to the applicant dated 4 September, the Department confirmed that the applicant would not have registered aircraft available to provide services from Cairns on 7 September; and Skywest had been asked to undertake the services until 11 September. A similar letter was written to the applicant on 8 September in respect of the services from Weipa from 10 September; Skywest had been asked to provide services from Bamaga on 10 and 11 September.
60. By letter dated 9 September the applicant provided the Department with a "checklist" indicating the state of readiness of its aircraft. By letter to the applicant dated 10 September, the Department referred to a meeting held that day between representatives of the parties and expressed concern with the state of preparation of the applicant's aircraft. The Department confirmed the parties' agreement at that meeting that Commonwealth officers would inspect the applicant's aircraft at each of the bases at 8.00 a.m. on 12 September. The inspection was said to "cover both regulatory and contractual elements." The Commonwealth would "make its decision on the future of the contract on 12 September."
61. By letter to the Department dated 11 September, the applicant stated that, from at least 21 August, the Department had been aware that the applicant would not be able to fully comply with the requirements of the contract by 12 September; but that the applicant would be "in a position to substantially comply with the terms of the contract and that such matters as were outstanding at that date would be complied with within a month of the start up date." The applicant stated that, as of the following day (12 September) they would have one aircraft at each of the bases and two standby aircraft.
62. By letter to the applicant dated 11 September, the Department joined
issue with the applicant's contention in its letter of that
date that at the
meeting held on 21 August it had been indicated that the applicant would not
be able to comply fully with the requirements
of the contract.
The commencement of operations
63. As foreshadowed, inspection of the applicant's aircraft was carried out
by Commonwealth officers on the morning of 12 September.
After the
inspections, the aircraft flew some of the sectors nominated by the Department
pursuant to the contract.
Termination of the contract
64. In the afternoon of 12 September, Mr. Beale purported to terminate the
contract by the following letter to the applicant:
"RE: COASTAL SURVEILLANCE CONTRACT No. 86/086/08465. The applicant contested the Commonwealth's entitlement to terminate the agreement. By letter dated 15 September the applicant, claiming that, in giving the notice of termination, the Commonwealth had repudiated its obligations under the contract, purported to accept that repudiation and to rescind the agreement and claimed damages.
NOTICE OF TERMINATION
I give you notice that I hereby terminate the
abovementioned contract, effective from the
expiration of Saturday 12 September 1987, because
your company has failed to comply with the
requirement of the contract to commence performance
of coastal surveillance services from all bases in
accordance with the contract, on 12 September 1987.
Your company's contract with the Commonwealth
requires that it have 14 aircraft operating by 12
September 1987, being 6 months after acceptance on 12
March 1987 of the tendered offer of R. & P. Amann
Aircraft Hire of 25 November 1986, and subsequent
additional information. On 12 August 1987 I
indicated to you that the Commonwealth considered
that time was of the essence and that it would
terminate the contract if your company did not
commence all its operations at all bases as the
contract requires by 12 September 1987. Again, on 21
August 1987 I emphasised to the Chairman of your
company the essential requirement for full
performance of the surveillance services in
accordance with the contract on and from 12 September
1987.
As at today's date I have ascertained from my
officers that your company has no aircraft available
for coastal surveillance services, fully equipped as
required by the contract and having Australian
registration. The availability of the aircraft at
the surveillance bases today, was as set out in the
attachment to this Notice of Termination.
Your company is seriously deficient in not having
available the requisite number of aircraft equipped
in conformance with the contract, and this deficiency
is, in my view, so serious a breach of your company's
obligations that I am not prepared to allow the
contract to continue.
The Commonwealth reiterates that the Coastwatch
service is of critical national importance and the
public interest requires that such service must be
maintained by the aircraft and supporting services
set out in the contract; which your company has
patently not provided.
..."
"ATTACHMENT TO NOTICE OF TERMINATION OF 12 SEPTEMBER
1987
Gove
681: VH - NYD. Australian registration with
Certificate of Airworthiness; not fitted with bubble
windows, drop hatch, adjustable seating and does not
have the endurance required by the contract.
Weipa
681: VH-NYA. Australian registration with
Certificate of Airworthiness; not fitted with bubble
windows, drop hatch, adjustable seating and does not
have the endurance required by the contract.
680: VH - EXP. Australian registration with
Certificate of Airworthiness, not fitted with bubble
windows, drop hatch, adjustable seating or
airconditioning. Additionally not fitted with the
following avionics: weather radar, VLF Omega
navigation system or radio altimeter, required by the
contract.
Darwin
690: VH - NYB. Australian registration with
Certificate of Airworthiness; not fitted with bubble
windows, drop hatch, adjustable seating and does not
have the endurance required by the contract.
681: VH - NYH. Australian registration but no
Certificate of Airworthiness. Undergoing
maintenance.
680: VH - EXZ. Australian registration with
Certificate of Airworthiness; not fitted with bubble
windows, drop hatch, adjustable seating or
airconditioning. Additionally not fitted with the
following avionics weather radar, VLF Omega
navigation system and radio altimeter, required by
the contract.
Cairns
681: VH - NYE. Australian registration with
Certificate of Airworthiness; not fitted with bubble
windows, drop hatch, adjustable seating and does not
have the endurance required by the contract.
681: VH - NYG. Australian registration but no
Certificate of Airworthiness. Undergoing
maintenance.
Broome
681: VH - NYF. Australian registration with
Certificate of Airworthiness; not fitted with bubble
windows, drop hatch, adjustable seating and does not
have the endurance required by the contract."
66. The allegations made by the applicant in its Revised New Points of Claim
may be summarised as follows:
(1) On or about 12 March l987, the parties entered into a
contract.(2) After the entry into the agreement, but before the
applicant embarked upon its performance on 12 September(3) Relying upon these representations, the applicant took a
1987, the Commonwealth made the following, inter alia,
representations to the applicant: (a) that the applicant
was required to have available on any day only so many
operating aircraft as were required to perform scheduled
flights on that day, together with certain backup aircraft,
up to a total of eight operating aircraft, three backup
aircraft and three additional aircraft which were not
required to be operational; (b) that it was not necessary
for each of such aircraft to be fitted with bubble windows,
drop hatches or long range fuel tanks by 12 September 1987
and that a period of at least one month after that date was
permitted for their installation; (c) that only 5 flights
would be scheduled on 12 September 1987; (d) that in the
event that the applicant did not perform all its
contractual obligations by 12 September 1987, the
Commonwealth would not purport to terminate the agreement
but would apply the provisions of cl. 2.23 or,
alternatively, the Commonwealth would issue a notice to
"show cause" pursuant to cl. 2.24 which would give the
applicant sufficient time to comply; (e) that the two of
the aircraft would be accepted notwithstanding their
absence of certain avionics.
number of steps in preparation for, and in performance of,(4) On 10 September 1987, the applicant gave the Commonwealth a
the contract.
detailed report of the situation of its aircraft; on 12(5) On 12 September 1987, with knowledge of these deficiencies,
September 1987, the Commonwealth inspected the aircraft;
the Commonwealth then became aware of certain deficiencies
in terms of the numbers of aircraft required by the
agreement and in terms of equipment that was then not
fitted in accordance with the contract.
the Commonwealth instructed the applicant to commence(6) The Commonwealth thus waived any right to terminate the
flying operations and the applicant did so.
contract because of any of these deficiencies and affirmed(7) Alternatively, the Commonwealth is estopped from relying
the contract.
upon these deficiencies as constituting a breach of the(8) The acts done by the applicant pursuant to the contract
agreement.
constituted substantial performance of its obligations.(9) The Commonwealth failed to give a "show cause" notice as
was required by the agreement before the Commonwealth could(10) If a proper "show cause" notice had been given, the
terminate the agreement.
applicant would have complied with it.(11) On l2 September l987, the Commonwealth purported to
terminate the contract; the Commonwealth was not entitled(12) It was a term of the agreement that the parties would do
to do so and thus repudiated the agreement.
all acts necessary to bring about its performance. In(13) As a consequence of the Commonwealth's conduct, the
breach of this term: (a) the Commonwealth refused
permission to the applicant to operate certain aircraft in
Australia for a short period while certain of its aircraft
retained their United States registration; consequently the
applicant's preparations to perform the contract were
delayed; (b) on 12 September 1987, the Commonwealth
scheduled inspections and tests of the applicant's aircraft
and personnel, thereby delaying certain flights; (c) the
Commonwealth delayed preparation of the formal contract
which occasioned delay in the applicant's arrangements for
finance.
applicant was prevented from implementing the contract.(14) By letter dated 15 September 1987, the applicant accepted
the Commonwealth's repudiation.(15) The Commonwealth owed the applicant a duty of care to
ensure that information given to the applicant, with(16) In breach of this duty, the Commonwealth gave the following
respect to the requirements of the agreement, was accurate.
erroneous information (a) as to the number of operating(17) The Commonwealth supplied erroneous information with
aircraft required; (b) as to the need to have bubble
windows, drop hatches and long range tanks installed by 12
September 1987; (c) as to the endurance of the long range
tanks in terms of their compliance with the requirements of
the agreement.
respect to wing spars, thereby causing delay and expense.(18) The Commonwealth erroneously informed the applicant that
the terms of the contract required the applicant to(19) The Commonwealth made, inter alia, the following
commence operations not later than 12 September 1987
whereas it was not obliged to commence until 13 September.
representations to the applicant which the Commonwealth is(20) In giving the Notice of Termination, the Commonwealth acted
now estopped from denying: (a) that the applicant was
required to have only eight operating and three backup
aircraft together with three additional aircraft which were
not required to be operational; (b) that the bubble
windows, drop hatches and long range fuel tanks were not
required until one month after 12 September; (c) only
five flights would be scheduled on 12 September; (d) in
the event that the applicant did not perform all its
obligations under the contract by 12 September, liquidated
damages under cl. 2.23 or a notice to show cause would be
given under cl. 2.24.
"wrongfully, arbitrarily, capriciously and unreasonably".67. The contentions made by the Commonwealth in its Defence can be summarised thus:
September 1987.(3) The applicant was to take over from Skywest on a sector by
sector basis as soon as possible after acceptance of the(4) The date of commencement of operations in each sector would
applicant's tender and the expiry of Skywest's contract on
31 March 1987.
be fixed by agreement and in any case would take place in(5) The applicant is estopped from asserting that the date of
all sectors by no later than 12 September.
commencement of operations was 13 September.(6) On or about 27 April 1987, it was agreed that the applicant
would commence operations from Darwin on 16 July 1987, from(7) On 14 or 15 July 1987, those dates were extended as
Gove on 17 July, from Cairns on 18 July, from Broome on 10
September and from Weipa on 12 September, and time was
agreed to be of the essence.
follows: from Darwin on 1 September, from Gove on 4(8) The applicant failed to commence operations as required and
September, from Cairns on 7 September, from Weipa on 10
September and from Broome on 12 September, subject to a
minimum of 30 clear days notice if any of these dates were
to be extended; otherwise time was of the essence.
this requirement was of the essence.(9) Alternatively, on 12 August 1987, the Commonwealth made the
commencement of operations by the applicant from all(10) The applicant failed to commence and carry out operations
sectors by 12 September 1987 of the essence of the
contract.
on 12 September and thereby became in breach of the(11) On and before 12 September, the applicant failed to take
contract.
the steps necessary to equip itself to carry out the(13) The applicant induced the Commonwealth to enter into the
contract so that the Commonwealth was entitled to, and did,
terminate the contract.
contract by fraudulently, deceptively or negligently68. By its Reply, the applicant puts the following:
representing to the Commonwealth in November and December
1986 and in January 1987 that the applicant had options
over certain aircraft. (This defence was abandoned during
addresses.)
the Commonwealth was unwilling and unready to perform its(2) The Commonwealth waived any requirement that the applicant
obligations.
commence performance on the dates mentioned in the Defence.(3) The applicant denies that time was of the essence. (4) The Commonwealth is estopped from replying upon the matters
said to justify termination of the agreement.(5) For the Commonwealth to insist upon strict and literal
compliance with the provisions of the contract would beThe grounds for termination stated in the notice dated 12 September
unconscionable.
69. The Commonwealth's case is that it was entitled to determine the contract
because the applicant had committed a "serious" breach
of their agreement by
failing to provide l4 fully equipped aircraft with Australian registration
operating from all bases commencing
on 12 September. In its Defence, as has
been noted, the Commonwealth says that 12 September was the agreed date of
commencement;
alternatively, time was made of the essence in this respect.
Then the Commonwealth alleges that on or before 12 September the applicant
failed to take all such steps as were necessary to prepare itself for the
contract, including the provision of 16 aircraft.
The documentation of the contract
70. There is a dispute as to the material which constitutes the agreement between the parties. There is also a controversy as to the terms of the contract: the Commonwealth says that certain information supplied by the applicant was intended to be promissory and a term, or perhaps even a condition, of their agreement; the applicant, on the other hand, says that this material was merely by way of a proposal and was not intended to be promissory.
71. The contract documents consist of the "Conditions of Tender" (Section 1), the "Conditions of Contract" (Section 2), a "Specification for Charter Aircraft Task" (Section 3), certain "Schedules" (Section 4), a "Form of Tender", the applicant's letter dated 25 November, and the Commonwealth's letter of acceptance dated 12 March, together with certain material mentioned in the applicant's letters mentioned in that letter of acceptance.
72. In order to understand the respective contentions of the parties, it is
necessary to refer to the details of the relevant parts
of the contract
documents.
The "Conditions of Tender" (Section 1)
73. The tender was to be for the whole of the task described in the specification but the tenderer could offer for any or all of the operating bases (cl. 1.2). The tenderer was deemed to have (a) examined the tender document and any other relevant information made available in writing by the Department; (b) examined all information relevant to the risks, contingencies and other circumstances having an effect on his tender and which was obtainable by the making of reasonable enquiries; and (c) satisfied himself as to the correctness and sufficiency of his tender (cl. 1.4).
74. The tenderer had to complete the "Schedules at Section 4" and to provide certain "information", including a "Statement of Compliance" in respect of every clause of the specification. Where the tendered equipment did not comply with the specification, details had to be given; any such failure could be taken into account in assessing the relative merits of tenders (cl. 1.7.1). Tenderers were to demonstrate, by flight trials if necessary, under conditions and configurations specified by the Department, that the nominated aircraft could meet all the specifications called for and could provide an adequate working environment for aerial surveillance operations to the satisfaction of the Secretary (cl. 1.7.2). Tenderers were to have discussed with the Department of Aviation the special clearances necessary to meet the requirements of Air Navigation Orders for the task (cl. 1.7.3).
75. The tenderer was to complete a "Schedule of capacity for flying hours available from each base" stating the minimum and maximum hours required. The schedule was to be "based on" a "typical flight program" shown in Annexure 1 (cl. 1.7.5).
76. Annexure 1, as amended by letter from the Department dated 21 October
1986, is as follows:
(ANNEXURE OMITTED)77. (It will be noticed that this contemplated the use of a total of eight aircraft - two at Broome, Darwin and Weipa (or Horn Island or Bamaga) and one at Gove and Cairns.)
78. The hours shown in Annexure 1 were "not guaranteed to be flown" in any one week or over a period of time"; and figures provided by tenderers in the schedule were to be subject to checking and agreement by the Department prior to acceptance of any tender (cl. 1.7.5).
79. The tenderer was to supply a list detailing the location of all his Australian-based aircraft capable of complementing the tendered service. The tenderer was to be prepared to supply, if requested, details of his resources and capacity, both financial and physical, to set up and perform the service (cl. 1.7.6).
80. The Department could require the tenderer to submit additional information to allow further consideration of his tender (cl. 1.9).
81. If the Department decided to accept the tender, notice of acceptance was to be served on the successful tenderer, who could be required to enter into a formal contract, but written notice of acceptance of a tender would constitute a binding contract, whether such formal contract was or was not executed (cl. 1.10).
82. The tenders were to remain valid for a period of 90 days (cl. 1.14).
The "Conditions of Contract" (Section 2)
83. The provisions contained in these conditions dealing with the period of the contract, liquidated damages, default and termination should be noticed.
84. The period of the contract was defined by providing that it would be "in force for the number of months of aircraft operation specified in the Notice of Acceptance". The Contractor was to take over the sectors he was contracted for from the existing contractor on a sector by sector basis "as soon as possible after receipt of the Notice of Acceptance and expiry of the existing contract". The expiry date of the Contract was to be confirmed after the last aircraft was in operation and was to be such date as would permit an average number of months operation of each aircraft equalling the number of months specified in the Notice of Acceptance (cl. 2.4). The contractor was to lodge "2% of the estimated total annual contract value...as security for the due and proper performance and completion of the contract" (cl. 2.5.1). This security was to be refunded "after the Secretary has certified that the Contract has been satisfactorily completed..." (cl. 2.5.5).
85. Provision for liquidated damages was made as follows:
"If the Contractor proceeds with a flight with any of86. Default was dealt with in these terms:
the following items of equipment missing or
unserviceable:
(a) specified radio equipment...
(b) specified tactical navigation system...
(c) specified radar equipment...
(d) fully operational air conditioning system...
(e) specified intercom equipment...
(f) specified cameral equipment...
(g) specified binoculars...
(h) radar altimeter...
(i) any windows which, through opacity, do not
allow clear external vision...
the Contractor shall be required to pay to the
Commonwealth, as liquidated damages and not as a
penalty, an amount equal to the percentages of the
daily standing charge for that aircraft, as shown
above, for each item of missing or unserviceable
equipment." (cl. 2.22)
"If the Contractor fails to make a flight in the87. Termination was provided for as follows:
manner required under the Contract and the Secretary
is not satisfied that the failure was due to accident
or other reasonable cause beyond the control of the
Contractor the Contractor shall without prejudice to
any other remedy pay the Commonwealth, or the
Commonwealth may, at its option, deduct from any
amount due or to become due to the Contractor any sum
payable by the Contractor as liquidated damages or
the amount that would have been paid had the
Contractor not been in default and any extra expense
over the contract rate incurred by the Department in
having the Contractor's default made good." (cl.
2.23)
"Whenever and so often as the Contractor fails to88. It was further provided that none of the conditions of the contract were to be varied, waived, discharged, or released either at law or in equity except by the express consent of the Secretary (cl. 2.27).
carry out the Contract or comply with a condition of
the Contract to the satisfaction of the Secretary
then in either of these events the Secretary may, by
notice in writing, require the Contractor to show
cause in writing to the satisfaction of the
Secretary, why the Contract or any specified portion
thereof should not be cancelled. If the Contractor
fails to show cause in writing, as so required, the
Secretary shall be entitled to treat the Contract or
any specified portion thereof as having been
cancelled..." (cl. 2.24)
89. The scope of the task was defined in this way:
"3.1.1 (a) The task required of the charter aircraft is90. As has been noted, the surveillance portion of the task was to be flown at not less than 140 knots IAS nor more than 160 knots IAS except when identifying sightings whereupon the speed was to be varied as required. Normal operating altitudes were to be between 500 to 2,500 feet except when identifying sightings (cl. 3.1.8).
(1) Visual search of the Littoral Area in
sectors nominated by the Department. The
Littoral Area is a band from approximately one
mile inland to three miles offshore from the
mainland Australian coastline and around
nominated offshore islands from approximately
Karratha to Cairns
(2) Visual search of the Ashmore and adjacent
islands
(3) Visual search of other areas as required.
(b) The visual search will normally be carried out
between the times of one hour after the
beginning of daylight and one hour before the
end of daylight as defined by Department of
Aviation.
3.1.2 The Contractor will operate his aircraft for the
sectors he is contracted for from the following
airfields:-
- Broome
- Darwin
- Gove
- Horn Island or Bamaga or Weipa
- Cairns
to provide the indicative coverage at Annexure 1..."
"3.1.3 Other staging bases regularly used are Karratha, Port
Hedland, Kununurra, Mitchell Plateau, Maningrida,
Milingimbi, Boroloola, Normanton, Weipa and Lockhart
River.
3.1.4 Annexure 1 shows a typical flight program for the
task. The Annexure is for guidance only and the
hours shown are not guaranteed to be flown in any one
week or over a period of time."
(Annexure 1 has already been set out)
"3.1.5 Subject to the following conditions, the minimum and
maximum hours capacity of each base shall be as
submitted with the Contractor's Tender (Schedule 3)
and agreed to by the Department:
(a) the agreed maximum and minimum hours shall be subject
to reasonable adjustment for statutory and logistical
limitations on provision of personnel.
(b) if any change of a long term nature is made to the
frequency of operations which affects hours flown to
a level outside the minimum/maximum range agreed, the
Department or the Contractor may request adjustment
of the Daily Standing Charges to reflect any change
in the required numbers of pilots and observers.
(c) short term variation from the level of operations
indicated at Annexure 1 may involve additional
expense to make personnel available if sufficient
notice is not given for rostering. Any reasonable
additional expense thus incurred will be reimbursed
at cost by the Department.
(d) the standard operating crew for the contract task
shall be one (1) pilot and two (2) observers.
3.1.6 The Contractor shall provide sufficient aircraft as
specified, aircrew, related administration and
resources at each operating base that is contracted
for to meet the following requirements:
(a) fly any number of hours within the limits shown in
the agreed Schedule 3 submitted with the Contractors
Tender;
(b) fly no observer for more than five (5) hours on the
visual surveillance task per day. Ferry or transit
time is not included in this limitation. It would be
expected that no observer would fly for more than
seven (7) consecutive days;
(c) operate at times to be nominated by the Department;
(d) have the flexibility to operate on a variety of
search tracks and vary the programmed tracks at short
notice to meet operational requirements as notified
by the Department; and
(e) have the flexibility to operate, at short notice,
from any suitable operating base for a period of up
to one month. The details and costs of such
operations to be negotiated as the situation arises."
91. The aircraft were only to be used for the tasks as specified in the contract unless directed by the Department (cl. 3.1.9).
92. As we have seen, the littoral search was stated to be primarily concerned with the detection, for quarantine purposes, of unauthorised landings; at the same time, reporting requirements were said to be "not exclusive to prime tasks" and surveillance crews were said to need to have "a broad understanding of all information requirements and...be able to report sightings accurately and rapidly record relevant information about sightings" (cl. 3.2.3).
93. Aircraft requirements were provided for as follows:
"3.3.1 The aircraft is to be a suitable multi engined94. Aircraft availability was dealt with in these terms:
aircraft with the following equipment and
capabilities:
...
(b) endurance of 5 hours on task at an operating
level of 500 feet AGL within the 140-160 knot
range IAS plus transit of one hour at normal
cruise plus IFR reserves applicable to the
entire flight carrying 5 people including the
pilot;
...
(f) commercial intercommunications system between
all seating positions in the aircraft...
(g) weather radar with ground mapping mode that can
detect a 20 metre vessel at 20 nautical miles in
sea state 3;
(h) VLF/OMEGA or Inertial Tactical Navigation
System...
...
(k) 2 visual observation stations in the rear cabin
which incorporate comfortable, fully adjustable
seating and optically clear bubble windows large
enough to allow an observer to place head and
(shoulder) in the bubble with an unrestricted
view of the surface beneath the aircraft
covering a semi-circle of 5 nautical mile radius
with the base line along the flight path of the
aircraft. Stations to be located on either side
of the fuselage and to allow undistorted
photography clear of engine efflux to be taken
through the bubble or an appropriate opening
hatch;
(l) IFR approved low level radar/radio altimeters;
...
(o) ability to carry and drop small stores packages
up to the size of 24cms x 24cms x 70cms and
messages while airborne;
(p) air-conditioning system to maintain the cabin to
a maximum temperature of 27 degrees Celsius and
60% humidity on a 32 degree Celsius 70% humidity
day..."
"3.11.1 The Contractor shall provide sufficient"Suitability of equipment" was dealt with as follows:
aircraft to undertake the task making
necessary allowance for scheduled
maintenance.
3.11.2 The Contractor shall provide a minimum
number of backup aircraft relative to the
number of contracted operating aircraft as
follows:
(a) one, two or three operating aircraft - one
backup aircraft
(b) four, five or six operating aircraft - two
backup aircraft
(c) seven or eight operating aircraft - three
backup aircraft."
"3.l5 At any time the Department may require theThe Schedules (Section 4)
Contractor to demonstrate, by flight trials if
necessary, under conditions and configurations
specified by the Department, that the contracted
aircraft can meet all the requirements of the
specification and provide an adequate working
environment for aerial surveillance operations to the
satisfaction of the Secretary."
95. Section 4 of the contract documents comprised four schedules in which
tenderers were to state further details of their tender
on the subjects of
"Rates" (Schedule 1), "Component Costs" (Schedule 2), "Capacity for Flying
Hours" (Schedule 3) and "Technical
Data" (Schedule 4). Mr. Amann completed
Schedule 1 as follows (his response is emphasised):
"4.1 SCHEDULE 1 - SCHEDULE OF RATES96. In Schedule 2, Mr. Amann gave details of his component costs. In his response (emphasised) to Schedule 3, as amended by letter from the applicant to the Department dated 12 January 1987, Mr. Amann said:
Rate For . Rate For
Five Year . Three Year
Contract $ . Contract $
========== . ==========
4.1.1 Standing charges .
per day for each base 1,774.82 . 2005.55
(based on 7 days) .
4.1.2 Flying charge per .
hour for each aircraft 191.06 . 191.06
4.1.3 Rate to cover cost of .
overnighting away from .
specified operating .
airfield per person per .
night 130.00 . 130.00
4.1.4 Base(s) tendered for BROOME - DARWIN
GOVE - WEIPA
CAIRNS
NOTE - If differing prices apply for bases a separate
schedule should be submitted for each base."
"4.3 SCHEDULE 3 - SCHEDULE OF CAPACITY FOR FLYING HOURS97. In Schedule 4 (Technical Data), Mr. Amann gave these details of the aircraft proposed:
AVAILABLE FROM EACH BASE (Refer clause 1.7.5)
Base Required Minimum Maximum Difference
Hours Hours Hours between
Max & Req'd
Broome 3148 1574 3600 452
Darwin 2102 1401 2700 598
Gove 1216 1216 1800 584
(Bamaga 3266 1633 3600 334
Sector)
Weipa
Cairns 1287 1287 1800 513
..."
"4.4.1 Details of Aircraft Proposed98. Mr. Amann dealt with the suitability of his equipment in this way:
Is equipment specified at clause 3.3 of
Specification for Charter Aircraft Task
fitted. If aircraft is not equipped as
specified please attach statement detailing
deficiencies and time required to fit such
equipment.
Manufacturer Gulfstream American
Type Rockwell Comander (sic)
Model 680 F & FL
Registration No VH T.B.A. (i.e., to be advised)
Seating Capacity
(including pilot) 8 - 10
...
4.4.3 State details of anticipated
arrangement/utilisation on this contract of
Aircraft providing for normal routine
overhaul/servicing.
In house servicing after days flying
completed & backup aircraft as required...
...
4.4.5 State details of any other aircraft
available to the Tenderer that may be used
to supplement those nominated above.
Beechcraft Queen Air B-65
" " Duke B-80"
"4.4.6 Equipment Suitability99. He provided details of the commencement of operations as follows:
Outline method to be adopted to prove
aircraft offered above meet specifications.
Submission of technical data
i.e. Flight Manual and if required
test flight with Department"
"4.4.11 Commencement of Flying Operation under theThe "Form of Tender"
Contract
(a) State time needed from date of letter
of acceptance to recruit sufficient pilots
and observers and supply personal details of
all staff associated with flying operations.
Two months required
(b) State time needed to make aircraft
available for commencement of air patrol
from date of letter of acceptance:
6 months totaled (sic) (but is negotiable)
and aircraft availability will be
progressive.
..."
100. The "Form of Tender", signed by Mr. Amanm on behalf of R. & P. Amann
Aircraft Hire and dated 25 November 1986, was as follows:
"Under and subject to the Conditions of TenderingThe correspondence referred to in the letter of acceptance
state on the following pages, we R & P AMANN AIRCRAFT
HIRE...
the undersigned do hereby tender and offer to supply
the Commonwealth of Australia with the services
tendered for in the Schedules attached hereto, at the
prices tendered, and under and subject to the
Conditions of the attached Tender Schedule DOT 086
for
CHARTER OF AIRCRAFT FOR COASTAL SURVEILLANCE
SERVICES-LITTORAL AREA..."
101. By his covering letter dated 25 November 1986 submitting the tender, Mr.
Amann said that:
"...102. As has been seen, cl. 1.7.6(b) of the "Conditions of Tender" required the tenderer, if requested, to supply details of his resources and capacity to perform. On 8 December 1986, Mr. Richardson wrote to Mr. Amann seeking further details. By his letter dated 11 December 1986 (bearing the wrong date of 11 November), Mr. Amann responded:
2. We propose to demonstrate the suitability of
the equipment offered by way of a test flight
to prove compliance with the tender
documentations intent.
3. We have had numerous meetings with the
Department of Transport offices (sic) as to the
requirements of the proposed task and confirm
that we will be able to comply fully.
...
At this time, the intent is to import the aircraft
from the U.S.A. and then place them on the Australian
register. Suitable aircraft have been sourced and
options placed for a period of ninety (90) days.
..."
"CLAUSE 1.7.6(b)103. In this letter, Mr. Amann also supplied particulars of the avionics proposed as follows:
1. Aircraft for the task will be procured in the
United States of America.
2. The following modification will be required and
performed in the U.S.A. prior to delivery:
a) Fitment of bubble windows for observation
stations.
b) Complete strip and repaint to specification
aircraft livery (Clause 3.16).
c) Fitment of Radar Altimeter.
d) Removal of existing Radar and reinstallation
of common Radar unit (Bendix 230HP).
(Note, applies to 3 aircraft only).
In addition, the following modifications will be
performed in Australia:
a) Installation of Marine Band VHF/FM Radio.
b) Installation of UHF/AM Military Band Radio.
c) Aircraft intercommunications system.
3. a) The Department of Aviation has advised that
export licences could be expected within one
week from submission.
b) Certificates of Airworthiness could be
expected within three weeks of submission.
(Note, it is envisaged that due to the fact
that the type of aircraft proposed for the
task are already on the Australian Register,
no delays in recertification is envisaged).
c) All aircraft offered have FAA Export
Certification and licences already approved.
4. The estimated fuel flow at the Coast Watch task
is 2841bs/hr at a TAS (true air speed) of
160kts, (based on information in the Flight
Manual and ISA conditions), at 60% engine power
but in any case, the aircraft offered will
exceed the requirements as nominated in Clause
3.3.1(b) of the tender specification."
"CLAUSE 3.3.1(e) AVIONICS104. It will be remembered that cl. 3.11 of the "Conditions of Contract" dealt with aircraft availability. In his letter dated 11 December 1986, Mr. Amann stated:
All aircraft proposed for the task will have a common
avionics package installed for ease of spare parts
holding and repair...(details were given)
Lead times for supply of the additional avionics is
ex-stock U.S.A. and will be imported with the
aircraft installation for additional equipment
estimated at 6 weeks for total time with the first
aircraft available within two weeks."
"CLAUSE 3.11105. By cl. 4.4.11 of the "Schedule of Technical Data", particulars of commencement of flying operation were requested. In his letter dated 11 December 1986, Mr. Amann stated:
Our tender is based upon utilising eleven operating
aircraft and three 100% task ready backup aircraft
and two other aircraft that can be quickly converted
to task ready requirements."
"CLAUSE 4.4.11106. On 16 December 1986, Mr. Richardson telephoned Mr. Amann and asked him to provide further information with respect to his "financial capacity...to perform the Contract". According to Mr. Richardson's note of the discussion, Mr. Amann then said that he had "a 90 day option on aircraft purchase in USA covering the Tender Validity period..." Following this conversation, by letter dated 22 December 1986, Mr. Richardson confirmed a meeting between representatives of the parties to be held on 7 January 1987. Mr. Richardson also sought, inter alia, "documentary evidence of your company's financial situation" together with a "detailed cost breakdown of your rates". Mr. Amann responded by letter dated 22 December, furnishing, inter alia, details of his costings and of financial arrangements. A "Preliminary Cash Flow Diagramme" was also mentioned in the letter but it appears that this document was not provided to the Commonwealth until the meeting of 7 January. (Certain aspects of the meeting held on 7 January have already been summarised. At the meeting, Mr. Amann handed over a document describing a projected cash flow. According to this projection, Mr. Amann would commence operations four months after the award of the contract.)
As stated in our tender we would;
. require two months for total submission to the
Department for our proposed crewing selection.
We could, however, provide selected Pilots
information within three weeks;
. expect to become fully operational at all bases
tendered for within six months, with the
operation of each base being progressive, the
minimum time requirement."
107. As has been noted, by letter dated 8 January, Mr. Richardson sought
clarification of some aspects of the tender and requested
"a more definitive
work plan". Mr. Amann's response, in a letter dated 12 January, which is not
mentioned, in terms, in the letter
of acceptance, purported to clarify a
number of technical queries and stated that -
"We have reconsidered the transition period between108. By letter dated 14 January, Mr. Richardson replied to Mr. Amann's letter of 12 January by, inter alia, rejecting the physical dimensions of the bubble window proposed by Mr. Amann, calling for a different proposal and seeking information as to costing previously requested. In his reply dated 21 January, Mr. Amann provided a revised specification for the bubble window and gave further information with respect to the avionics proposed and as to component costs.
ourselves and the current contractor and in the light
of information given by yourselves and our aircraft
supplier and modifier in the USA we now offer for
your consideration the following:
Based upon a contract award of early March 1987, we
would become operational at our main base Darwin by
the end of June 1987, Broom (sic) the beginning of
July, Weipa by mid-end July, Cairns by the end of
July, and Gove by the end of July early August.
We would expect delivery of our first aircraft by the
end of April and this aircraft would be used for
equipment and aircraft evaluation and
familiarisation, with the next 3 aircraft following 1
month later depending upon any modification deemed
necessary.
Our timing allows for 4 weeks for issue of an
Australian Certificate of Airworthiness."
109. By letter dated 29 January, Mr. Amann gave some details of his proposals for finance. It appears that on 6 February, the applicant wrote to the Department providing information with respect to, inter alia, component costs. It further appears that the applicant furnished additional information to the respondent by letter dated 11 February but this correspondence cannot be located.
110. By letter dated 9 February, Mr. Richardson informed Mr. Amann that security in the form of a bank guarantee would be required in the amount of $114,545.00, based on an estimated total annual contract value of $5,727,315.00, allowing for a "2% 14 day settlement discount". The bubble windows and avionics proposed were accepted. This was confirmed by the applicant's letter dated 19 February.
111. On 17 February, the applicant forwarded to the respondent a copy of the agreement between it and R. & P. Amann Aircraft Hire adopting the tender. By letter dated 24 February, the applicant provided some corporate details.
112. By further letter dated 24 February, the applicant agreed to the extension of the tender validity period to 23 March.
113. By letter dated 9 March, the applicant supplied details of, inter alia, salaries proposed for certain of its staff.
114. As has been noted, by letter dated 12 March, the respondent accepted the
applicant's tender in these terms:
"NOTICE OF ACCEPTANCE: CHARTER OF AIRCRAFT FORSteps taken by the applicant to prepare for performance
COASTAL SURVEILLANCE
The Department is pleased to advise that the Tender
of 25 November 1986 for supply of aircraft and
services set out in Tender Schedule DOT 086, together
with the additional information supplied by you,
pursuant to clause 1.9 of section 1 of Tender
Schedule DOT 086, in letters dated 11.11.86 (should
read 11.12.86), 22.12.86, 21.1.87, 29.1.87, 6.2.87,
11.2.87, 17.2.87, 19.2.87, 24.2.87 and 9.3.87, has
been accepted subject to your company entering into a
formal agreement with the Commonwealth pursuant to
clause 1.10 of section 1 of the Tender Schedule. The
contract documents will be sent to you shortly. The
contract will include the Conditions of Contract,
Specification for Charter Aircraft Task and Schedules
1 to 4 of the Tender Schedule.
PERIOD OF CONTRACT
The Contract shall be in force for a period of 8 x 36
aircraft months.
PRICE BASIS
...
PAYMENT
...
RATES, BASES, TYPE OF AIRCRAFT
Aircraft accepted are Rockwell Commander 680 FL to
operate out of bases at Broome, Darwin, Gove, Weipa
and Cairns at the following rates:-
Daily Standing Charge (per base) $2005.55
Flying Charge (per hour/aircraft) $191.06
Accommodation Charges (per person/night) $130.00
In your adopting agreement dated 17 February 1987 it
states that a company, Myruse P/L would be the
tenderer subject to the approval of the Department of
Transport. On the 24 February l987 Myruse P/L
changed its name to Amann Aviation P/L. The
Commonwealth agrees to these changes in the legal
entity of the tenderer.
Would you please acknowledge receipt of this letter
by endorsing the copy enclosed, where indicated, and
returning the copy to me...
Yours sincerely,
(SGD.) GARRY RICHARDSON
G.B. Richardson
for Assistant Secretary
Finance & Services
12 March 1987
Receipt of this letter is acknowledge. (sic)
(SGD) R. AMANN
Robert Otto Amann
Amann Aviation P/L
Signature
witnessed (SGD.) GARRY RICHARDSON
13.3.87"
115. In late 1986 and early 1987, Mr. Amann discussed with Northeast a
proposal that he acquire 14 680FL Aero Commanders, to be fitted
with the
special avionics required by the specification of the Coastwatch contract. In
January, Northeast advised Mr. Amann that
he should acquire the Aero Commander
690 Turboprop instead of the 680FL (piston engine). By letter dated 5 March,
Northeast provided
the applicant with a budget for the acquisition of the 690
series. On about 13 March, Mr. Amann told Northeast that he had been
awarded
the contract and instructed Northeast to commence planning for the purchase of
the aircraft and the preparation of the avionics
required. By letter dated 3
April, Northeast confirmed that it would deliver -
"...eleven (11) Turboprops, F.O.B. Portland, Maine,116. On 1 May, Mr. Amann handed over to Northeast a cheque for US$100,000.00, the cheque having been drawn by CVC. Northeast then commenced acquiring and fitting out the aircraft. As has been seen, on 25 May, the applicant and Northeast entered into a "purchase agreement". On 5 June, pursuant to this agreement, the applicant arranged for the purchase by CVC of its first 690 series aircraft in Portland, Maine. The aircraft was registered in the U.S.A. as N9226N (later registered in this country as VH-NYC) and on 8 June Northeast began work on the modifications required to be carried out in order to comply with the specification of the Coastwatch contract.
within six months from the date of the execution of
the agreement. We will also deliver three (3)
additional Commanders soon thereafter.
To execute this agreement, funds must be transferred
to our Bank before we can commence work."
117. Mr. G.R. Giles, Executive Officer, Surveillance Resources, Department of Transport, visited Northeast between 8 and 12 June for the purpose of inspecting the aircraft proposed to be used by the applicant. Mr. Giles undertook a demonstration flight and discussed aspects of the specification of the Coastwatch contract with Northeast; he also conducted endurance tests on 690 series aircraft to check the rate of fuel consumption. On 15 June he conducted further endurance tests at Sarasota, Florida, on a 681 series aircraft.
118. On 10 June, CVC acquired another 690 aircraft in the U.S.A. (N690NH - later registered here as VH-NYB) and modifications commenced on 12 June. As has been noted, on 15 June, the applicant entered into a "brokerage agreement" with Northeast. On that date, the applicant purchased another 690 in Portland (N42MM - later registered here as VH-NYA). On 18 June, CVC acquired, in the U.S.A., a 681 series aircraft (N9O87N - later VH-NYD). Modifications commenced on 17 and 21 June respectively.
119. On 2 July, CVC acquired two 681 series aircraft in the U.S.A. (N444JB - later VH-NYH; N740ES - later VH-NYG). Modifications commenced on 3 and 9 July respectively. On 8 and 13 July respectively, CVC purchased two more 681 series in the U.S.A. (Nl2lSP - later VH-NYE; N9097N - not registered in Australia). Modifications commenced on 9 and 14 July respectively. On 21 July, another 681 series (N9024N - later VH-NYF) was purchased in the U.S.A. and modifications commenced on 23 July. On 12 August, CVC acquired in the U.S.A. another 681 series (N2725B - not registered in Australia).
120. The other aircraft acquired for the purposes of the Costwatch contract were purchased in Australia. It will be recalled that in the tender document, reference was made to a Beechcraft Duke (VH-ILI). This was purchased in Victoria on 25 April but was apparently not proposed to be used in the Coastwatch programme. On 3 September, CVC acquired two 680FL series (piston engine) in New South Wales (VH-EXZ and VH-EXP).
121. The details of the acquisition programme (excluding the Beechcraft Duke)
are summarised as follows:
(ACQUISITION PROGRAMME OMITTED)122. Between 2 and 26 August, nine of the aircraft acquired in the U.S.A. left the country for Australia, arriving here on the following dates:
2/8/87 3 17/8/87123. As well as arranging for the acquisition and modification of these aircraft, the applicant established base facilities at the five bases nominated in the contract. Four of the bases had been established by 27 August; by 12 September, facilities were available at all required locations. Staff, including pilots and observers, were retained.
2/8/87 4 17/8/87
15/8/87 2 25/8/87
15/8/87 7 25/8/87
22/8/87 6 31/8/87
22/8/87 9 31/8/87
9/8/87 5 1/9/87
8/8/87 10 20/9/87
26/8/87 1 1/9/87
124. In August, the Department prepared a Littoral programme for the
Coastwatch operations up to and including 26 September. The
programme was
received by the applicant before 12 September but it is not clear how long
before that date it was received. According
to the programme, seven flights
were scheduled for 12 September, covering sectors 16/17, 20/21, 24/25, 26/27,
34/35, 36/37 and 38/39.
The flights undertaken by the applicant on 12 September (See Map - Appendix 1)
125. On 12 September, some of the applicant's aircraft were positioned at
each of the five bases with the view to undertaking the
flights specified in
the Littoral programme. As foreshadowed in the Department's letter dated 10
September, and as agreed at the
meeting on that date, Commonwealth officers
inspected the aircraft on 12 September. Certain deficiencies were noted but
there is
a dispute as to their significance in all cases, and in some
instances there is a contest as to whether there was any deficiency.
It will
be necessary to return to these questions later. Some of the programmed
flights were undertaken. Details of the local
times of these inspections and
of the flights are as follows:
Darwin
126. Aircraft NYB, EXZ and NYH were inspected between 8.20 a.m. 8.40 a.m.,
8.45 a.m. - 9.05 a.m., and 9.10 a.m. - 9.20 a.m. respectively.
NYB flew 5%
of the flight scheduled in respect of sector 24/25 (Flight 24A). It also flew
20% of the flight programmed for sector
20/21 (Flight 21A).
Weipa
127. Aircraft NYA and EXP were inspected between 8.00 a.m. - 9.00 a.m., and
2.10 p.m. - 3.20 p.m. respectively. NYA flew the whole
of the flight
scheduled for sector 34/35 (Flight 34E). The flight programmed for sector
36/37 (Flight 36C) was not undertaken.
Cairns
128. Aircraft NYE and NYG were inspected between 7.15 a.m. - 8.00 a.m., and
8.30 a.m. - 9.30 a.m. respectively. NYE flew the whole
of the flight
scheduled for sector 38/39 (Flight 38).
Broome
129. Aircraft NYF was inspected between 8.00 a.m. and 9.26 a.m. NYF flew 50%
of the flight scheduled for sector 16/17 (Flight 16A).
Gove
130. Aircraft NYD was inspected between 8.10 a.m. and 9.56 a.m. It flew the
whole of the flight programmed for sector 26/27 (Flight
26B).
Construction of the material provisions of the contract
131. It is next necessary to identify the material provisions of the
agreement and, where their meaning is not clear, to interpret
those
provisions. 1. The period of the contract (cl. 2.4).
Clause 2.4 of the Conditions of Contract provided:As has been noted, the Notice of Acceptance stated, under the heading "Period of Contract", that the contract "shall be in force for a period of 8 x 36 aircraft months."
"2.4 PERIOD OF CONTRACT
The contract will be in force for the number of
months of aircraft operation specified in the Notice
of Acceptance.
The Contractor will take over the sectors he is
contracted for from the existing contractor on a
sector by sector basis as soon as possible after
receipt of the Notice of Acceptance and expiry of the
existing contract. The existing contract is that
between the Commonwealth and Skywest Airlines Pty Ltd
currently expiring on 31 March 1987.
The expiry date of the Contract will be confirmed
after the last aircraft is in operation and will be
such date as will permit an average number of months
operation of each aircraft equalling the number of
months specified in the Notice of Acceptance."
132. It is common ground that the contract was to be in force for a period of three years. However, the parties are at issue, in some respects, as to the date of commencement of the aerial patrols.
133. On behalf of the applicant it is submitted that, in the first instance, it was agreed that it would commence its service "as soon as possible" after the expiry of the Skywest contract. Subsequently, the applicant says, the parties agreed that patrols should begin on 12 September. However, in this respect, it says, time was not of the essence.
134. For the Commonwealth it is contended that the service was to commence on 12 September at the latest and, in this respect, time was essential. The Commonwealth says that, in the first instance, it was contemplated that there be a progressive phase-in of operations, taking over from Skywest on a sector by sector basis; that the parties later agreed on a timetable for the introduction of the applicant into the service well before 12 September; that the applicant failed to adhere to the agreed timetable and that eventually the parties substituted 12 September as the commencing date on the footing that timing was of the essence.
135. In my opinion, cl.2.4 obliged the applicant to commence its service as
soon as possible after the Skywest contract expired.
As we have seen, that
contract was extended, from time to time, up to and including 11 September.
It follows, in my view, that the
applicant was bound to commence its service
as soon as possible after that date, that is to say, on 12 September.
Further, time was
intended to be of the essence. The reference to commencing
"as soon as possible" after the phase-out of Skywest should, in my opinion,
be
taken as an indication that the parties intended that timing was essential in
this respect (cf. Bowes v. Chaleyer [1923] HCA 15; (1923) 32 CLR 159).
2. Liquidated damages, default and termination (cl. 2.22; 2.23; 2.24).
136. It is convenient to deal with these provisions together. It will be remembered that, by cl. 2.22, if the contractor proceeded with a flight with the specified items of equipment missing or unserviceable, the contractor was required to pay liquidated damages to the Commonwealth. If the contractor failed to make a flight in the manner required under the contract then, by cl. 2.23, if the Secretary was not satisfied that the failure was due to cause beyond the control of the contractor, the contractor was liable, without prejudice to any other remedy, to pay liquidated damages. If the contractor failed to carry out the contract or to comply with any condition of the contract to the satisfaction of the Secretary then, by cl. 2.24, the Secretary could, by notice in writing, require the contractor to show cause in writing to the satisfaction of the Secretary why the contract or any specified portion thereof should not be cancelled. If the contractor failed so to show cause, the Secretary was entitled to treat the contract or that portion of it as having been cancelled.
137. There is no real dispute as to the meaning and operation of cl. 2.22 or
cl. 2.23. Neither provision was invoked by the Commonwealth.
However, there
is a substantial disagreement as to the meaning and operation of cl. 2.24.
The full text of the provision is as follows:
"2.24 TERMINATION138. On behalf of the applicant it is argued that cl. 2.24 exhaustively regulates the Commonwealth's power to terminate the contract.
Whenever and so often as the Contractor fails to
carry out the Contract or comply with a condition of
the Contract to the satisfaction of the Secretary
then in either of these events the Secretary may, by
notice in writing, require the Contractor to show
cause in writing to the satisfaction of the
Secretary, why the Contract or any specified portion
thereof should not be cancelled. If the Contractor
fails to show cause in writing, as so required, the
Secretary shall be entitled to treat the Contract or
any specified portion thereof as having been
cancelled and may declare the whole or any part of
the security lodged by the Contractor forfeited to
the Commonwealth, and thereupon the amount so
declared to be forfeited shall become the property of
the Commonwealth absolutely.
The Commonwealth shall, in addition, be entitled to
recover from the Contractor any damages, losses costs
and expenses which the Commonwealth may sustain, or
incur in consequence of such cancellation of the
Contract or portion thereof as the case may be. A
certificate by the Secretary stating the amount of
any damages, losses, costs and expenses sustained or
incurred by the Commonwealth in consequence of the
cancellation of the Contract or portion thereof shall
be conclusive evidence of the matter stated.
The Secretary will likewise be entitled to treat the
Contract as having been cancelled if the Contractor
commits an act of bankruptcy or enters into a
composition with creditors or assigns his estate for
the benefit of creditors or, if the Contractor, being
a company, goes into liquidation otherwise than for
the purpose of reconstruction."
139. On the other hand, the Commonwealth says that this provision confers
upon the Commonwealth a specific contractual right to rescind
the agreement
which is supplementary to, and not in substitution for, its common law rights.
Reliance is placed upon the following
passage in Hudson's Building and
Engineering Contracts (10th ed.) (1970) at p 687:
"It may, however, be noted here that a given event may140. The question is, of course, one of construction of the agreement. It was open to the parties to regulate the exercise of the Commonwealth's common law right to determine for repudiation or fundamental breach (see The Progressive Mailing House Proprietary Limited v. Tabali Proprietary Limited [1985] HCA 14; (1985) 157 CLR 17 per Mason J. at p 30). The question here, to borrow the language of Deane J. in Progressive Mailing House (at pp 55-6) is whether, as a matter of construction, a specific contractual right to terminate excludes the common law right to terminate (cf. Shevill v. The Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at p 629).
be both one which justifies the innocent party in
treating the contract as repudiated, and also one
upon the happening of which an express forfeiture
clause may be invoked. In such a case, unless the
contract shows an explicit intention that the
stipulated remedy should exclude the ordinary
remedies, the innocent party may make an election.
He may simply treat the contract as repudiated and
rely upon the remedies available upon repudiation
under the general law, or he may proceed under the
forfeiture clause and avail himself of the rights
contained therein. Indeed there would seem to be no
reason why he should not enforce both sets of
remedies simultaneously and cumulatively."
141. In my opinion, as a matter of construction of the contract as a whole, cl. 2.24 exhaustively regulates the Commonwealth's right to terminate the agreement.
142. It may be accepted, as Hudson suggests, that this conclusion is open only where the contract shows an explicit intention that the stipulated remedy should exclude the ordinary remedies. In my view, a number of considerations indicate that such an intention existed here. In the first place, it appears that the conditions of contract were intended to govern the relationship of the parties in a comprehensive fashion. The conditions appear to have been carefully prepared with a view to informing both parties of their respective positions in the event of the contingencies which could reasonably be anticipated in the performance of an agreement of this type. Secondly, the heading of cl. 2.24 as "Termination" is some indication that this subject was intended to be dealt with exhaustively by that clause. Thirdly, in contrast to the language of cl. 2.23, there is no statement in cl. 2.24 to the effect that its provisions are without prejudice to any other remedy available to the Commonwealth. Fourthly, the operative language of cl. 2.24 is extremely wide: it applies whenever the contractor (a) "fails to carry out the Contract" or (b) fails to "comply with a condition of the Contract", in both cases to the satisfaction of the Secretary. The first limb would extend to any failure to perform. The second limb would pick up any breach of any provision of the contract, whether serious or less than serious (cf. Ankar Pty. Ltd. v. National Westminster Finance (Australia) Ltd. [1987] HCA 15; (1987) 70 ALR 641 at p 644).
143. Finally, the evident purpose of the provision would suggest that it was intended to deal completely with the way in which the contract was to be brought to an end by termination. On the one hand, the clause improves the Commonwealth's position under the general law, especially in the event of a breach not sufficiently serious to justify the common law right to terminate. On the other hand, the provision gives the contractor something not available at common law in the event of a breach, that is to say, the right to seek to persuade the Commonwealth not to terminate. It would be a strange construction of the clause to hold that it only gave the contractor the right to show cause for inessential breaches. The more acceptable interpretation would be that the clause was intended to expand the area in which the Commonwealth could terminate so as to pick up breaches which fell short of the common law criterion of "essential" or "fundamental", as well as essential ones, but also to compensate the contractor for this by giving the contractor the right to show cause whenever any breach, serious or less than serious, was asserted by the Commonwealth.
144. On behalf of the Commonwealth, it is suggested that, once it is accepted that the timing of the introduction of the service under cl. 2.4 is of the essence, it must follow that cl. 2.24 cannot operate to cut down such an essential provision. In other words, the argument runs, cl. 2.24 cannot contradict the operation of cl. 2.4 by requiring that a notice to show cause be given since this would necessarily defer the time, essential as it is, for the introduction of the service.
145. In my view, there is no such inconsistency. In the first place, more than timing is involved here. It is not merely a question of time that may be in dispute; there may also be a question whether what was purportedly done in time (as here) constitutes substantial performance of the obligation to introduce the service contracted for. In any event, there is no contradiction between cl. 2.4 and cl. 2.24. They operate in different fields. The former stipulates the term of the contract and imposes an obligation on the contractor to introduce the service by the nominated time. This provision does not purport to deal with the consequences, if any, of any breach. That is done by cl. 2.24 in providing for a method of termination. Thus, the two provisions deal with different subjects, the period of the contract on the one hand and its termination on the other; they are not inconsistent.
146. For the sake of completeness, it should be noted that on behalf of the Commonwealth reliance was placed upon a line of authority in vendor and purchaser cases which establishes that compliance with a provision calling for the giving of prior notice of any default is not required in the case of an anticipatory breach involving the repudiation of the contract in its entirety (see Walters v. Cooper (1967) VR 583 and Note by H.W. Tebbutt in (1968) 41 ALJ 439-440, Nund v. McWaters (1982) VR 575, and Sinnatamby v. Cooper Corporation Pty. Ltd. (1985) WAR 36).
147. In my view, this principle can be distinguished here. The applicant never contended that it was not bound by the contract. On the contrary, it offered performance on the due date, 12 September. It is true that the Commonwealth says that the purported performance was quite inadequate. But the applicant always disputed this and claimed that it was willing to perform. It is understandable why, as in Walters v. Cooper, it should be held that a party who denies that there was a contract at all should not be permitted later to complain that one of the procedures laid down in the agreement for his protection was not complied with. But this is far removed from the present case.
148. Moreover, there are important differences in the language used. In Walters v. Cooper, it was provided that "if the purchaser makes default in the observance of any of the terms or conditions hereof the vendor shall not be entitled to exercise any of his rights or remedies arising out of such default...unless and until he serves...a notice in writing specifying the default..." and the default is not remedied within 14 days. It was held (at p 586) that renunciation of the contract was not such a default. In the present case, the language is wider. It extends to any failure to carry out the contract or comply with one of its conditions.
149. In my view, cl. 2.24 should be seen as comprehensively regulating the
field of termination of the contract by the Commonwealth.
3. Aircraft requirements (cl. 3.3)
150. The aircraft was to be a "suitable" multi-engined aircraft with the equipment and capabilities specified in cl. 3.3.1; including endurance of five hours on task under the conditions there stated, plus transit of one hour at normal cruise, plus IFR reserves (agreed to be an additional 15% plus an extra 45 minutes).
151. It is common ground that cl. 3.3 should be interpreted literally.
4. Aircraft availability (cl. 3.11)
152. The contractor was by cl. 3.11.1., to provide "sufficient" aircraft to undertake the task making necessary allowance for scheduled maintenance. The contractor was to also provide a minimum number of backup aircraft in accordance with the formula stated in cl. 3.11.2.
153. In my opinion, this provision should also be interpreted literally. On
behalf of the Commonwealth, it was suggested that the
reference in cl. 3.11.1
to "sufficient" aircraft might be uncertain. In my view, there is no legal
uncertainty here. The expression
"sufficient aircraft to undertake the
(stipulated) task" provides a definite criterion by reference to which the
rights of the parties
might be ultimately and logically worked out (cf. The
Council of the Upper Hunter County District v. Australian Chilling and
Freezing
Co. Limited [1968] HCA 8; (1968) 118 CLR 429 at p 437).
5. Suitability of equipment (cl. 3.15)
154. The Department could, pursuant to cl. 3.15, require the contractor to demonstrate, by flight trials if necessary, that the contracted aircraft could meet all the requirements of the specification to the satisfaction of the Secretary.
155. In my opinion, this provision should also be read literally.
156. The applicant contends that the clause has a far wider operation than a
literal reading would suggest. It is said that, if
a flight trial is
requested and the Commonwealth fails to raise any specific objection to the
aircraft, the provision operates so
as to preclude the Commonwealth from
raising any objection at a later stage. I reject that construction. In my
view, it should
be read as doing no more than giving the Commonwealth the
right to require the contractor to demonstrate suitability. Of course,
it is
possible that an estoppel, for instance, could be created in this connection.
But this would arise under the general law, and
not under cl. 3.15.
6. Technical data provided by the applicant in the Contract Schedules and in
the correspondence
157. A number of questions arise here. In some instances, there is room for
argument as to the true meaning of the statements made
on behalf of the
applicant. As has been said, there is also the question whether this material
was intended to be promissory, as
the Commonwealth submits, or merely
informational, as the applicant contends.
(a) Commencement of the service
158. As has been seen, in the Schedule of Technical Data (cl. 4.4.11), the applicant stated that the time needed from the date of letter of acceptance was "6 months totaled (sic) (but is negotiable) and aircraft availability will be progressive." This was elaborated in the letter written on 11 December 1986 where it was said that "we would...expect to become fully operational at all bases...within six months, with the operation of each base being progressive, the minimum time requirement."
159. It is not entirely clear whether "minimum" was intended to read "maximum" in the letter of ll December. But this need not be resolved because, in my opinion, none of this material became a term of the contract.
160. The commencement of the service to be provided under the contract was dealt with by cl. 2.4. Pursuant to that provision, the applicant became bound to commence on 12 September, time being of the essence. In my view, cl. 2.4 was intended to be the provision which governed the contractual relationship of the parties in this area.
161. What was sought in cl. 4.4.11 of the Schedule of Technical Data was
information as to what was proposed or estimated at that
stage as the date for
commencement of operations. Important as that information may have been to
the Commonwealth, it does not follow
that it was intended to become a term of
the contract, as a matter either of form or of substance. As a matter of form,
the details
in cl. 4.4.11 may be properly described as informational rather
than promissory in their terms. As a matter of substance, the position
is that
once it is accepted, as it must be, that cl. 2.4 was intended to define
conclusively the duration of the contract, there
is no room in this area for
the operation of other collateral material which is, or might be, inconsistent
with that clause. Although
the Notice of Acceptance referred, in a general
way, to certain information, it does not follow that, thereby, all that
information
was intended to become, or could become, terms of the contract.
(b) Aircraft availability
162. In the letter written on 11 December 1986 it was stated that the tender was "based upon utilising eleven operating aircraft and three 100% task ready backup aircraft and two other aircraft that can be quickly converted to task ready requirements."
163. On behalf of the Commonwealth it is said that although, by cl. 3.11.1, the contractor was bound to provide "sufficient" aircraft for the task, the parties subsequently agreed to define what was "sufficient" for this purpose in the letter dated 11 December; and, the argument runs, it thereupon became a term of the contract that the applicant promised to provide 11 operating aircraft, three backup aircraft and two other aircraft "that can be quickly converted to task ready requirements."
164. In my opinion, the reference in the letter of 11 December to the number of aircraft as the basis for the applicant's tender was not promissory and thus not a term of the contract. Whether it amounted to a representation that this number of aircraft would be provided is a different matter.
165. The reasons for this conclusion are similar to those for rejecting the applicant's contention that its estimate of the time it needed to prepare for operations became a term of the contract. In the first place, in my view, cl. 3.11.1 defined, in a conclusive fashion, the number of aircraft required to be provided over the three year term of the agreement: there had to be "sufficient" aircraft for the task together with the minimum number of backup aircraft prescribed by cl. 3.11.2. So far as cl. 3.11.1 was concerned, however, no specific number of aircraft was mentioned. This was left to be worked out by reference to the criterion of what was "sufficient" for the task.
166. It is true that Annexure 1 to the contract may be read as suggesting that only eight operating aircraft were required. But the specification makes it clear that the Annexure was "for guidance only" (cl. 3.1.4). It follows that this document was not intended to be definitive of aircraft numbers but rather merely to give a general indication of the task, including a rough estimate of how many operational aircraft would be sufficient for the job.
167. It is also true that the Notice of Acceptance apparently intended to refer to eight operating aircraft in its statement of the period of the agreement as "8 x 36 aircraft months". But, in my view, this should be seen as a reference back to the total of eight aircraft in Annexure 1. As such, it should be accepted, as that Annexure was, as being intended as a provisional estimate only. In other words, the reference to eight aircraft in the Notice of Acceptance should not, in my view, be seen as a provision which was intended to derogate from the fundamental requirement of cl. 3.11 that "sufficient" aircraft, together with the prescribed number of backups, be provided. The references to eight aircraft in the Annexure and the Notice of Acceptance were intended to be taken as a guide only and not as a definitive statement of what were "sufficient" aircraft numbers.
168. It may be accepted that the statement of aircraft numbers in the letter of 11 December was put forward by the applicant as the basis of its tender. But it does not follow that it thereby became promissory and thus became a term of the contract (cf. Cable (1956) Limited v. Hutcherson Bros. Pty. Limited [1969] HCA 37; (1969) 123 CLR 143 at p 151; J.B. Dorter and J.J.A. Sharkey Building and Construction Contracts in Australia (1981) at pp 21-24). Again, in my view, there are reasons of form as well as of substance why the statement of aircraft numbers in the letter dated 11 December was not a promise which became part of the parties' contract.
169. As a matter of form, the Commonwealth did not specify in the Conditions of Tender, the Conditions of Contract, the Specification or the Schedules that the contractor has to provide a particular number of operating aircraft. By contrast, in those documents, it was careful to stipulate a great number of specific requirements in other areas, such as avionics. Most important, in cl. 3.11.2 it nominated a particular number of backup aircraft. When it came to operating aircraft, the Commonwealth took a different, but understandable, approach. In cl. 3.11.1, it laid down a general requirement for the contractor to provide "sufficient" aircraft for the task, without specifying numbers. If the Commonwealth had wished to nominate a particular number, it could easily have done so in the documentation it proposed to tenderers. Instead, it placed the onus on the contractor to provide what were in fact a sufficient number.
170. There are also reasons of substance for rejecting the suggestion that the statement of aircraft numbers in the December letter was intended to become a term of the contract. On any view, the task specified by the contract was a complex one. Although the Commonwealth required that the aircraft be "suitable" (cl. 3.3.1), it did not stipulate any particular type of aircraft. Until the actual capability of the aircraft to be provided was known by operation on task, it was not reasonable to expect that the Commonwealth would have intended to commit itself, in advance, to a particular number of aircraft. On the other hand, the position of both parties was adequately and fairly dealt with by the several provisions that were in fact adopted as terms of the contract, that is to say, that aircraft that were both "sufficient" and "suitable" for the task be provided. These provisions provided criteria which were both logical and workable.
171. On behalf of the Commonwealth, support for its contention here is said to be found in the Notice of Acceptance. It will be recalled that the Notice stated that the tender "together with the additional information supplied by you, pursuant to clause 1.9...in letters dated...11.12.86..., has been accepted subject to your company entering into a formal agreement with the Commonwealth pursuant to clause 1.10...The contract documents will be sent to you shortly. The contract will include the Conditions of Contract, Specification...and Schedules 1 to 4..." It is submitted for the Commonwealth that the information referred to, including that in the 11 December letter, thereby became a term of the contract as an acceptance of an offer made in accordance with the tender documents. Alternatively, the Commonwealth says, if the applicant's submission departed from what was required by the tender process, it was an offer which was accepted by the Notice dated 12 March. As a further alternative, the Commonwealth argues that if the Notice dated 12 March itself departed from the terms of the applicant's offer, the 12 March document should be treated as a counter-offer which was accepted by Mr. Amann on behalf of the applicant on 13 March.
172. I cannot accept any of this analysis.
173. As has been seen, by cl. 1.10 of the Conditions of Tender, if the Department decided to accept a tender, notice of acceptance was to be served on the successful tenderer. The letter dated 12 March was headed "Notice of Acceptance". Reference was made to cl. 1.10. The Notice was clearly intended to be an acceptance pursuant to that provision. In other words, the Notice was intended to operate as an acceptance of a tender made pursuant to, and in accordance with, the Commonwealth's tender documents. In accordance with that documentation, there is no place for any extrinsic or collateral material of the kind now suggested to be incorporated as terms of the contract to govern the relationship of the parties.
174. Put differently, although the Schedules require completion in some respects so as to provide details of the terms of the contract, e.g. the Schedule of Rates (Schedule 1), on the whole the material requested in the Schedules, especially the Technical Data, was intended to be merely informational and not terms of the contract. This is not to say that the information was unimportant to the Commonwealth. But, it can hardly be suggested that, by requesting this information, the Commonwealth intended to abandon the terms it had carefully proposed for its contract, in favour of the adoption of any provisions that might be stated by the tenderer in response to the Commonwealth's inquiries as to how the tenderer proposed to go about the task. The structure of the tender documentation is important here. It had two distinct aspects: first, the terms of the proposed contract; secondly, information to be supplied by the tenderer for consideration by the Commonwealth in deciding whether to accept or reject the tender. The latter class of material was not promissory in character. It never became part of the contract.
175. In my view, the Notice of Acceptance should be read accordingly, that is
to say, as an acceptance of an offer made in accordance
with the
Commonwealth's tender documentation and not as a fresh offer or counter-offer
made in response to material submitted by
the applicant but which departed
from the tender documents. On the contrary, on any view, the applicant's
tender accorded with the
scheme laid down by the Commonwealth. That the
applicant intended to follow this scheme is made plain by the terms of the
Form of
Tender executed by the applicant. The Commonwealth intended to accept
and did accept that offer by its Notice of Acceptance. A contract
was then
made in accordance with the Commonwealth's original documentation. It must
follow, in my opinion, that the statement made
in the December letter as to
aircraft numbers did not become a term of the contract.
The first issue: Did the Commonwealth give a notice to show cause as
required by cl. 2.24?
176. Having concluded that the contract could only lawfully be terminated by the Commonwealth by resort to the procedures laid down by cl. 2.24, it is now necessary to determine whether the Commonwealth followed those procedures.
177. On behalf of the Commonwealth, it is submitted that, for a number of reasons, the provision was actually complied with, or, if not, it should be treated as if complied with.
178. The primary argument put on the Commonwealth's behalf is that the letter
written by Mr. Beale to the applicant on 12 August
constituted a notice to
show cause for the purposes of cl. 2.24. The letter was in these terms:
"This Department's letter to you dated 30 June 1987In its letter of 30 June, the Department rejected the applicant's proposal to use cross-hired aircraft to commence the phase-in of operations from 16 July. The letter, written by Mr. Richardson, continued:
specified a number of requirements in order to ensure
that Amann Aviation Pty Ltd is in a position to
commence operations under the abovementioned contract
not later than 12 September 1987.
The Commonwealth is concerned to ensure that there is
no further delay on the part of the company to
commence operations as the contract requires. There
will be permitted no further extensions of time for
the company's preparations. If the company does not
commence all its operations at all bases as the
contract requires by 12 September 1987, the
Commonwealth will immediately proceed to terminate
the contract. In this respect, I hereby give notice
that time is of the essence."
"In view of your revised delivery dates and to ensureIt would seem that the reference to flight trials was made in the context of the power to require such trials conferred by cl. 3.15.
that you will be able to meet our requirements you
are advised that by 1 September, 1987 you will be
required to prove that you are capable of performing
the contract. This will involve flight trials in
Australia witnessed by a Departmental Officer and
involving one of each type of aircraft fully fitted
and conforming to specification, at no cost to the
Commonwealth and to the Department's satisfaction.
Further, you will be required to guarantee the supply
of all fully fitted aircraft, including back-up
aircraft, in sufficient time to commence performance
and demonstrate that you either have the necessary
licence to operate or that the Department of Aviation
will issue you with the necessary licence to enable
you to commence operations not later than 12
September, 1987.
It should be noted that no aircraft will be allowed
to start in coastal surveillance operations at the
beginning of the contract until they meet the
specification."
179. In my opinion, the letter dated 12 August, whether read alone or in conjunction with the letter dated 30 June, did not constitute a notice to show cause for the purposes of cl. 2.24.
180. It may be accepted that, although the notice contemplated by cl. 2.24 cannot be oral and must be in writing, it is not necessary that any particular verbal formula be employed. But it is necessary that the notice, in explicit terms or by necessary implication, requires the contractor to show cause, in writing, to the satisfaction of the Secretary, why the contract or any specified portion thereof should not be cancelled.
181. What, then, is the substance of the communication conveyed by the two letters?
182. The letter of 30 June, relevantly, made three statements: (1) The applicant had to show its capacity to perform. (2) The applicant had to guarantee the supply of equipment in sufficient time to commence not later than 12 September. (3) Aircraft not meeting contract specification would not be allowed to operate. These requirements were accurately summarised by Mr. Beale in his 12 August letter.
183. The statement of those requirements could hardly be described as an indication to the applicant, however informal, that it was being asked to demonstrate why its contract should not be cancelled. There was no hint of termination. Rather, the letter sought to define, for the benefit of the applicant, its relevant obligations and to remind it of the need to perform those obligations in time. It is one thing to indicate to a party that a timely performance is insisted upon. It is a very different thing to require a party to advance reasons why its contract should not be cancelled.
184. The letter dated 12 August, relevantly, made the following statements: (1) There would be no extensions of time beyond 12 September. (2) If the applicant did not commence all its operations by that date, the Commonwealth would immediately proceed to terminate the agreement. (3) In this respect, time was of the essence.
185. Again, there was no suggestion that the applicant was being invited to demonstrate why the contract should be kept alive. On the contrary, the letter made it clear that, unless full performance was achieved by 12 September, the Commonwealth would immediately cancel, whatever the applicant might say. This is not to convey to the recipient that the Commonwealth is affording it the opportunity to speak in favour of the retention of the contract. Rather, the letter put to the applicant that, unless it performed properly, the Commonwealth would act forthwith of its own account. On no view could such a communication be read as requiring the applicant to show cause why the agreement should not be cancelled.
186. As an alternative submission, it was argued for the Commonwealth that it
complied with the provisions of cl. 2.24 by a combination
of circumstances.
The starting point is the letter dated 30 June to which reference has already
been made. Reliance is next placed
upon the letter dated 14 July written to
the applicant by Mr. Richardson as follows:
"I refer to our letter dated 30 June, 1987 to which we187. (It should be noted here that the Commonwealth contends that, by this time, the applicant was already in breach of the agreement. According to the argument, the applicant was then contractually committed to commence its operations in Darwin on 16 July, Gove on 17 July, Cairns on 18 July, Broome on 10 September and Weipa on 12 September. I have already held that the position was governed by cl. 2.4. Consistently with this conclusion, short of a formal variation of the contract, and this could not seriously be suggested, I am of the opinion that the applicant was bound to commence operations from all bases on 12 September, time being essential. Although the applicant made various proposals that it commence earlier, none of these statements were promissory in their character.)
have had no reply.
As a consequence of your inability to commence
operations from 16 July, 1987 as previously
negotiated, arrangements have been made for Skywest
to continue full coastal surveillance operations for
the remainder of the establishment period as offered
in your tender.
The pre-operations testing and proof of capacity to
perform the entire contract stated in our letter of
30 June, 1987 still apply. The cut-over dates are
now:
Darwin 1 September, 1987
Gove 4 September, 1987
Cairns 7 September, 1987
Broome 10 September, 1987
Weipa 12 September, 1987
We require a minimum of 30 clear days notice if any
of these dates are to be extended.
If you are unable to achieve these dates action may
be taken in accordance with clause 2.23."
188. The applicant replied by letter dated 15 July as follows:
"We are in receipt of your letter and accept the189. It will be recalled that the representatives of the parties met on 21 August and discussed the 12 August letter. As has been seen, by letter dated 21 August, Mr. Beale summarised the substance of what then transpired as follows: (a) the Department confirmed that its letter of 12 August was not intended to imply that the applicant was in breach of the contract; (b) the parties confirmed that the date at which the applicant was contractually committed to be fully operational at all bases was 12 September; and (c) the Department "emphasised the critical national importance of the coastwatch services, the need to avoid any discontinuity in surveillance operations and the essential requirement for full performance of the surveillance operations in accordance with the contract on and from 12 September..." Again there is nothing in this discussion to suggest that what the Department was doing was giving to the applicant the oportunity to advance reasons why the contract should not be terminated.
provisions outlined in paragraph one. We agree that
we will be in a position for the performance testing
and this testing will be deemed to be acceptance to
perform the contract as stated in our letter of 30
June.
We now advise that our intention is to modify the
initial startup date to Broome 12 September and Weipa
10 September.
We wish to point out that no default clauses should
be implemented before 12 September, as we are
confident that default will not occur.
NB we did reply to your letter and were in agreement
with such."
190. As has been stated, a deal of correspondence passed between the parties in late August and early September. Although it insisted upon full compliance with the contract, in none of its letters did the Commonwealth require the applicant, in terms, to show cause. Nor, in my view, did any of the Department's correspondence require this as a matter of necessary implication. It may be accepted that, provided the requirement is made in writing, it is sufficient if, objectively construed, the Department's communication makes it reasonably plain that the contractor must provide reasons why his contract should not be cancelled, however this may be expressed. But in the present case, even if the question is to be determined as a matter of the substance of the communication rather than its form, the Commonwealth's documentation did not inform the applicant, as cl. 2.24 required, that it had to show cause why the agreement should not be brought to an end.
191. It is also true that in August and September representatives of the parties frequently discussed the performance of the contract and the possibility of its being breached. As has been seen, these matters were also canvassed in the correspondence. It is one thing to discuss the possibility that the contract might not be fully performed on the due date and that, in consequence, the Commonwealth might then decide to put an end to the agreement. It is a very different thing to put a contractor upon notice that his contract is at risk unless he can demonstrate that it ought to remain on foot.
192. On the contrary, the Department seems to have studiously avoided any suggestion that it was bound to give a notice under cl. 2.24 before it could terminate. Its position then, and now, was and is that it was not bound by cl. 2.24 and could, instead, proceed to determine the agreement for fundamental or substantial breach under the general law. The Department's correspondence and the statements made by its officers in August and September are consistent only with its contention that it could terminate under the general law without any notice if a sufficiently serious breach occurred. Such an approach is necessarily inconsistent with the requirements of cl. 2.24.
193. In my view, no notice of the kind required by that provision was given.
194. For the sake of completeness, reference should be made to the decision
of Devlin J. in Etablissements Chainbaux S.A.R.L. v.
Harbormaster, Ltd. (1955)
1 Lloyd's Rep 303, which is much relied upon by the Commonwealth. Under a
contract made in July for the sale of goods, payment was to be made by the
French buyers by a letter of credit "to be opened...within a few weeks". The
buyers were unable immediately to obtain sterling enabling
them to furnish the
letter of credit. Time for the opening of the letter of credit was of the
essence of the contract but there
was no complaint of delay on the part of the
sellers. On 9 October the buyers intimated to the sellers that sterling was
then available.
This was accepted without comment by the sellers on 11
October. On 22 October the contract was cancelled by the sellers "having
regard to the protracted delay that has occurred over the establishment of
letter of credit". The buyers sued for damages for non-delivery.
It was held
that the buyers were in breach of their obligation to open a letter of credit
"within a few weeks" and this was a condition
precedent to the delivery of the
goods. It was further held that this breach was waived by the subsequent
conduct of the sellers,
but that, although the sellers' letter dated 11
October made it plain that they were not reimposing any term that time was of
the
essence, they had nevertheless proved that at the time of cancellation,
the buyers could not have complied with their obligation
to provide a letter
of credit within any reasonable extension of time. Accordingly, it was held
that the sellers were justified
in cancelling the contract. Devlin J. said
(at p 314):
"The evidence shows quite clearly that any reasonable195. In my opinion, the case is distinguishable for our purposes. Devlin J. was not dealing with a contract which contained a specific provision that termination could only be effected after the other party had been given an opportunity to show cause. Such a provision confers an important benefit upon the applicant as well giving significant rights to the Commonwealth. Compliance with its provisions is necessary before the Commonwealth may terminate and, for present purposes, it is impermissible to speculate as to the response, if any, which would have been made on behalf of the applicant if a show cause notice had been given.
extension of time such as I might have been willing
to fix in other circumstances, such as 14 days or
another month at the most, would not have availed the
plaintiffs at all. The plaintiffs had, in the words
of Lord Parker in Stickney v. Keeble and Another,
sup., put it out of their power to complete the
contract within any sort of reasonable time, or
rather it is truer to say that it was never within
their power to complete the contract within any sort
of reasonable time because they had not got the
sterling and could not get the sterling within a
reasonable time; and when the facts disclosed that,
that is a good enough justification for the
defendants' attitude. They purported to repudiate
the contract. In considering whether the repudiation
is rightful or wrongful according to the ordinary
principles on which these things are determined, it
is not what the repudiating party knew at the time,
nor what was operating in his mind, that counts, but
the actual facts, and if the defendants are in a
position to say on the actual facts as we now know
them, "We would have been entitled to give a
peremptory notice," the fact that the provision of
reasonable time was not in their minds is, in my
judgment, irrelevant."
196. Nor, in my view, could it seriously be suggested that the applicant waived the benefit of cl. 2.24. It did not do so expressly in any communication. There is no conduct on the part of the applicant from which any such waiver could be inferred, as a matter of necessary implication.
197. In the result, I am of the view that on 12 September, the Commonwealth
acted without lawful justification in purporting to terminate
the contract.
I make this finding on the assumption, which I am prepared to make for
immediate purposes, that the applicant was in
breach of its contract. The
applicant denies any breach. It will be necessary later to consider the
significance of the level of
the applicant's performance of the agreement. Of
course, if there were no breach, the Commonwealth could not have cancelled the
contract under cl. 2.24.
The second issue: What general principles determine the measure of damages?
198. The basic principles are well established. The general rule of the
common law, which forms the starting point of a consideration
of the
assessment of damages for breach of contract, is that "where a party sustains
a loss by reason of a breach of contract, he
is, so far as money can do it, to
be placed in the same situation with respect to damages, as if the contract
had been performed"
(per Parke B. in Robinson v. Harman [1848] EngR 135; (1848) 1 Exch 850 at p
855, cited by Gibbs J. in Wenham v. Ella [1972] HCA 43; (1972) 127 CLR 454 at p 471). The
general principle is limited by the rule in Hadley v. Baxendale (1854) 9 Exch
341 at p 354, that the damages "should be such as may fairly and reasonably be
considered either arising naturally, i.e., according to
the usual course of
things, from such breach of contract itself, or such as may reasonably be
supposed to have been in the contemplation
of both parties, at the time they
made the contract, as the probable result of the breach of it". In the
present case, the measure
of the applicant's damages must be the amount of
the applicant's probable profits arising from the contract had it been duly
performed
throughout the period of its probable life, subject to any
mitigating circumstances (see Evans Marshall & Co. Ltd. v. Bertola S.A.
and
Independent Sherry Importers Ltd. (1975) 2 Lloyd's Rep 373 per Buckley L.J. at
p 390).
The third issue: In assessing damages, should it be assumed that the
Commonwealth would have exercised its power under cl. 2.24 to
determine the
contract in any event?
199. On behalf of the Commonwealth, it is submitted that the applicant's
damages are to be assessed against the background of the
existence of its
power to determine the contract pursuant to the provisions of cl. 2.24 with
the consequence, it is said, that the
applicant would be entitled, at most, to
nominal damages. The Commonwealth relies upon the decision and reasoning in
Maredelanto
Compania Naviera S.A. v. Bergbau-Handel G.m.b.H. The Mihalis
Angelos (1971) 1 QB 164. Particular reliance is placed upon the following
statement made by Lord Denning (at pp 196-7):
"Seeing that the renunciation itself is the breach,200. On behalf of the applicant, it is submitted that The Mihalis Angelos may be distinguished on its facts. The material facts were that by a charterparty a vessel was chartered to proceed to Haiphong and there load a cargo of mineral ore for a North European port. The vessel was described as "now trading and expected ready to load under this charter about July 1, 1965". Clause 11 of the charterparty provided that "(s)hould the vessel not be ready to load (whether in berth or not) on or before July 20, 1965, charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel's expected arrival at port of loading." On June 23, the vessel arrived at Hong Kong to discharge cargo from her previous voyage. She was still there when on July 17 the charterers purported to cancel the charterparty on grounds of force majeure, claiming that there was no ore available at Haiphong as a result of warlike activities over North Vietnam.
the damages must be measured by compensating the
injured party for the loss he has suffered by reason
of the renunciation. You must take into account all
contingencies which might have reduced or
extinguished the loss. That is made clear by the
very first case in which that doctrine of
anticipatory breach was established, in Hochster v.
De la Tour itself (1853) 2 E & B 678, 686-687. It
follows that if the defendant has under the contract
an option which would reduce or extinguish the loss,
it will be assumed that he would exercise it. Again,
if it is reasonable for him to take steps to mitigate
his loss, he must do it. And so forth. In short,
the plaintiff must be compensated for such loss as he
would have suffered if there had been no
renunciation: but not if he would have lost nothing.
Seeing that the charterers would, beyond doubt, have
cancelled, I am clearly of opinion that the
shipowners suffered no loss: and would be entitled
at most to nominal damages."
201. It was held by the Court of Appeal (Lord Denning M.R., Edmund Davies and Megaw L.JJ.) that the "expected readiness" clause was a condition and, the owners having broken it in that, at the date of the agreement, they could not reasonably have expected that the ship would be ready to load in Haiphong on July 1, the charterers were entitled to terminate the contract on July 17. It was further held by Edmund Davies and Megaw L.JJ. (Lord Denning M.R. dissenting) that, assuming that the "expected readiness" clause was not a condition, then on the true construction of cl. 11, the charterers could not exercise their option to cancel until after July 20. It was further held that, assuming that the charterers committed an anticipatory repudiation of the contract by their purported cancellation on July 17, the owners would be entitled to damages. But, because the charterers would have cancelled the contract when the vessel arrived at Haiphong, the owners would have suffered no loss from the repudiation and would only have been entitled to nominal damages.
202. As has been seen, Lord Denning M.R. held (at p 196) that contingencies which "might have reduced or extinguished the loss" must be taken into account. He relied on Hochster v. De la Tour (supra). There Campbell C.J. said in argument (at p 687) that all contingencies should be taken into account in assessing the damages. In delivering the judgment of the Court, Campbell C.J. said (at p 691) that in assessing damages the jury "would be justified in looking to all that had happened, or was likely to happen, to increase or mitigate the loss of the plaintiff down to the day of the trial."
203. Edmund Davies L.J., relying on a finding by the arbitrators that "the
charterers would beyond doubt...have cancelled the charter,
on the ground that
the ship had missed her cancelling date", said (at pp 202-3):
"But the true test in a case of anticipatory breachMegaw L.J. said (at p 209-210):
is: "What would the position of the parties have been
if the defendant had not wrongly announced his
refusal to fulfil his part of the contract when the
time for performance arrived?" One must look at the
contract as a whole, and if it is clear that the
innocent party has lost nothing, he should recover no
more than nominal damages for the loss of his right
to have the whole contract completed. The assumption
has to be made that, had there been no anticipatory
breach, the defendant would have performed his legal
obligation and no more. "A defendant is not liable
in damages for not doing that which he is not bound
to do": per Scrutton L.J. in Abrahams v. Herbert
Reiach Ltd. (1922) 1 KB 477, 482, cited with
approval by Diplock L.J. in Lavarack v. Woods of
Colchester Ltd. (1967) 1 QB 278, 293. In the light
of the arbitrators' finding, it is beyond dispute
that, on the belated arrival of the Mihalis Angelos
at Haiphong, the charterers not only could have
elected to cancel the charterparty, but would
actually have done so. The rights lost to the owners
by reason of the assumed anticipatory breach were
thus certain to be rendered valueless."
"In my view, where there is an anticipatory breach of204. It is said on behalf of the Commonwealth that even if it had no right at common law to terminate the contract for essential or fundamental breach, it always had the right to cancel the agreement pursuant to cl. 2.24; and, the argument runs, this is a contingency which must be taken into account in assessing damages.
contract, the breach is the repudiation once it has
been accepted, and the other party is entitled to
recover by way of damages the true value of the
contractual rights which he has thereby lost, subject
to his duty to mitigate. If the contractual rights
which he has lost were capable by the terms of the
contract of being rendered either less valuable or
valueless in certain events, and if it can be shown
that those events were, at the date of acceptance of
the repudiation, predestined to happen, then in my
view the damages which he can recover are not more
than the true value, if any, of the rights which he
has lost, having regard to those predestined events."
205. On behalf of the applicant it is also argued that the reasoning in The Mihalis Angelos should be rejected in the light of the decision of the High Court in T.C. Industrial Plant Pty. Limited v. Robert's Queensland Pty. Ltd. [1963] HCA 57; (1963) 37 ALJR 289. But the question there was a very different one. In that case, the High Court was considering the appropriate measure of damages for breach of an implied condition as to the fitness of goods sold for a particular purpose. It was there argued that the plaintiff was bound to elect between expectation damages, in the form of loss of expected profits from the use of the goods, on the one hand, and reliance damages, in the form of the expenditure incurred in acquiring the goods, on the other. Other complicated questions, not presently material, were also argued. For immediate purposes, it will suffice to say that the present issue is not whether any such election is required. Nor does it involve the bases of assessment. The present question is whether it is appropriate to take into account subsequent events in assessing whether the applicant suffered any real loss at all. In my view, Hochster v. De la Tour (supra) establishes that it is legitimate to have regard to that contingency.
206. It follows, in my opinion, that the measure of the applicant's damages must be assessed on the footing that, at any time during the three year term of the contract, it was possible that, if the applicant were shown to be in breach of the agreement, the Commonwealth could invoke the machinery in cl. 2.24 and, if the Secretary was not satisfied that the contract should not be cancelled, the Secretary could then cancel it. Put differently, what the applicant lost by the Commonwealth's wrongful termination on 12 September was the loss of the benefit of a contract which contained a provision entitling the Commonwealth, in certain events, to cancel it.
207. In my opinion, the question to be resolved is one of hypothetical fact. It is to estimate or evaluate the chance that the Commonwealth would have immediately cancelled the contract pursuant to cl. 2.24 in any event with the consequence that the applicant would have suffered no real loss by reason of the Commonwealth's repudiation by purporting to terminate the agreement on 12 September. The inquiry is not limited to 12 September. If the Commonwealth would not have acted immediately but would have acted to cancel the contract at a later stage, the applicant would have suffered the loss of the profits it would have earned under the agreement in the meantime.
208. In evaluating the prospect that the Commonwealth might have cancelled
the contract pursuant to cl. 2.24, the Court is not concerned
with the balance
of probabilities in the way that a finding of a past fact is made. The
exercise here involved was described by
Lord Reid in Davies v. Taylor (1974)
AC 207 at pp 212-3:
"When the question is whether a certain thing is or is209. It is submitted on behalf of the Commonwealth that, although it must first establish a breach of the contract before any use of cl. 2.24 could be assumed, once that breach is made out, it should be conclusively presumed that the Commonwealth would have used its power under that provision to cancel the contract.
not true - whether a certain event did or did not
happen - then the court must decide one way or the
other. There is no question of chance or
probability. Either it did or it did not happen.
But the standard of civil proof is a balance of
probabilities. If the evidence shows a balance in
favour of it having happened then it is proved that
it did in fact happen.
But here we are not and could not be seeking a
decision either that the wife would or that she would
not have returned to her husband. You can prove that
a past event happened, but you cannot prove that a
future event will happen and I do not think that the
law is so foolish as to suppose that you can. All
that you can do is to evaluate the chance. Sometimes
it is virtually 100 per cent.: sometimes virtually
nil. But often it is somewhere in between. And if
it is somewhere in between I do not see much
difference between a probability of 51 per cent and a
probability of 49 per cent...
If the balance of probability were the proper test
what is to happen in the two cases which I have
supposed of a 60 per cent. and a 40 per cent.
probability. The 40 per cent. case will get nothing
but what about the 60 per cent. case. Is it to get a
full award on the basis that it has been proved that
the wife would have returned to her husband? That
would be the logical result. I can see no ground at
all for saying that the 40 per cent. case fails
altogether but the 60 per cent. case gets 100 per
cent. But it would be almost absurd to say that the
40 per cent. case gets nothing while the 60 per cent.
case award is scaled down to that proportion of what
the award would have been if the spouses had been
living together. That would be applying two
different rules to the two cases. So I reject the
balance of probability test in this case.
But I agree with your Lordships that even on the test
which I think ought to be applied the appellant has
not shown any significant chance or probability that
she suffered any injury financially by her husband's
death."
210. It is true that in the passage cited from The Mihalis Angelos, Lord
Denning spoke of an assumption that a party would exercise
an option in a
contract to reduce or extinguish the other party's loss. In Evans Marshall,
supra, at p 390, Buckley L.J. used similar
language, adding that "(t)his is
not speculation but a natural inference from the terms of the contract." He
continued:
"As Lord Reid observed in Davies v. Taylor, (1974)211. In my opinion, there is no presumption of law that an option of the kind found in cl. 2.24 would necessarily be exercised. Ordinarily, it would be reasonable to assume that a party would avail itself of such an opportunity. But special circumstances may suggest that the ordinary inference should not be drawn.
AC 207, at p 213 it is impossible to prove that a
future event will happen: one can only assess the
probability of its happening. Circumstances may make
the occurrence certain, or virtually so, as in The
Mihalis Angelos, (1971) 1 QB 164; (1970) 2 Lloyd's
Rep. 43 where the arbitrators found as a fact that
beyond doubt the charterers would have cancelled the
charter when the ship arrived at Haiphong. In that
case circumstances of time and space made it certain
that by the time the vessel reached the port the
right of cancellation would have arisen. It was a
natural inference in the circumstances of the case
that the charterers would have exercised that right.
Or there may be a real chance - Lord Reid called it a
'substantial' chance - of the event occurring which
does not amount to certainty. If so, its value can
be assessed. Or the chance may be purely
speculative, in which case it will be valueless. See
per Lord Reid, Davies v. Taylor (sup.) at pp 212,
213."
212. The point is well illustrated by Bold v. Brough, Nicholson & Hall Ltd.
(1964) 1 WLR 201. In a claim for damages for wrongful dismissal, it was
argued on behalf of the defendant that no amount should be allowed for the
loss of any pension entitlement because it should be assumed that the
defendant would have exercised a power it had to terminate
the pension scheme
on giving six months' notice. Phillimore J. said (at pp 211-2):
"In assessing damages, I have to compensate the(See also Beach v. Reed Corrugated Cases Ltd. (1956) 1 WLR 807; Lavarack v. Woods of Colchester Ltd. (1967) 1 QB 278; The Shipping Corporation of India Limited v. Naviera Letasa, S.A. (1976) 1 Lloyd's Rep 132; The "Rijn "(1981) 2 Lloyd's Rep 267; Paula Lee Ltd. v. Robert Zehil & Co. Ltd. (1983) 2 All ER 390).
plaintiff for what he has lost, bearing in mind all
the probabilities. No doubt it is probable that an
employer will avail himself of any powers which will
serve to relieve himself of liability, and the court
must approach the assessment with that in mind. In
many cases it will be a decisive factor against the
employee's claim. In this case, however, it is to be
observed that although a year has passed, the
employers have not availed themselves of rule 22, nor
did the director, Towle, suggest they are likely to
do so. This is a substantial company, with
subsidiaries and many employees. It is not suggested
that it is in serious business difficulties. Is it
likely that it will take a step so disastrous to its
relations with all its employees solely to defeat a
claim by this plaintiff, an old employee of the
company? The short fact is that there is nothing to
suggest that this company is likely to take such a
step.
I must, accordingly, proceed to consider which figure
to award under heads (B) and (C). I agree with Mr.
Evans that inasmuch as the company's minute expressly
disclaims any legal obligation, I ought not to
assume, more particularly in the light of the altered
constitution of its board since that minute was
approved, that it would have adhered to the intention
there expressed. I do not think it is more probable
that if they had terminated the service agreement as
at March 30, 1969, they would have adhered to the
intention expressed in May, 1959, than otherwise."
213. It is submitted on behalf of the Commonwealth that when assessing damages the presumed mode of performance is that which will involve for it the minimum liability. For instance, the argument runs, in contracts for the sale of goods, damages are often calculated in terms of the minimum quantity of goods to be delivered. If a vendor has the option to deliver 1500 to 2000 tonnes of goods, damages should be assessed on the basis that the quantity delivered would have been 1500 tonnes (see Abrahams v. Herbert Reiach, Limited (1922) 1 KB 477 at p 482; see also Paula Lee Ltd. v. Robert Zehil & Co. Ltd., supra, at p 393).
214. In my view, the present case is far more complicated. If this were simply a matter of the Commonwealth having the choice between paying substantial damages on the one hand and nominal damages on the other, no doubt it would choose to pay nominal damages. But whether it was open to the Commonwealth to exercise its powers under cl. 2.24 is itself a complex question and even if it were open for it to do so, it is reasonable to expect that the Commonwealth would take into account a number of considerations before deciding to take that step. The Commonwealth was, in practical terms, committed to provide a coastwatch service on a continuous basis. The applicant's tender for the coastwatch contract was the lowest of the three tenderers who tendered for all bases. One of the other tenderers was Skywest, the existing contractor. If the Commonwealth were to cancel the applicant's contract, it would have to confront the probability that Skywest would agree to continue the service in the short, medium or long term at a cost greater than the applicant was prepared to charge. On the other hand, it would be reasonable to expect that the Commonwealth would seek to ensure that the level of performance offered under any coastwatch contract was of an adequate standard. That is to say, deciding whether or not to cancel the applicant's contract, assuming that it were legally possible to do so, would involve from the standpoint of the Commonwealth a balancing exercise in which a number of considerations would have to be taken into account. It would not simply be a case of considering the minimum scope of the Commonwealth's obligations.
215. The Commonwealth had no obligation to cancel the contract pursuant to cl. 2.24 even if it had the power to do so. The provision conferred upon the Commonwealth a discretion which it may reasonably be expected to exercise honestly but in its own interests. If it were contrary to its interests, taken as a whole, to exercise that power, it may be assumed that the Commonwealth would not cancel the contract.
216. In my opinion, the question is one of fact, albeit hypothetical fact, to be determined in light of the whole of the circumstances at the relevant time. The fact that the Commonwealth did purport to terminate the agreement on the basis of its perception that the applicant was in fundamental breach is, no doubt, powerful evidence of what the Commonwealth's reaction would have been if it had occasion to decide whether it would invoke the machinery for termination provided by cl. 2.24. Whilst this is a powerful consideration in favour of drawing the inference that the Commonwealth would have activated cl. 2.24, it is not decisive. It cannot conclusively determine the point.
217. On behalf of the Commonwealth, it is said that the inference should be drawn that if it had given a notice pursuant to cl. 2.24, the applicant would have failed to show cause to the satisfaction of the Secretary with the consequence that the contract would then have been cancelled. According to the Commonwealth's argument, the correspondence between the parties and the discussions between their representatives in August and September indicated that the Secretary was not satisfied with the level of performance offered by the applicant. It should be inferred from this and, in particular, from the fact that the Commonwealth actually purported to terminate after hearing the applicant out, that the applicant had no real prospect of persuading the Commonwealth that the contract should not be cancelled.
218. The applicant disputes that this inference is open. In the first place,
the applicant contends that the Commonwealth could
not simply give a notice to
show cause under cl. 2.24. Reliance is placed upon an arbitration provision in
the contract as follows:
"2.28 SETTLEMENT OF DISPUTES219. (By cl. 2.2 it was provided that the contract was to "be governed by and construed with reference to the Laws for the time being in force in the Australian Capital Territory.")
Notwithstanding the succeeding provisions of this
clause, the Contractor shall at all times (subject as
otherwise provided for in the Contract) proceed
without delay to continue to execute the work under
the Contract and perform his obligations under the
Contract and in so doing shall comply with all
directions issued or given to or served or made upon
the Contractor under or pursuant to the provisions of
the Contract.
All disputes or differences arising out of the
Contract or concerning the performance or the
non-performance by either party of his obligations
under the Contract shall be decided as follows:
(a) the Contractor shall, not later than
fourteen days after the dispute or
difference arises, submit the matter at
issue in writing, specifying with detailed
particulars the matter at issue, to the
Secretary for decision and the Secretary
shall, as soon as practicable thereafter,
give his decision to the Contractor; and
(b) if the Contractor is dissatisfied with the
decision given by the Secretary pursuant to
(a) above he may, not later than
twenty-eight days after the decision of the
Secretary is given to him, give notice in
writing to the Secretary requiring that the
matter at issue be referred to arbitration
and specifying with detailed particulars the
matter at issue, and thereupon the matter at
issue shall be determined by arbitration.
If however, the Contractor does not, within
the said period of twenty-eight days, give
such a notice to the Secretary requiring
that the matter at issue be referred to
arbitration, the decision given by the
Secretary pursuant to (a) above shall not be
subject to arbitration.
Where a notice is given by the Contractor to the
Secretary pursuant to the last preceding paragraph
requiring that the matter at issue be referred to
arbitration no proceedings in respect of that matter
at issue shall be instituted by either the Secretary
or the Contractor in any court unless and until the
arbitrator has made his award in respect of that
matter at issue.
Arbitration shall be effected -
(a) by an arbitrator agreed upon in writing by
the parties within twenty-eight days after
the said notice is received by the
Secretary; or
(b) in the absence of that agreement, by an
arbitrator appointed in accordance with the
law relating to arbitration in force in the
Australian Capital Territory.
Moneys that are or become due and payable by the
Commonwealth in respect of work carried out under the
Contract shall not be withheld because of arbitration
proceedings but the Secretary may, at his discretion,
and pending the award of the Arbitrator withhold
payment of moneys in respect of any matter that is
the subject of arbitration proceedings."
220. According to the applicant's argument, the Commonwealth could not invoke the provisions of cl. 2.24 unless it could first establish, as distinct from merely assert, that the applicant had failed to carry out the contract or comply with one of its conditions; and that, if a dispute arose as to whether a breach had been committed, the applicant would have had the right to have that question determined by an arbitrator pursuant to cl. 2.28, subject to the operation of the provisions of the Commercial Arbitration Ordinance 1986 (A.C.T.).
221. I agree that the machinery for termination provided by cl. 2.24 could only be used if, viewed objectively, the applicant had failed to carry out the contract or comply with one of its conditions. In other words, it is not enough for the Commonwealth merely to assert that, in its opinion, there had been a breach. If the applicant were to dispute that it was in breach, it would be open to it to refer that question to arbitration pursuant to cl. 2.28. Subject to any judicial review under Part V of the Commercial Arbitration Ordinance, the decision of the arbitrator would be final (s. 28). Whatever machinery, judicial or arbitral, is employed does not matter for present purposes: the Court or the arbitrator must decide the same substantive question - was there a breach of the contract for the purposes of the opening words of cl. 2.24?
222. It should be added that cl. 2.28 is a Scott v. Avery clause with the stated objective of making arbitration a condition precedent to the institution of court proceedings in any area of dispute. However, the present question is whether an extra-curial right may have been exercised. The issue is whether it would have been open to the Commonwealth to have invoked cl. 2.24 without first referring that matter to arbitration. Whilst it may have been open to either party to refer the matter to arbitration, it was not a condition precedent to the exercise of the Commonwealth's powers under cl. 2.24 that it do so.
223. The question that then arises is whether on 12 September the applicant
failed to carry out the contract or comply with one of
its conditions. If it
was in breach, and this is an objective inquiry, it will then be necessary to
decide the further and hypothetical
questions, whether there was any chance
that the Commonwealth might or might not have used its power to cancel, and if
so, what chance.
Could the Commonwealth have issued a "show cause" notice?
224. This raises a number of legal questions. Was the applicant in breach? If so, was the Commonwealth estopped from relying on any such breach? If not, was there any other legal reason why the Commonwealth could not issue a show cause notice?
225. Was the applicant in breach of its contract on 12 September? On behalf
of the Commonwealth, it is alleged that the applicant
failed to provide
sufficient aircraft (see cl. 3.11.1) ("the first alleged breach"); that the
aircraft provided were not suitable
for the task (see cl. 3.3.1) ("the second
alleged breach"); that the aircraft were not fully equipped (see cl. 3.3.1)
("the third
alleged breach") and that the applicant failed to carry out all
the flights scheduled for 12 September (cl. 3.1.1) ("the fourth
alleged
breach"). The applicant disputes each of the breaches alleged.
Did the applicant make the flights programmed for 12 September?
226. The applicant accepts that it did not carry out all the flights scheduled for 12 September. The applicant claims that delay in making some flights was occasioned by the inspections of the applicant's aircraft which were carried out by Commonwealth officers in the morning (or, in one case, in the afternoon) of 12 September. For reasons which appear later, in my view, the time taken in these inspections (each of approximately one hour's duration) could not have had any significant effect upon the applicant's capacity to perform all the scheduled flights on the day. The applicant also argues that, by virtue of the operation of cl. 2.23, the only remedy available to the Commonwealth in the circumstances was to claim liquidated damages for failure to make some of the programmed flights; it follows, the argument runs, that no action could have been taken under cl. 2.24 to cancel the contract by reference to this breach.
227. It is difficult to accept the contention. Clause 2.23 did provide for damages where the contractor failed to make a flight, but the provision was expressed to be "without prejudice to any other remedy". The reference to "any other remedy" would include remedial action under cl. 2.24.
228. As has been said, the applicant claims that, in any event, the Commonwealth cannot now assert that the applicant was in breach of its contract for three reasons: (1) The applicant says that, although the fleet of 14 fully equipped aircraft may not have been available on 12 September as originally proposed, officers of the Commonwealth represented to the applicant that a further month after 12 September would be permitted to enable the applicant to acquire the additional aircraft necessary to bring the numbers up to 14 and to fully equip all its aircraft; and that the applicant relied on this representation with the consequence that it was not ready by 12 September. The result, the applicant says, is that the Commonwealth should not now be allowed to rely on these breaches. (2) The applicant also says that, even if there is no estoppel, equity would have restrained the exercise by the Commonwealth of its contractual power of cancellation because the conduct of the Commonwealth was "unconscionable". (3) The applicant further says that it was hindered in its preparation for performance by the Commonwealth's failure to co-operate in the implementation of their agreement in several respects (see Mackay v. Dick (1881) 6 App Cas 251).
229. Before going to these matters, it is necessary to consider whether the
other breaches alleged have been established.
Did the applicant provide "sufficient" aircraft on 12 September?
230. How many aircraft were required for this purpose? As has been seen, the contract and the letter of acceptance proceeded on the basis that approximately eight operating aircraft were required. To this must be added the three "backups" required by cl. 3.11.2, that is, a total of approximately 11. The contract did not define "backup". The dictionary definitions of the term include "a reserve supply or resource; a second means of support" (see the Macquarie Dictionary). This is probably its meaning here. Approximately eleven aircraft, rather than the 14 proposed, were thus required as a matter of construction of the contract.
231. On 12 September, the applicant provided only seven aircraft certified as
airworthy and, of these, one had a fuel leak and appeared
to be temporarily
unserviceable. Six, or perhaps seven, aircraft were significantly less than
the 11 aircraft contemplated by the
contract as "sufficient".
Were the aircraft suitable and fully equipped on 12 September?
232. It is not seriously disputed by the applicant that, with the exception of the two 680FL piston engined aircraft, its aircraft were in breach of the endurance requirements specified in cl. 3.3.1(b). To overcome this problem, the applicant proposed to install long range fuel tanks in its turboprop aircraft. This had not been done by 12 September. To this extent, the turboprop aircraft were not then suitable for the task.
233. Further, all the aircraft lacked the bubble windows required by cl. 3.3.1(k). Installation of the bubble windows was proposed but this had not been carried out by 12 September.
234. The two 680FL aircraft had the required endurance but lacked the avionics mentioned in the Notice of Termination. It was proposed that the avionics be fitted but this had not been done by 12 September.
235. None of the aircraft had the capacity to drop small stores as required by cl. 3.3.1(o). The applicant proposed to install a drop hatch in the aircraft but this had not been done by 12 September.
236. The seating for the observers was not "fully adjustable" as required by
cl. 3.3.1(k). The seats could be adjusted fore-and-aft
but could not be
adjusted up and down. They were not "fully" adjustable.
Is the Commonwealth now estopped from relying on these breaches?
237. The principal estoppel propounded by the applicant arises out of an incident alleged to have taken place at the meeting between the representatives of the parties held on 21 August.
238. As has been said, the meeting arose as a result of the Commonwealth's
letter dated 12 August purporting to make time of the
essence of the contract.
According to the evidence of Mr. Richardson, shortly before this, on 5 August,
Mr. J.P. Shlegeris, a director
of the applicant, contacted Mr. Richardson and
enquired whether the applicant needed all 14 aircraft in order to comply with
the
specification. Mr. Richardson said that 14 were required. He added that,
if anything different was proposed, it would have to be
put to the Department
for approval in a formal way. There was then a discussion about the show
cause provision in the contract (cl.
2.24) as follows:
"...I (Mr. Richardson) said to him (Mr.239. Mr. Richardson said that he had further discussions with Mr. Shlegeris about these matters in the middle of August.
Shlegeris) that if we did issue a show cause
notice, then it would take probably a month
or so to sort it out ... In this case it is
a high profile task and we cannot afford, or
may not have the time, in which to allow that
sort of process ... We have contractual
obligations with Skywest. They are unwilling
to extend the contract, and the Government
has very little leeway in the matter. You
may not have that time in relation to the
four weeks notice ... All you can do is try
us out."
240. In his evidence, Mr. Shlegeris agreed that he had discussions to this effect with Mr. Richardson in the middle of August. It is not clear from Mr. Shlegeris' evidence whether the show cause provision was also mentioned earlier, that is, on 5 August. It is common ground that Mr. Richardson and Mr. Shlegeris frequently discussed aspects of the applicant's preparations for the contract. Nothing appears to turn on whether the conversation took place on 5 August or shortly thereafter. I accept Mr. Richardson's evidence as reliable on this aspect.
241. Mr. Amann also said that he had a similar discussion with Mr. Richardson at about this time.
242. It is reasonable to expect that such matters would be raised at this
stage. By the middle of August, it must have been apparent
to both parties
that the applicant may not be able to make good its representation that it
would provide 14 fully equipped aircraft
by 12 September. Both parties must
also have realised that the grant of any extension of time to the applicant
was not a practical
proposition. For one thing, Skywest had indicated its
opposition to any extension for the applicant. On 11 August, Skywest had
written to the Minister stating that Skywest had been:
"... reliably advised that yesterday Mr.243. The Minister replied to Skywest by letter dated 12 August stating that -
Robert Amann informed his major contractors
in the United States that (the applicant) has
been granted an extension (of unspecified
duration) against its 12 September deadline
by the Department ...
Skywest has, of course, indicated its
unpreparedness to prop up a competitor's
shortcomings by the granting of a fourth
extension - especially one of six months'
duration - and our offer to the Commonwealth
to continue services beyond 12 September 1987
was made on advice from the Department that:-
(a) they have consistently stated that (the
applicant) will be in default of its
contract if it does not fully meet the
specification across all bases on 12
September 1987;
(b) no further extensions would be
forthcoming to (the applicant) ..."
"The Commonwealth has not granted (the244. As has been seen, by his letter dated 12 August, Mr. Beale informed the applicant that the Commonwealth was concerned to ensure that there was no further delay on the part of the applicant to commence operations as the contract required; that no further extensions of time would be permitted; that, if the applicant did not commence all its operations at all bases as the contract required by 12 September, the Commonwealth would immediately proceed to terminate the contract; and that, in this respect, time was of the essence. The applicant wrote two letters in response, dated 17 and 18 August, denying any breach and seeking a meeting with representatives of the Commonwealth to clarify the position.
applicant) an extension of time in which it
may prepare to carry out its obligations.
Indeed, the Commonwealth is today giving (the
applicant) notice of our requirement for it
to be ready to commence operations by 12
September 1987."
245. The meeting was held on 21 August. It was attended, on behalf of the
Commonwealth, by Mr. Beale, Mr. P.J. Merner (the Acting
Deputy Secretary of
the Department), Mr. Richardson and Mr. T.A. Sherman (Deputy Secretary,
Attorney-General's Department); and,
on behalf of the applicant, by three of
its directors, Mr. N.C. Stokes, Mr. V.R. Gould and Mr. Shlegeris. Although the
witnesses
called on behalf of the Commonwealth dispute that the incident now
relied on by the applicant happened, there is a large measure
of agreement
between the parties as to the other matters discussed at the meeting. Mr.
Richardson's record of the meeting summarised
the discussion as follows:
"... Mr Stokes expressed concern that the246. According to the evidence given by the applicant's representatives, the following incident occurred during the meeting. Mr. Gould put to Mr. Beale that it was the applicant's understanding that the applicant would have a further month or so after 12 September to complete its preparations and this was acceptable to the officers of the Department. Mr. Beale, it is said, made no response.
Department's letter of 12 August 1987 could
be construed as stating that Amann Aviation
had committed a breach of its contract with
the Commonwealth to provide coastal
surveillance services.
Mr Sherman explained that mention of 'further
delays' in that letter merely referred to the
previous adjustments to start up dates as had
been mutually agreed. It was confirmed by Mr
Beale that the Commonwealth did not hold the
view that there had been a breach of
contract.
It was agreed that the contract as it stands
obliges Amann Aviation to commence full
operations at all bases by 12 September,
1987. Amann Aviation accepted that there was
an agreed timetable for commencement of these
operations which had been stated in
correspondence dated 14 July, 1987 from the
Department and 15 July, 1987 from Amann
Aviation.
Mr Beale emphasised the Commonwealth's
concern to ensure that there was no loss of
continuity in surveillance of the littoral in
the change over between contractors.
Mr Stokes stated that the company was fully
committed to the starting dates and was
taking all possible steps to ensure it met
its obligations.
Mr Gould asked that the Government do
everything that it could to assist the
company achieve the start up dates ...
Mr Beale assured Amann Aviation that
everything possible, and proper, would be
done to assist the company consistent with
the Department's regulatory responsibilities.
...
Mr Beale noted that the Department had a
contractual relationship with Amann Aviation
and looked forward to the commencement of
their operations by 12 September 1987. He
noted the critical nature of each of the
start up dates in respect of each base in the
public perception of Amann's performance
apart from the contractual obligations.
..."
247. The Commonwealth's representatives at the meeting deny, or cannot recall, that the incident occurred.
248. It is necessary to consider the respective versions of what is said to have happened at the meeting.
249. According to Mr. Gould, after stating at the meeting that the applicant
would have "sufficient" aircraft available by 12 September,
he said:
"... it is our understanding that we will have250. Mr. Gould said that he then "looked straight at Roger Beale, ... and...(Mr. Beale) just averted his eyes, and then the conversation changed."
at least a further month beyond 12 September
to complete the acquisition of aircraft; to
install the bubble windows and long range
fuel tanks. I understand that this will be
all right with the officers of your
department."
251. Mr. Stokes' account was as follows:
"...in reply to Mr. Beale's statement that the key252. Mr. Shlegeris' version was as follows:
contractual requirement was to commence operations at
all bases on 12 September, Vanda Gould said, 'We
expect to have enough aircraft to start operations at
all bases on 12 September. We expect it will have
some problems that will have to be sorted out after
12 September and Robert Amann has had discussions
with people from the Department of Transport and they
have said that it will be OK to sort those out in the
month following 12 September.'
And what did Mr. Beale say in relation to that?----
Mr. Beale did not give a response to that
statement...I saw Mr. Beale glance to his right-hand
side where Mr. Sherman and Mr. Richardson were
sitting."
"Mr. Gould then said, 'It is our understanding from an253. Mr. Beale denied that this part of the discussion occurred at all. Mr. Merner, Mr. Richardson and Mr. Sherman said that they could not recall it.
officer of your department that if we have any
deficiencies on 12 September where deficiencies might
be in terms of the number of aircraft available in
the total fleet for Coastwatch or perhaps in the form
of the absence of bubble windows, long range tanks or
drop hatches, that if there are any such
deficiencies, that we will have a month or so after
12 September to rectify these deficiences.' I
watched Mr. Beale during that entire time Mr. Gould
was saying these things, and during that entire time,
Mr. Beale was looking straight at Mr. Gould. When
Mr. Gould finished speaking, Mr. Beale said nothing.
He looked down and he looked to the side a little
bit, but there were several seconds of silence in the
meeting where no one said anything at all."
254. The alleged incident was not mentioned in the correspondence which the
parties exchanged shortly after the meeting. Mr. Beale
confirmed the "salient
points" of the meeting in his letter dated 21 August to Mr. Stokes in these
terms:
"... The Department confirmed, at your255. Mr. Shlegeris replied by letter dated 27 August. Again, the discussion now relied on by the applicant was not adverted to. The full text of the letter was as follows:
request, that our letter of 12 August was not
intended to imply that Amann Aviation was in
breach of its contract with the Commonwealth.
We, that is the Amann representatives and the
Department, confirmed that the date at which
Amann was contractually committed to be fully
operational at all bases was 12 September
1987.
The Department emphasised the critical
national importance of the coastwatch
services, the need to avoid any discontinuity
in surveillance operations and the essential
requirement for full performance of the
surveillance operations in accordance with
the contract on and from 12 September 1987.
Accordingly we were pleased to receive your
assurances that your company is committed to,
and will achieve this.
We look forward to the commencement of your
company's operations under the coastal
surveillance contract."
"Thank you for your letter of 21st August 1987256. Representatives of the parties met again on 8 and 10 September. On each occasion, there was considerable discussion about the progress of the applicant's preparations. According to Mr. Stokes, at the 8 September meeting, Mr. Gould said to Mr. Beale:
addressed to Amann Aviation's chairman Nigel
Stokes.
We feel that our meeting was very useful, and
we are in complete agreement with the summary
of that meeting which you provided in your
letter.
We would like to thank you once again for
taking the time to meet with us. Please feel
free to contact us at any time if you require
information about any aspect of Amann
Aviation's Coastwatch operations."
"...what about the question of long range fuel tanks;257. Mr. Beale's version of this exchange was similar:
our operations people have said the department may
not require them....Mr. Beale responded: not by me,
or with my knowledge, or by any officer of the
department with my authority."
"Mr. Gould said that he understood from - that the258. Mr. Gould said that a discussion along these lines occurred on 10 September, but not on 8 September. It appears that Mr. Gould is mistaken as to the date of the exchange. His account of what was said was as follows:
operational staff may not require some elements of
the contractually required fit from the beginning of
the contract. Specifically the long range fuel
tanks, the drop hatch (and) the bubble windows.
What did you say in response to that if
anything?----Well I indicated that I had not said
that. That had not been said with my knowledge or
with my authority.
What was then said to your recollection by either Mr.
Gould or Mr. Stokes?----Well Mr. Gould wanted to
continue to argue that issue but Mr. Stokes
interrupted him quite sharply to say that that is a
matter (for) later."
"I said to him (Mr Beale) 'It is my understanding from259. On 11 September, Mr. Gould wrote Mr. Beale a letter giving details of the progress of the applicant's preparations. In his letter, Mr. Gould stated that:
officers of your department that we will have a
further month beyond the 12 September to complete the
acquisition of aircraft, install the bubble windows
and long range fuel tanks, and drop hatch.' Mr.
Beale said, 'Any such undertakings given to you have
been without my authority'."
"...At least from 21st August 1987 the Department has260. On behalf of the Commonwealth, it is submitted that the version of what occurred on 21 August offered by the applicant's witnesses should be rejected. It is said that the absence of any reference to the incident in the correspondence exchanged shortly after the meeting indicates that there was no incident as alleged. Comment is made by the Commonwealth on the circumstance that when a similar statement was made by Mr. Gould on 8 or 10 September, Mr. Beale said that if any concessions were suggested by his officers, this was done without his authority. It is said that Mr. Gould has confused the dates of the discussions and that his statement was made on one occasion only and that was on 8 September, when Mr. Beale responded, and not on 21 August. Reliance is also placed by the Commonwealth upon the circumstance that in his 11 September letter Mr. Gould expressed his understanding of what had happened on 21 August as the giving of an undertaking by the applicant that it would perform fully within the month after 12 September, rather than, as the applicant would now have it, that the Commonwealth then granted the applicant an extension of time.
been aware that we would not be able to fully comply
with the requirements of the contract by 12th
September 1987. We have at all times assured your
Department that we would be in a position to
substantially comply with the terms of the contract
and that such matters as were outstanding at that
date would be complied with within a month of the
start up date.
The possibility that the bubble windows and long
range fuel tanks would not be completed by 12th
September 1987 was specifically raised on 21st
August, 1987 and we made it clear that on 12th
September 1987 we would only have seven or eight
aircraft on the Australian Register and ready to
perform the contract subject possibly to the above
exceptions..." (Emphasis added)
261. I have found it difficult to resolve the conflict in the evidence on this point. I have come to the conclusion, based on the objective probabilities, that it is likely that at the meeting of 21 August some mention was made of the possible consequences, for the applicant, if literal compliance with the contract were not achieved by 12 September. The consequences for the applicant if it failed to make good its representation that it would provide 14 fully equipped aircraft by 12 September were potentially serious. The fact that the applicant then appeared to have little prospect of achieving full compliance with the specification in the contract by the commencement date meant that it was likely that the applicant's representatives would seek to raise with the senior Commonwealth officers on 21 August the possibility of its failure to comply and the Commonwealth's reaction to such a serious matter. The representatives of both parties must have been aware of the show cause provision and of its potential application in this context. As has been noted, it is common ground that Mr. Richardson had, by this time, pointed out to Mr. Shlegeris the possibility that a show cause notice might be given, with an estimate that about a month might be taken up if this procedure were invoked. It was known that Skywest would protest if the Commonwealth were to grant the applicant an extension of time. Yet some delay would necessarily result from the working of the contract if the show cause procedure were to be activated.
262. It is likely then, that on 21 August Mr. Gould would seek to confirm with Mr. Beale, as the officer in charge of the administration of the contract, the suggestion earlier made by Mr. Richardson that, if the applicant could not achieve literal compliance with the contract by 12 September, it would still have, in practical terms, about a month to complete its preparations by virtue of the operation of the show cause provision. The correspondence before the meeting indicated that the applicant wished, and indeed needed, to clarify the Commonwealth's attitude. Mr. Richardson's speculation that the show cause procedure might take about a month provided a possible solution to the dilemma that then confronted the parties: on the one hand, it seemed unlikely that the applicant could achieve literal compliance by 12 September; on the other, Skywest's protests meant that it was difficult for the Commonwealth to grant an extension; if, as Mr. Richardson speculated, the applicant could gain a further month by virtue of the operation of a provision in the contract, without the Commonwealth granting any concession, it would be difficult for Skywest to complain that the Commonwealth had given the applicant preferential treatment. As has been said, from the applicant's point of view, it must have been desirable to have Mr. Richardson's views confirmed with his superior, Mr. Beale, if this were possible. In all these circumstances, it is likely that something along the lines described in the evidence of the applicant's representatives passed between Mr. Gould and Mr. Beale on 21 August.
263. This is not to say, as the applicant now contends, that what then happened was the grant of an extension of time on the part of the Commonwealth. On the contrary, it is improbable that this would have happened. At the same time, it is likely that the the parties then adverted to the possibility that the show cause procedure would take up some time in its operation. Once Mr. Gould's remarks are viewed in their context, against the background of the discussions which had already taken place between representatives of the parties, they support the conclusion that it is likely that what was discussed was the potential operation of the show cause provision. Mr. Gould's reference to his understanding that "this will be all right with officers of your department" (emphasis added) is consistent with this. Mr. Gould was apparently referring to Mr. Richardson's explanation of how the show cause provision might work. In this sense, Mr. Gould's comments take their context from Mr. Richardson's earlier explanation to Mr. Shlegeris. It follows, I think, that it is probable that what was involved in the discussion on 21 August was not the grant of a concession by the Commonwealth but rather the prospect that the show cause provision might be put into operation in order to ensure that the applicant made good its representation that it would provide a fleet of 14 fully equipped aircraft.
264. This conclusion is supported by the absence from Mr. Richardson's summary of the meeting, and from the correspondence exchanged shortly after the meeting, of any reference to an extension of time. If the parties had agreed on an extension of time at their meeting, it would be reasonable to expect that they would document their arrangement. That no mention of an extension was made in the notes or in the correspondence exchanged at the time is consistent with the true character of what, I think, was then being discussed, that is, speculation as to the possible operation of the show cause provision at a future date. It was hardly necessary for the parties to remind themselves in writing of the existence of the show cause requirement. It was not necessary to confirm that the provision formed part of the contract. As to the possible application of the provision, it could hardly have been thought that Mr. Richardson's tentative, informal, thinking at that early stage could be decisive. Both parties must have appreciated that, before any definite commitment was made by either of them, legal advice would have to be taken in the light of the actual facts and circumstances as they stood on 12 September. Viewed in this way, it is not surprising that what was said by Mr. Gould was not significant enough to call for mention in Mr. Richardson's notes or in the correspondence.
265. On behalf of the applicant, it is said that the incident at the meeting
should be construed as the grant of an extension of
time by the Commonwealth.
The applicant says that Mr. Gould's statement should be treated as separate
from Mr. Richardson's earlier
explanation. But, in my opinion, the incident
at the meeting cannot be seen in isolation. It should be viewed against the
background
of the complex contractual relationship and the considerable
difficulties, practical and legal, which had arisen in the course of
preparation for the performance of the contract. Spencer Bower and Turner, The
Law Relating to Estoppel by Representation, 3rd ed.,
1977, at pp 85-86 discuss
the need to place a statement made on a complex topic in its proper context:-
"Complex or qualified representations266. Whilst it is likely that the possible operation of the show cause provision was mentioned on 21 August, this cannot assist the applicant for present purposes. The question is whether, by reason of Mr. Beale's silence, the Commonwealth is estopped from asserting that the applicant was in breach of its contract in certain respects. If the applicant had been able to demonstrate that, by its conduct, the Commonwealth had represented to it (a) that the applicant would be granted an extension of time of a further month in which to prepare fully for the contract and (b) that the applicant would not be deemed to be in breach of the contract if full compliance were not achieved for a further month, and (c) that the applicant relied on that representation, the Commonwealth may have been estopped from relying on the breaches now alleged. But what happened at the meeting on 21 August fell far short of this. Mr. Gould was doing no more than restating Mr. Richardson's speculation as to the time likely to be taken up in the working out of the show cause procedures. For several reasons, such a statement could not found an estoppel which could prevent the Commonwealth from relying on the breaches now alleged.
It frequently happens that out of several statements,
relating to the same subject-matter, contained in a
document, or series of connected documents, or made
in the course of a conversation, or series of
connected conversations, there is some one statement
on which, if it could be isolated from the others,
the representee could properly found an estoppel.
But this isolation is not permissible. The primary
canon of construction, in the case of a complex
representation of this character, is that all the
statements or documents, if connected by express
reference, or by identity of subject-matter, must be
considered in their inter-relation and bearing upon
one another, in order to ascertain whether from the
whole of them, in their conjoint effect, the
particular representation which the representor is
alleged to be contradicting, can reasonably be
inferred, and not rather some other representation of
a more qualified, limited, or even totally different
character, which the representor is not proposing to
contradict, and in respect of which, therefore, no
estoppel can be raised."
267. In the first place, in my view, the statement was not sufficiently clear
to found an estoppel. There are good reasons why an
ambiguous or imprecise
statement should not found an estoppel (see Legione v. Hateley [1983] HCA 11; (1983) 152 CLR
406 per Mason and Deane JJ. at pp 435-6). Mr. Richardson's estimates of time,
as picked up by Mr. Gould, were necessarily vague and
indefinite. Mention was
made by Mr. Richardson of "probably a month or so". Mr. Gould spoke, to the
same effect, of "at least a further
month." Mr. Stokes and Mr. Shlegeris also
referred to indefinite times. Time for performance on 12 September was of the
essence.
It would follow that if there were to be any suggestion of an
alteration of the time for performance, a precise indication would
be called
for. On behalf of the applicant, reliance is placed on the following
observations by Mason and Deane JJ. in Legione v.
Hateley, supra (at pp
438-9):
"The requirement that a representation as to existing268. The present question is not whether it is possible to sever a statement into two parts of which one section at least is clear. The question here is whether a statement expressing an opinion as to the time likely to be taken up in the show cause procedures is sufficiently precise and unambiguous to found an estoppel. In my opinion, the attempt to predict the time as "at least a month" or as "a month or so" serves to reinforce the view that the statement, taken as a whole, is too vague and indefinite to found an estoppel. What was said did not amount to a representation that a minimum extension of time would be granted. What Mr. Richardson and, in turn, Mr. Gould were attempting to do was to speculate as to the potential operation of cl. 2.24 at a future date in circumstances not then known. This is not a case, as in the passage cited from Legione, of one party indicating to the other that the remedies available would not be enforced for a minimum period. It is a case of a statement being uncertain by reason of its content, that is, inherently uncertain.
fact or future conduct must be clear if it is to
found an estoppel in pais or a promissory estoppel
does not mean that the representation must be
express. Such a clear representation may properly be
seen as implied by the words used or to be adduced
from either failure to speak where there was a duty
to speak or from conduct. Nor is it necessary that a
representation be clear in its entirety. It will
suffice if so much of the representation as is
necessary to found the propounded estoppel satisfies
the requirement. Thus, a representation that a
particular right will not be asserted for at least x
days is not rendered, for the purposes of promissory
estoppel, unclear or equivocal merely because the
words used are equivocal as to whether the relevant
period is x days, x plus one day or x plus two days.
If what is said or done amounts to a clear and
unequivocal representation that the particular right
will not be asserted for a period of at least x days,
a representation to that effect can be relied on to
found an estoppel."
269. A further reason why no estoppel is made out here, even if the applicant's version of the incident is accepted, is that Mr. Beale then had no obligation to respond to Mr. Gould's statement. A party can only be estopped by silence where, in the circumstances, he had a duty to speak (see Greenwood v. Martins Bank, Limited (1933) AC 51; Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd. (19860 AC 80 at p 110; Waltons Stores (Interstate) Ltd. v. Maher [1988] HCA 7; (1988) 62 ALJR 110). The subject matter of the discussion on 21 August was complicated. The factual and legal position was then uncertain. The applicant's representatives were then assuring the Commonwealth officers that the applicant would perform satisfactorily on 12 September. If mention is made, in passing, of the possibility that, by virtue of the operation of the show cause provision, the applicant might obtain another month to achieve full compliance with the contract, it is not reasonable to expect the Commonwealth representatives to respond to such a statement and thus commit the Commonwealth to a particular position on the point. In such a complicated and indefinite situation, it was, I think, reasonable for Mr. Beale, on behalf of the Commonwealth, to remain silent and to wait and see what level of performance could be achieved by the applicant on 12 September before the Commonwealth committed itself to a particular position.
270. The estoppel now contended for by the applicant, if made good, would prevent the Commonwealth from asserting that there was any breach of the contract by 12 September because the Commonwealth, by its conduct, had represented to the applicant that it had an extension of time of a further month after 12 September to complete its preparations. In my view, no representation to that effect was made by the Commonwealth. It is possible that a different kind of representation might then have been made by the Commonwealth although its significance would be academic only. If the versions of the discussion on 21 August given by the applicant's witnesses are accepted, and I accept them as substantially accurate, it is possible that, by its conduct, the Commonwealth then represented to the applicant that it would not exercise any common law right it may have had to terminate the contract for alleged substantial breach on 12 September but would, instead, give the applicant a notice to show cause pursuant to cl. 2.24. But even if this were so, it could not assist the applicant. It has already been held that, on the true construction of cl. 2.24, the Commonwealth no longer had any right to terminate at common law in any event. Thus, the applicant has no need to propound an estoppel which would preclude the Commonwealth from relying on any general law right to terminate. That common law right had already been excluded by cl. 2.24.
271. A representation that the Commonwealth would not terminate under the general law but would instead proceed to require the applicant to show cause under cl. 2.24, if made, and if acted upon by the applicant, would be consistent only with the acceptance by both parties of the existence of one or more breaches of the contract. It is a condition precedent to the exercise of any right to give a show cause notice that there be a breach. If, by reason of the alleged incident on 21 August, the applicant assumed that it would receive a show cause notice on or about 12 September, it could only have done so on the basis that it was, or would be, in breach. This is at odds with the existence of an estoppel which would prevent the Commonwealth from alleging a breach.
272. In concluding that no relevant estoppel was created here, I have been
prepared to assume, in favour of the applicant, but without
deciding, (1)
that, as Associate Secretary of the Department with responsibility for the
administration of the contract, Mr. Beale
had the implied authority of the
Commonwealth to adopt what Mr. Gould said as correct, and thus to make a
representation on behalf
of the Commonwealth in those terms (see as to
inferring authority from the function of an official, Coogee Esplanade Surf
Motel Pty.
Ltd. v. Commonwealth of Australia (1976) 50 ALR 363 at p 377); (2)
that the applicant relied on the representation alleged by the applicant to
its detriment. The Commonwealth disputes
both matters but it is not necessary
to decide the points.
Would it have been "unconscionable" for the Commonwealth to give a "show
cause" notice?
273. In Legione v. Hateley, supra, Mason and Deane JJ. rejected the
contention that an estoppel had been created but held that equitable
relief
should be granted because the conduct of the vendor in rescinding the contract
was "unconscionable". After explaining that
it is only in exceptional
circumstances that specific performance will be granted at the instance of a
purchaser who is in breach
of an essential condition, their Honours said (at p
449):
"Whether the exceptional circumstances exist in a274. On the applicant's own case, it would not have been unconscionable for the Commonwealth to have given a notice under cl. 2.24 on or about 12 September. On the evidence of the applicant's witnesses, it had been contemplated by both parties for some time that a show cause notice might be issued in respect of the matters outstanding as at 12 September. In those circumstances, it could not be contended that it was unconscionable for the Commonwealth to proceed to give a notice under cl. 2.24. Whether it was then unconscionable for the Commonwealth to cancel the contract under cl. 2.24 is another question to which it will be necessary to return.
given case hinges on the existence of unconscionable
conduct. It is impossible to define or describe
exclusively all the situations which may give rise to
unconscionable conduct on the part of a vendor in
rescinding a contract for sale. None the less it may
be said that where the conduct of the vendor, though
not creating an estoppel or waiver, has effectively
caused or contributed to the purchaser's breach of
contract there is ground for exercising the
jurisdiction to relieve. And if it also appears that
the object of the rescission is not to safeguard the
vendor from adverse consequences which he may suffer
as a result of the contract remaining on foot, but
merely to take unconscientious advantage of the
benefits which will fortuitously accrue to him on
forfeiture of the purchaser's interest under the
contract, there will be even stronger ground for the
exercise of the jurisdiction.
In the ultimate analysis the result in a given case
will depend upon the resolution of subsidiary
questions which inevitably arise. The more important
of these are: (1) Did the conduct of the vendor
contribute to the purchaser's breach, (2) Was the
purchaser's breach (a) trivial or slight, and (b)
inadvertent and not wilful? (3) What damage or
other adverse consequences did the vendor suffer by
reason of the purchaser's breach? (4) What is the
magnitude of the purchaser's loss and the vendor's
gain if the forfeiture is to stand? (5) Is specific
performance with or without compensation an adequate
safeguard for the vendor?"
275. The next matter to be considered is whether the Commonwealth was in
breach of its implied obligation to co-operate in achieving
performance of the
contract (see Mackay v. Dick, supra). The applicant argues that the
Commonwealth failed to co-operate in several
respects.
Wing spar inspection procedures
276. The applicant's case is that an officer of the Department of Aviation gave Mr. Amann out of date information with respect to the procedures required by the Department for the inspection of the wing spars of its aircraft. The applicant claims that two or three weeks' preparation time was lost as a result of the episode.
277. The background facts are complicated, and, in many areas, contentious. According to Mr. Amann, at a meeting with officers of the Department of Aviation held on 24 March 1987, Mr. Amann was given a number of airworthiness directives issued by that Department. The directives specified the procedures and modifications to be undertaken to maintain the airworthiness of the Aero Commander aircraft. Mr. Amann said that he then forwarded the directives to Northeast. Mr. M.R. Goodwin, Northeast's Director of Maintenance, said that in March he received a bundle of airworthiness directives, apparently those forwarded by Mr. Amann. There can be no serious dispute that Mr. Goodwin received a number of directives. But the Commonwealth denies that Mr. Amann was given any directives at the meeting on 24 March.
278. One of the directives received by Mr. Goodwin was described as "AD/AC/83
Amendment 3". It was dated 30 September 1986. It specified
the following
inspection procedure for detecting corrosion of the wing lower spar:
"Requirement: 1. Unless already accomplished, inspect the279. It will be noted that the directive nominated the procedures to be adopted in cases (b) and (c). The directive did not describe the details of these procedures, but merely referred to "DOA/NDI/AC/83A" or other approved procedure. The instrument described as DOA/NDI/AC/83A (Department of Aviation/Non-Destructive Inspection Procedure/Aero Commander 83A) gave the details of the procedures.
lower wing skins over the spar cap inboard
of WS 170:
(a) Visually: Inspect for bulging,
corrosion beneath the
skin or rivet damage.
(b) Radiography: By DOA/NDI/AC/83A X-Ray
procedure or other
procedure approved by the
Secretary.
(c) Ultrasonic or Eddy Current: Determine
the depth of corrosion in
the spar cap by
Ultrasonic or Eddy
Current procedure
specified in
DOA/NDI/AC/83A or other
procedure approved by the
Secretary."
280. In the Departmental minutes of this meetingthere is a statement that "(t)here was considerable discussion on airworthiness requirements, who was going to refit the aircraft in U.S.A., who would maintain them here, how and where would the C of A be done and where would placing on the Australian Register of Aircraft take place..." But there was no reference in the minutes to indicate that airworthiness directives had been given to Mr. Amann.
281. On 6 May, at the applicant's request, the Department of Aviation forwarded to the applicant a copy of DOA/NDI/AC/83A. This document, which described radiographic procedures as well as ultrasonic and eddy current procedures, was forwarded by the applicant to Mr. Goodwin on 7 May. At about this time, Northeast arranged for a non-destructive testing laboratory to inspect several aircraft by a radiographic procedure. It was a term of the "Purchase Agreement" bearing date 25 May that Northeast would have each aircraft "undergo radiography to comply with the inspection procedure of an approved FAA (i.e. U.S.A. Federal Aviation Administration) certified repair station following the procedure of DOA/NDI/AC/83A." (A similar provision was found in the later "Brokerage Agreement" bearing date 15 June.) Aircraft to be tested were those then under consideration by Northeast as suitable for purchase by the applicant.
282. On 26 May, Northeast forwarded to the applicant the test results of the first aircraft. On 27 May, the applicant provided this information to the Department of Aviation, seeking that Department's approval. However, the Department rejected the request on the ground that the Airworthiness Directive Amendment 3 had been superseded on 31 December 1986 by Amendment 4 with the result that radiographic inspection was no longer permitted.
283. Under Amendment 4, the following requirement was stated:
"1. Unless already accomplished, inspect the lower284. On 28 May, the Department of Aviation forwarded a copy of Amendment 4 to the applicant. On the same day, the applicant informed Northeast that ultrasonic techniques were necessary. On 29 May, the Department of Aviation wrote to the applicant informing it that the radiographic procedure was no longer permitted. On that date, Northeast informed the applicant that it had cancelled the proposed radiographic testing procedures.
spar cap port and starboard using the
ultrasonic/eddy current procedure specified in
DOA/NDI/AC/83A or another procedure approved by
the Secretary..."
285. By letter dated 1 June, Mr. Amann advised the Department of Transport that its programme was "at a standstill" because it had been given out of date information by the Department of Aviation. On the same date, Mr. Amann made a similar complaint to the Department of Aviation and requested a spar sample for use in the ultrasonic inspection. On 2 June, the Department of Aviation wrote to Mr. Amann confirming that a spar sample had been sent to Darwin and that Amendment 4 had to be complied with. On 4 June, the applicant having decided to have the ultrasonic tests done in Australia, the applicant and Northeast agreed that the provision in their agreement for the wing spar inspection for corrosion prior to purchase, be waived.
286. On 9 June, Mr. Amann wrote to the Minister explaining that the aircraft would not arrive in Australia until 10 July, rather than 23 June, as originally planned, because the wrong inspection procedure had been undertaken. But he added that "(a)lthough the date of arrival of the aircraft in Australia has slipped, Amann Aviation will still be in a position to take over all Coastwatch operations by 12 September 1987. However, the later arrival date will alter the SA/NT Regional Director's Staff Priorities and we will liase direct with him on this matter."
287. On 10 June, Mr. P. Reece, the Minister's Senior Private Secretary, made
the following note with reference to Mr. Amann's letter:
"This letter is the result of a mistake made by DOA288. Mr. Reece was not called. However, he does not appear to have had any personal knowledge of what happened.
- they specified x-ray testing of wing spar which
was done by Amann
- but they changed their mind saying the earlier
advice on x-ray had been superseded by ultrasound
testing
However Amann says he has been put to considerable
extra cost and further delay as all the aircraft
had to be retested
- which involved dismantling
Amann has been inconvenienced severely but the
letter is nice and sweet so as not to upset them"
289. Mr. Goodwin estimated that because of the testing of the aircraft by the radiographic procedure, two to three weeks' time were lost in the applicant's "procurement program".
290. As has been said, it is disputed that Mr. Amann was given Amendment 3 at
the meeting held on 24 March. Mr. Amann's evidence
in chief was as follows:
"Now, was anything said or done, at that meeting,291. Mr. Amann said that, after the meeting, he saw Mr. Ramsey, who had not been at the meeting. Mr. Ramsey assisted Mr. Amann in the preparation of a "record" of the meeting. In the record, the following appeared:
about airworthiness directives?----It was. After
the meeting had concluded - or the business of the
meeting, which was to ascertain what we are - what
our plans were, I asked for specific AD's, or
airworthy directives, which are a printed
form.....I was handed a departmental - well,
envelope by the officer I had asked, with a
probably, a pile maybe an inch, inch and a half
thick of airworthy directives..."
"...292. (It will be noted that although there is mention of "AD's" (i.e. Airworthiness Directives), it is not stated in the record that an officer of the Commonwealth then provided Mr. Amann with any directives.)
The NSW Region prefer the aircraft to be flown to
and certified in Australia. Again, this is
contrary to information received during the tender
period from SA, NT Regions of DOA. We advised that
we would send our Chief Engineer to the US to make
sure that all Australian AD's and ANO's are adhered
to before the aircraft are flown to Australia. The
Department is to provide Mr Barry Fitzgerald with
complete and up-to-date NAR's and a certificate
programme. Mr. Barry Fitzgerald is also to supply
the Department with the manufacturers maintenance
checks and it is proposed to run the aircraft fleet
as per this system ie, Type A, B and C and not to
operate under ANO 100.1."
293. Mr. Amann said that he then sent the directives to Northeast "in an Emery international freight bag".
294. The Commonwealth's case is that Mr. Amann was given Amendment 3, not by its officers on 24 March but earlier by Mr. B.C. Fitzgerald, the "Chief Engineer" of the applicant. Mr. Fitzgerald carried on business as the Chief Engineer of Professional Aviation Maintenance Pty. Limited at Camden, N.S.W. Mr. Fitzgerald was called. He was present at the meeting on 24 March. He denied that any directives were then given to Mr. Amann. However, he said that before the meeting, Mr. Amann had asked him for a set of directives. Mr. Fitzgerald said that he provided a set but was not sure whether both Amendments 3 and 4 were included.
295. Mr. C.F. Shipway, Chief Airworthiness Surveyor (N.S.W.) in the
Department of Aviation, was present at the meeting on 24 March.
He denied
that Mr. Amann was then given the directives but said that, about a week
before, he had the following discussion with
Mr. Amann:
"Tell his Honour, if you would, what Mr. Amann said to296. Mr. Shipway denied that he gave Mr. Amann any directives on this, or any other, occasion. However, in the course of cross-examining Mr. Shipway, Mr. Gruzman QC put the following as Mr. Amann's instructions:
you and what you to him?---Right, well, as I recall,
Mr. Amann entered my office very late in the
afternoon because my clerks and gone and told me he
had decided to purchase some Aero Commander FL
aircraft because he had obtained the contract for the
coast watch. He asked me to provide him with some -
or go through the airworthiness directives for the
Aero Commander 680 FL. Now, I explained to Mr Amann
that this was somewhat difficult because it was a
relative complex matter and I took him to the set of
airworthiness directives we hold in the office which
we refer to as our master set and went through with
him the set that addressed the Aero Commander 680. I
think there is some over 80-odd of them. I explained
to Mr Amann a number of times - it was very difficult
to pinpoint the ones that were actually applicable to
the aeroplanes he was purchasing because some of
these directives refer to a particular serial number
groups of aircraft, other ones address the types of
roles the aircraft have been used in. And I also
explained to him that there was not just the pure
aircraft ones to look at, the airframe, but also
endless ones that dealt with engines, propellers and
equipment..."
"MR GRUZMAN: Mr. Shipway, my instructions from Mr297. Mr. Amann was not called in reply to establish his "instructions". Nor did the applicant call Mr. J. Gostner, then its Chief Pilot, who was also present at the meeting on 24 March. Mr. Ramsey was not called.
Amann are that he could not recollect at an earlier
stage who it was who gave him these ADs, but having
seen you in the court he says that it was you who
gave him the ADs; would you agree with
that?----No. I have no recall, as I have said
before, of giving him any ADs, only advice.
But it may have happened?---I doubt that it did. I
have got a pretty good recall for those sorts of
things.
Yes. You did have a recollection in that he went
to the cashier?---Not at all.
Did you - - -?---No idea that he went to the
cashier.
No idea at all?---No.
What Mr Amann says is that after the meeting he saw
you, he had a discussion with you, you were in a
hurry and you showed him the documents and then he
says that he had to go upstairs to pay the licence
fee and you agreed in the meantime to copy the
documents and that then he came back and you gave
him the documents?---I am sorry, that does not
follow what I remember of the thing at all. I
really remember saying goodbye to Mr Amann and Mr.
Fitzgerald in the corridor on the ninth floor.
When I returned to the seventh floor I .......with
Mr. Berry and Mr. Thompson was there as I went down
in the lift. I do not recall seeing him after
that.
And your recollection is that the whole discussion
about the ADs had taken place when?---Some days or
weeks prior, as we discussed last week.
And that you told him - you showed him or at least
explained to him - I withdraw that. You referred
him to the ADs as you went through the book?---We
went through the book together and I explained the
complexities of what he was asking.
Yes. And - well, at the meeting at which you were
present, was there some discussion about ADs?---Not
that I recall, not with me."
298. Mr. Amann appears to have been mistaken in his recollection of what happened on 24 March. In the face of the convincing denials of the Commonwealth officers and Mr. Fitzgerald, an independent witness, it is hard to accept that Mr. Amann was handed the directives at, or after the meeting. How he came to send Amendment 3 to Northeast is not clear. But I am not satisfied that any officer of the Department of Aviation handed the directives to Mr. Amann on 24 March.
299. The only other possible material contact between the parties was on 5 May when the applicant requested a copy of the non-destructive inspection procedure DOA/NDI/AC/83A. On behalf of the applicant, it is suggested that the Department should have then made it clear to the applicant that the radiographic procedure was no longer valid. However, the evidence indicates that all that happened was that the NDI procedure document was asked for and the Department responded by supplying it. This was an appropriate response to the request made.
300. The Commonwealth led evidence that, on 5 May, Mr. Amann was informed by Mr. K.D.Ardern, of Hawker Pacific Pty. Ltd. in Cairns, who replaced Mr. Fitzgerald as the applicant's "Chief Engineer", that radiography was not good enough and that the ultrasonic or eddy current technique was mandatory. This evidence was challenged in cross-examination. Since I am not satisfied that the applicant has established that the directives were provided to it on 24 March, it is not necessary to decide whether Mr. Ardern's evidence should be accepted.
301. Even if it were to be assumed, in the applicant's favour that the Department of Aviation gave incorrect advice to the applicant and (contrary to Mr. Amann's prediction in his letter dated 9 June), as a result, two to three weeks' time was lost by the applicant in its preparations, it would not follow, in my view, that, by application of the rule in Mackay v. Dick, the applicant was excused from performance on 12 September. In my opinion, that rule does not have the application here suggested by the applicant.
302. In Mackay v. Dick, a contract for the sale of goods made acceptance of
the goods and payment of the price conditional on a certain
thing being done
by the seller. The buyer prevented the possibility of the seller fulfilling
the condition. The contract was taken
as satisfied and the buyer was held
liable for the price. Lord Blackburn said (at p 263):
"... as a general rule...where in a written303. It may be appropriate here to imply a negative term that the Commonwealth would not take any step which might hinder or prevent the applicant's performance of their agreement. Yet it is a different thing to imply an obligation on the Commonwealth to take positive action to assist the applicant in expediting its preparations in order to achieve the benefits due to the applicant under the contract. In Secured Income Real Estate (Australia) Limited v. St. Martins Investments Proprietary Limited [1979] HCA 51; (1979) 144 CLR 596, Mason J. said (at pp 607-8):
contract it appears that both parties have
agreed that something shall be done, which
cannot effectually be done unless both concur
in doing it, the construction of the contract
is that each agrees to do all that is
necessary to be done on his part for the
carrying out of that thing, though there may
be no express words to that effect. What is
the part of each must depend on
circumstances."
"It is easy to imply a duty to co-operate in304. In the present case, it is appropriate to imply a negative term that the Commonwealth would not unlawfully or unreasonably refuse to provide the information required by the applicant in order that its aircraft could satisfy the Commonwealth's regulatory requirements. But the applicant's complaint here is, not that the Commonwealth refused to provide such information, but that the "regulatory" information provided was incorrect. It is difficult to accept that it was an implied term of the contract that the Commonwealth would take positive steps to ensure that such information was correct. It is possible that the Commonwealth might have been liable under the general law for damages in tort for negligence for providing such advice (cf. L. Shaddock & Associates Proprietary Limited v. The Council of the City of Parramatta [1981] HCA 59; (1981) 150 CLR 225). This is a different cause of action. The present question depends on the proper construction of the contract and the imputed intentions of the parties in this regard. Their agreement contemplated the provision by the applicant of services in return for charges payable by the Commonwealth. The Commonwealth's regulatory requirements, as administered by the Department of Aviation, may have formed part of the background to the contract, but those requirements were collateral, rather than an obligation fundamental to the operation of the contract of the kind considered in Mackay v. Dick. In my opinion, the implication sought by the applicant should not be made (see also Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board (1973) 1 WLR 601; Brooking on Building Contracts, 2nd ed., 1980, at p 53).
the doing of acts which are necessary to the
performance by the parties or by one of the
parties of fundamental obligations under the
contract. It is not quite so easy to make
the implication when the acts in question are
necessary to entitle the other contracting
party to a benefit under the contract but are
not essential to the performance of that
party's obligations and are not fundamental
to the contract. Then the question arises
whether the contract imposes a duty to
co-operate on the first party or whether it
leaves him at liberty to decide for himself
whether the acts shall be done, even if the
consequence of his decision is to disentitle
the other party to a benefit. In such a
case, the correct interpretation of the
contract depends, as it seems to me, not so
much on the application of the general rule
of construction as on the intention of the
parties as manifested by the contract
itself."
305. Similar considerations apply in respect of the other matter relied on by the applicant. According to the applicant (and again this is contested by the Commonwealth), the progress of its preparations would have been expedited if the Department had been prepared, in late August, to grant it a "concession" in connection with the procedures to be followed in submitting the applicant's aircraft for inspection for the purpose of granting a Certificate of Airworthiness. It is said that the Commonwealth should have permitted some of the applicant's aircraft to fly on 12 September and for a short period after that date, notwithstanding that no Certificate of Airworthiness had been granted because the aircraft held the equivalent of such a certificate in the form of a United States Export Certificate of Airworthiness.
306. On behalf of the Commonwealth, it is now argued that there was no power to grant the concession. By Reg. 108A of the Air Navigation Regulations, the Secretary may, in certain circumstances, give permission to fly an aircraft notwithstanding that the aircraft was not registered in Australia (and see Reg. 108). An example of a situation to which Reg. 108A would apply is a flight made for the purpose of delivering an aircraft to a person under a contract of sale (Reg. 108A(1)(a)). This does not apply here. Nor are the other circumstances specified in Reg. 108A applicable. It follows, in my view, that the concession sought could not have been granted.
307. It should be noted that, when the applicant sought the concession, the Department did not take the point that it had no power to grant the concession. Indeed, it appears that concessions were granted to other operators, including Skywest, in what seemed to be similar circumstances.
308. In my opinion, even if it had been possible to grant the concession, it
is difficult to see how the reasoning in Mackay v. Dick
could have assisted
the applicant to establish that the failure to grant the concession could
excuse the applicant from performance
on 12 September. As has been said,
though the negative implication may be made, it is not easy to make the
positive implication
suggested.
Preparation of formal contract documents
309. It is alleged on behalf of the applicant that the Commonwealth was
guilty of delay in the preparation of the formal contract
documents. It is
said that this delay hindered the applicant in its negotiations for finance.
The Commonwealth says that the delay
was occasioned by the applicant's failure
to supply the serial numbers of its aircraft. In any event the contract
provided (cl. 1.10)
that acceptance of the tender would constitute a binding
contract, independently of the execution of a formal document. It is
difficult
to understand how the absence of a formal contract document could
have had any detrimental effect on the applicant's attempts to
raise finance.
Other allegations of estoppel, waiver, unconscionable conduct and failure to
co-operate by the Commonwealth
310. I have dealt with the main allegations by the applicant of estoppel,
waiver, unconscionable conduct and failure to co-operate
insofar as these
contentions relate to the question whether the applicant was in breach on 12
September. In its Revised New Points
of Claim, the applicant makes other,
less significant, allegations in this connection. I have dealt with these
other contentions
in Appendix 3. That Appendix, which is to be treated as
part of my reasons, contains findings on the material allegations in the
pleadings.
Four breaches established
311. In the result, the four alleged breaches have been established. It
follows that it was open to the Commonwealth to issue a
show cause notice. It
is now necessary to determine the hypothetical questions whether there was any
chance that the Commonwealth
might, or might not, have used its power to do
this and, if so, what chance.
Would the Commonwealth have issued a "show cause" notice?
312. In the first instance, this question should be considered as at 12 September. This question is to be determined in the light of the facts and circumstances then known to the Commonwealth. At that date the Commonwealth knew that the applicant had been unable to perform the contract in the four respects already described. If these breaches had been in respect of trivial matters, it would be reasonable to expect that the Commonwealth would not issue a notice. However, it can hardly be suggested that the breaches were trivial. In those circumstances, it is reasonable to assume that on 12 September or shortly thereafter, the Commonwealth would have issued a show cause notice in respect of the four breaches.
313. What time would the notice have given to the applicant to respond by way of showing cause? In my opinion, it should be assumed that the notice would have allowed the applicant a reasonable time to respond in writing. On behalf of the applicant it is submitted that 21 days was an appropriate period. For the Commonwealth, it is said that a much shorter period was reasonable. The Commonwealth relies upon the circumstances that time was of the essence and that the applicant, in its 11 September letter, has already put to the Commonwealth a full explanation of the applicant's position.
314. Given that technical questions were involved, I am of the opinion that seven days was a reasonable period to allow the applicant to assemble the material and present a case to the Commonwealth that the contract should not be cancelled. Although the applicant must have had ready access to much of the relevant information, it may have needed some time to collate it and marshall its submissions with a view to persuading the Commonwealth that it should not terminate.
315. To summarise, it is probable that on 12 September or shortly thereafter, the Commonwealth would have issued a notice which would have referred to the four breaches mentioned and which would have required the applicant to show cause within seven days.
316. It is further submitted on behalf of the Commonwealth that, even if it had not cancelled the contract as a consequence of the issue of the first show cause notice, the applicant would have experienced financial difficulties later in the performance of the contract. In Appendix 5, I have discussed the financial position of the applicant. Although it appears that the applicant was itself technically insolvent, it was reasonable to expect that CVC would have continued to provide it with the financial support necessary to continue the applicant's operations.
317. It is also suggested on behalf of the Commonwealth that the applicant
would have repeated its breaches of the contract (cf.
Maple Flock Company,
Limited v. Universal Furniture Products (Wembley), Limited (1934) 1 KB 148 at
p 157). I think that it is no more than speculation to claim that a second
show cause notice would have issued for these reasons.
The difficulties
encountered by the applicant in starting up its activities were one thing. It
cannot be assumed, or inferred from
this, that the applicant would have
experienced similar problems once its operation was in place. In my view, it
is probable that
only one such notice would have been given and this would
have occurred on or about 12 September.
Could the Commonwealth have exercised its power to cancel under cl. 2.24?
318. On behalf of the applicant, it is submitted that the Commonwealth would have been estopped from exercising its contractual power to cancel before the expiration of one month after the commencement of operations. Reliance is placed upon the incident at the meeting held on 21 August and the earlier discussions with Mr. Richardson. For the reasons I have already given, it is not possible to construct from these matters any specific representation as the foundation for an estoppel. Similarly, there was no specific conduct on the part of the Commonwealth from which a waiver could be inferred.
319. Nor, in my view, could it be suggested that it would be "unconscionable"
for the Commonwealth to use its contractual power to
cancel. The Commonwealth
has not caused, or contributed to, the applicant's failure to perform on 12
September in accordance with
the contract. The applicant's breaches were not
trivial. In the circumstances, there ws no basis for the equitable
intervention
to restrain the exercise of the power to cancel.
320. Did the Commonwealth have a duty to act fairly to the applicant in considering whether to exercise its power to cancel under cl. 2.24?
321. Clause 2.24 lays down a procedure which must be followed before the Secretary may cancel. On behalf of the applicant, it is submitted that, in addition to the Commonwealth's obligation to ensure that the Secretary must follow this procedure, the Commonwealth must also ensure that, when considering whether the contractor has shown cause, the Secretary act fairly between the parties.
322. There is no express provision in cl. 2.24 to this effect. Nor, in my view, is there any basis for implying into the clause an obligation on the Secretary to act fairly.
323. In a building contract, it is common to provide that the parties will accept that decisions (e.g. as to variations, extra time) will be made by the architect which will affect the amount of money payable to the contractor. It is implicit in the contract that, in so deciding, the architect will exercise due care and skill and will also "reach such decisions fairly, holding the balance between his client and the contractor" (per Lord Reid in Sutcliffe v. Thackrah (1974) AC 727 at p 737). A similar approach was taken by Macfarlan J. in Perini Corporation v. Commonwealth of Australia (1969) 2 NSWR 530. It was there held that in considering an application to extend time, the Director of Works exercised a "function (of a 'certifier') which is somewhere between those of a servant and those of an arbitrator" (at p 536). Macfarlan J. was of the view (at p 538) that the "kind of interest which must govern the exercise of the Director's discretion is the interest of each party as it appears from all the provisions of the agreement. The interest in this sense, in my opinion, is measured both by the rights and obligations of each as they appear from the various provisions of the contract."
324. In my opinion, the Secretary's function under cl. 2.24 was not analogous to that of an architect, an arbitrator, a valuer or a "certifier". In those situations, the person nominated must make a decision which will affect what will be payable to the contractor. In so deciding, the architect, valuer or "certifier" may have to resolve a dispute between the parties by reference to their rights and obligations in the events which have happened. In this sense, he must act fairly to both parties. Under cl. 2.24, the role of the Secretary is different. This is not a provision establishing a machinery for the resolution of disputes, from which an implication of fairness may be drawn. Rather, cl. 2.24 confers upon the Secretary a power to cancel the contract if certain conditions are established. These are first, that there is a breach and, secondly, that cause has not been shown to his satisfaction after notice has been given. There is no room here for any implication of fairness. If the conditions precedent exist, the power to cancel is available. Whether the power will be exercised is a matter for the Secretary to decide. In so determining, the Secretary owes no obligation of fairness to the contractor (cf. Hounslow London Borough Council v. Twickenham Garden Developments Ltd. (1971) 1 Ch 233 at p 267; Brooking on Building Contracts, 2nd ed., 1980 at pp 130-131).
325. The present question is one of construction of the agreement and the difficulties in demonstrating the basis for the implication contended for by the applicant are formidable. It is one thing to accept that there may be an obligation of procedural fairness, that is, to give the contractor an adequate opportunity to be heard. In any event, procedural fairness is achieved under cl. 2.24 by requiring that notice in writing be given to the contractor requiring him to show cause. But the applicant's argument goes well beyond matters of a procedural character, into the area of "substantive" fairness (cf. in case of judicial review of administrative action, C.F.Forsyth, "The Provenance and Protection of Legitimate Expectations" (1988) Cambridge Law Journal 238 at p 251). The Secretary was obliged, the argument runs, to act quasi-judicially, and was empowered to cancel only if he were satisfied that the Commonwealth had made out a case which would justify termination of the contract under the general law. It is difficult to accept that the Secretary was intended to be bound to carry out such a complex task.
326. In my opinion, the Secretary's function was intended to be administrative and neither arbitral nor quasi-judicial. This is not to say that the Secretary should not consider all the circumstances of the case. But his power to cancel could not have been intended to be restricted to circumstances where termination was justified under the general law. Nor, in my opinion, was the Secretary restricted, in deciding whether to cancel, by any consideration of "substantive" fairness. The Secretary was entitled to act in what he perceived to be the best interests of the Commonwealth. This may or may not lead to a decision to cancel. The "substantive" fairness argument is similar to the "good faith" submission which has already been rejected (see (1988) 80 ALR 35 at p 38). Both arguments would suggest, wrongly I think, that in deciding whether to exercise its contractual powers, the Commonwealth must take into account the consequences for the applicant and whether it is "fair" to the applicant to cancel. If the Secretary's function were arbitral, these considerations may have had their place. Such matters may also have been legitimately taken into account in an action for judicial review. Further, if it were "unconscionable" for the Commonwealth to cancel, equitable relief may be available. But, generally speaking, "unconscionable" conduct in rescinding a contract involves conduct which, although not creating an estoppel or waiver, has "effectively caused or contributed to the...breach of contract" (see Legione v. Hateley, supra, at p 449).
327. What is now put on behalf of the applicant is a different submission.
The argument is that, when deciding whether to cancel
under cl. 2.24, the
Secretary, on behalf of the Commonwealth, must take into account and balance
the interests of both parties, and
act fairly in this sense. It is said that
this is an implied term of the contract; in my view, there is no basis for
making such
an implication. To imply such a term would negative the
Commonwealth's ordinary right to exercise for its own benefit a power
held by
it beneficially in the absence of any fiduciary relationship between the
parties.
Would the Commonwealth have exercised its power to cancel?
328. The letter written to Mr. Beale by Mr. Gould on 11 September gives some
indication of the matters that would have been advanced
on behalf of the
applicant in its response to the show cause notice. The letter was as
follows:
"We refer to your letter yesterday in which you329. It is convenient, in the first instance, to deal separately with the significance of each of the four breaches.
responded to Mr Amann's request to be advised as to
any further preparations which you might require by
noting that "the contract states the relevant
requirements". We would suggest that this is a
oversimplification of the position.
At least from 21st August 1987 the Department has
been aware that we would not be able to fully comply
with the requirements of the contract by 12th
September 1987. We have at all times assured your
Department that we would be in a position to
substantially comply with the terms of the contract
and that such matters as were outstanding at that
date would be complied with within a month of the
start up date.
The possibility that the bubble windows and long
range fuel tanks would not be completed by 12th
September 1987 was specifically raised on 21st
August, 1987 and we made it clear that on 12th
September 1987 we would only have seven or eight
aircraft on the Australian Register and ready to
perform the contract subject possibly to the above
exceptions.
The Department has been kept fully informed of the
status of our preparations to commence the contract
and, in particular, our letter of 3rd September, 1987
setting out the status of each aircraft and our
further letter of 9th September, 1987 annexing the
detailed schedules you required, have made the
Department fully aware of what the position will be
tomorrow. In addition, your Department has officers
at each of the bases and most of these officers have
become aware of the exact status of our preparations.
Specifically, as of tomorrow, we will have one
aircraft at each of the bases and two standby
aircraft.
All of the above aircraft will be operational and
ready to fly in accordance with the status at close
of business 9th September, 1987 as shown on the
schedules supplied to you on that day.
With respect to the column "Best Expectation of
Status on Morning of 12th September" time and
unforeseen events have prevented our expectations
being fully realised.
Fortunately, however, these deficiencies will not
affect our ability to substantially comply with the
contract on 12th September, 1987.
The principal deficiencies as advised to you
yesterday are:
1. LONG RANGE FUEL TANKS
The tanks have been manufactured and are in
Darwin awaiting fitting to each aircraft. The
installation drawings have been approved and
it is simply a matter of the time required to
fit each tank to each aircraft. The time
involved is a matter of some hours but less
than a day for each aircraft. It is
anticipated that the tanks will be fitted to
all aircraft within the next two weeks.
The long range tanks are principally required
during the wet season to ensure that aircraft
can continue to operate in circumstances where
weather precludes fuel pick-ups at certain
airstrips. They are, of course, of value for
other purposes and will be installed in each
aircraft within two weeks.
2. BUBBLE WINDOWS
These windows have been manufactured but we
have been unable to install them because we
have not had the final approval from our
engineer. Installation time is around two
hours per aircraft. They will be installed in
all operating aircraft within two weeks.
As you are also aware, these aircraft are
fitted with panoramic windows and at one stage
your office indicated that these would be
adequate; however, we have known for some
time that you required the bubble windows
installed and have proceeded accordingly. The
absence of bubble windows during the first
week's operation will not materially affect
the performance of the contract.
3. DROP HATCH
This small hatch is designed to drop messages
from the aircraft in very unusual
circumstances and is integral with approved
alterations to the aircraft which will be
accomplished when the long range tanks are
installed.
4. NUMBER OF AIRCRAFT AVAILABLE
a) 13 of the 14 aircraft have been purchased
and paid for.
b) The fourteenth aircraft has been
purchased, is undergoing fitting for the
contract and funds are available to
complete the purchase.
c) All aircraft are in Australia with the
exception of aircraft number 11, expected
12th September, 1987 aircraft number 12,
expected 19th September, 1987 aircraft
number 13, expected 26th September, 1987
aircraft number 14, as to which we do not
have a firm arrival date.
Aircrafts numbers 1 to 7 are on the
Australian register and ready to fly.
As you know, the initial tender called
for the provision of 11 aircraft only.
You will also appreciate that all but two
of the aircraft have recently been flown
from the United States without any major
mechanical problems.
5. OTHER CONTRACTUAL OBLIGATIONS
Preparation for the performance of the contract has
required the establishment of bases at each of the
five ports, the installation of the appropriate
equipment and the employment and training of staff
at each base.
Observers have been trained and employed in
accordance with the contract. Pilots have been
trained and endorsed on the aircraft and obtained
low flying approval. It is our understanding that
all of the above matters have been completed to the
satisfaction of your officers.
As previously pointed out, $5,000,000 has been spent and
expenditure has continued at the rate of $10,000 per day
in order to enable us to perform the contract.
We are somewhat disturbed as to what is going to happen
tomorrow. Our company intends to fly the prescribed
routes during the course of the day as required by the
contract. However, we have received advice of an unusual
nature from the Department of Aviation to the effect that
that Department will have officers at each port who intend
to make a thorough inspection of the documentation of the
aircraft, examine licenses, perform weight and load
calculations and take other steps.
Although the Department of Aviation is entitled to take
this action, it is very rare, particularly in the case of
aircraft that have recently been put on the Australian
Register, which requires a detailed examination of the
documentation of the aircraft and its mechanical
condition.
The pilots have also been recently trained and endorsed by
Departmentally approved persons.
Although the Department of Aviation may be acting within
its rights, we do fear that this procedure may result in
some disruption to our schedules tomorrow.
We have also been informed that your Department will
independently inspect each aircraft to ensure compliance
with contractual obligations.
We have in this letter, as we have in the past,
demonstrated that although we will not in every respect
conform to the letter of the contract, we shall certainly
substantially perform the contract from tomorrow and,
within a short time, will be in a position to comply with
the letter of the contract in every respect.
It appears from statements in the media that the Minister
has taken an interest in this matter and will be involved
in any final decision. It would be appreciated if you
could bring this letter to the attention of the Minister
at your earliest convenience."
330. In his 11 September letter, Mr. Gould complained about the inspections
carried out on 12 September. However, it appears that
the inspections did not
hinder the applicant and its operations to any substantial extent on that day.
As has been said, each inspection
took approximately one hour. With one
exception (EXP), the inspection took place between 8.00 a.m. and 9.00 a.m.
local time approximately.
The time available after the inspections had been
completed was not fully utilised by the applicant. The relevant details are
as
follows:
(1) Aircraft NYF was positioned at Broome. The inspection,331. What was the significance of the applicant's failure to complete all the flights scheduled for 12 September? The applicant appeared to be unable to achieve what was required by the programme. The applicant now seeks to explain, and presumably would earlier have sought to explain to the Secretary, its default by reference to the following considerations: (1) the time lost by the inspections; (2) the fact that start up difficulties could reasonably be anticipated at the commencement of such a complex operation; (3) the fact that Skywest had also experienced difficulty in achieving full compliance with its flight schedules; (4) the circumstance that the applicant's management had been distracted from their operational responsibilities by the need to counter adverse publicity, which the applicant claims was generated by Skywest; (5) the time lost in pursuing the incorrect wing spar inspection procedures, assuming, in this hypothetical exercise, that this was not the fault of the Commonwealth, as I have held; and (6) the four days' time lost while the aircraft were being modified in the United States when it was believed to be necessary to take additional precautions to protect the security of the aircraft.
which commenced at 8.00 a.m., ended at 9.26 a.m. The
aircraft was not used for surveillance for seven hours.
For approximately two hours in the morning the aircraft
was used to train observers. At 3.32 p.m., the aircraft
commenced the flight programmed for sector 16/17.
According to cl. 3.1.1(b) of the contract, the visual
search is normally to be carried out between the times
of one hour after the beginning of daylight and one hour
before the end of daylight, as defined by the Department
of Aviation. According to Annexure 1 to the contract,
the proposed flying time for sector 16/17 was four
hours. Since NYF did not commence this flight until
approximately 3.30 p.m., there was not sufficient time
to complete the task. If the flight had commenced
shortly after the inspection ended, it would have been
possible to complete it within time. It is not
suggested that the Commonwealth was responsible for the
applicant's decision to commence the flight so late in
the day.
Notwithstanding the Commonwealth's purported termination
of the contract on 12 September, the applicant continued
flying on 13, 14 and 15 September, claiming that the
contract was still on foot. Although the applicant's
staff may have been uncertain as to their future
employment, there were no inspections on these days.
The applicant was still unable to complete all flights
then programmed. In the case of Broome, NYF flew as
follows: On 13 September, it flew 60% of the flight
programmed for sector 16/17; the flight programmed for
sector 18/19 was not undertaken. On 14 September, NYF
flew 60% of the flight programmed for sector 16/17. On
15 September, it flew the whole of the flight programmed
for sector 14/15; the flight programmed for sector
16/17 was not flown.
(2) Aircraft NYB, EXZ and NYH were at Darwin. On 12
September, they were inspected between 8.20 a.m. and
9.20 a.m. The certificate of airworthiness in respect
of NYB was not issued until noon. On that date, this
aircraft was used to train pilots from about 1.30 p.m.
to 2.45 p.m. Between 3.32 p.m. and 4.47 p.m. NYB flew
5% of the flight programmed for sector 24/25. Between
5.17 p.m. and 6.32 p.m., it flew 2O% of the flight
programmed for sector 20/21. EXZ did not fly on that
day. NYH also did not fly as a certificate of
airworthiness had not been issued. On 13 September NYB
flew 50% of the flight scheduled for sector 20/21. No
further flights from Darwin were thereafter undertaken
by the applicant. Again, it could not be suggested that
the inspection on 12 September hindered the applicant.
(3) Aircraft NYD was positioned at Gove. It was inspected
on 12 September between 8.10 a.m. and 9.56 a.m. On 12,
13, 14 and 15 September, NYD flew the whole of the
flights programmed for sectors 26/27, 28/29, 30/31 and
32/33 respectively.
(4) Aircraft NYA was positioned at Weipa. On 12 September,
NYA was inspected from 8.00 a.m. to 9.00 a.m. EXP flew
from Darwin to Weipa on 12 September arriving at 12.05
p.m. and was then inspected from 2.10 p.m. to 3.20 p.m.
On that date, NYA flew the whole of the flight
programmed for sector 34/35. The flight scheduled for
sector 36/37 was not undertaken. On 13 September, NYA
flew 50% of the flight programmed for sector 36/37. The
flight scheduled for sector 34/35 was not undertaken on
either 13 or 14 September. Also on 14 September, the
flight scheduled for sector 36/37 was attempted, but no
flight report was received. On 15 September the flight
scheduled for sector 34/35 was attempted, but no flight
report was received. On that day, the whole of the
flight scheduled for sector 36/37 was flown.
(5) Aircraft NYE and NYG were positioned at Cairns. On 12
September, they were inspected from 7.15 a.m. to 8.00
a.m. and from 8.30 a.m. to 9.30 a.m. respectively. On
that date, NYE flew the whole of the flight programmed
for sector 38/39. NYG did not then hold a certificate
of airworthiness. On 13 September, NYE flew the whole of
the flight for sector 38/39. No flights were scheduled
for 14 September. On 15 September, the flight
programmed for sector 38/39 was attempted, but no
flight report was received.
332. In my opinion, none of the foregoing matters would have fully explained
this default to the reasonable satisfaction of the Secretary.
At the same
time, the Secretary would reasonably be expected to give them some weight as
mitigating circumstances. Taking all of
this material into account, the
Secretary would, I think, have still formed the view that a serious question
had arisen as to the
applicant's ability to perform the task specified in the
contract and that the onus was then upon the applicant to demonstrate its
capacity to perform. In particular, the Secretary would need to have been
persuaded that, within a reasonably short time, the applicant
would have
sufficient suitable and fully equipped aircraft. I deal with these matters
below.
The significance of the applicant's failure to provide sufficient suitable and
fully equipped aircraft on 12 September.
333. As has been said, the applicant's failure to meet the schedule on 12
September would have led the Secretary to inquire into
the applicant's
capacity to perform. That inquiry would have revealed the following:
(1) Insufficient aircraft
As has been said, although the contract contemplated a(2) Lack of Endurance
total of 11 aircraft, including backups, the applicant
provided only seven aircraft with airworthiness
certificates. Of these, one was temporarily not
serviceable and only five were used on 12 September.
Although the applicant proposed to add further aircraft to
its fleet, it also proposed to carry out structural
modifications to most of its aircraft and this would mean
that these aircraft would have to be taken out of service
for this purpose.
The aircraft were required to have endurance of (a) fiveGiven the significance of the breaches, what chance was there of cancellation?
hours on task at an operating level of 500 feet within the
140-160 knot range; plus (b) transit of one hour at normal
cruise; and (c) the Instrument Flight Rules reserves
applicable to the entire flight carrying five people
including the pilot (cl. 3.3.1(b)). The tests carried out
in the United States in June indicated that additional fuel
capacity was required. It is common ground that the
endurance on task of the 690 and of the 681 series aircraft
was approximately three hours. The applicant had decided
to install additional tanks in these aircraft. On 16 June,
Mr. B. Sucher of Aeronautical Technical Services,
Melbourne, (on behalf of Mr. J.L. Heddles of Heddles
Engineering Service) submitted a 'Design Advice' for
modifications to the applicant's aircraft, including long
range fuel tanks, to the Department of Aviation for its
approval. In July, the applicant decided to change the
location of the tanks in the aircraft. At about this time,
the applicant learnt that the installation of the tanks
might create a different problem, that is, that the
aircraft might then exceed the prescribed maximum take-off
weight. By letter dated 22 July, the Department of
Aviation informed the applicant that it should not
anticipate approval to operate aircraft at take-off weights
in excess of the certified weights.
On 1 August, Mr. Heddles submitted to the Department a
fresh proposal for the installation of the tanks. It
appears that no formal approval of this proposal was given
by the Department. However, in late August or early
September, the applicant had manufactured a prototype of
the tanks. On 3 September, Mr. Heddles submitted to the
Department test reports on the prototype. By 12 September,
seven tanks had been manufactured and a further seven were
in various stages of completion, but none had been
installed.
Three questions arise here: (1) if the tanks were
installed, would the aircraft then exceed the maximum
permitted take-off weight?; (2) if so, was it probable
that the applicant would be granted approval to fly
notwithstanding the weight problem?; (3) if so, how much
time would be required to obtain this approval and to
install the tanks?
The evidence now available indicates that it is probable
that the aircraft would have exceeded the certified
take-off weight if the tanks had been installed and used.
Before going to this question, reference should be made to
the relevant legislative scheme.
The conduct of operations was dealt with by Division 3 of
Part XIII of the Air Navigation Regulations made under the
Air Navigation Act 1920. Take-off and landing of aircraft
were dealt with by Reg. 227. The Secretary could give
directions setting out the method of estimating, inter
alia, the weight of the aircraft, together with the weight
of all persons and goods (including fuel) on board the
aircraft (Reg. 227(1)). By Air Navigation Order 100.7, the
Secretary gave directions setting out the method of
estimating the empty weight of an aircraft. The Secretary
could also give directions setting out the manner of
determining, with respect to a proposed flight of an
aircraft, inter alia, a maximum weight, being a weight less
than the "maximum take-off weight" (Reg. 227(2)). The
"maximum take-off weight" meant the weight set out in the
certificate of airworthiness of, or the flight manual for,
the aircraft as the maximum take-off weight (Reg. 5(1)). An
aircraft was not to take off if its gross weight exceeded
its maximum take-off weight, or, if a lesser weight
determined in accordance with a direction under sub-reg.
(2) was applicable, that lesser weight (Reg.227(4)). The
Secretary could exempt an aircraft from any of the
requirements imposed by this regulation (Reg.227(11)).
The Commonwealth called expert evidence which indicated
that if the tanks were installed and used, the aircraft
would have exceeded the maximum take-off weight by an
average of more than 10%. The details are as follows: NYA
- 12.7%; NYB - 9%; NYC - 10.7%; NYD - 12.3%; NYE - 14%;
NYF - 16.2%. The applicant sought to challenge the
accuracy of those figures by pointing to some items carried
in the aircraft which, it said, were not essential and
could be removed, thus reducing weight. However, the
applicant did not seek to lead evidence as to the weight of
all of these items. The applicant also sought to suggest
that it was not always necessary to fill the tanks with
fuel. Again, the applicant did not lead any expert evidence
on the point. Nor did the applicant seek to lead expert
evidence contradicting the Commonwealth's evidence as to
the weight of the aircraft before the installation of the
tanks.
It is true that this is opinion evidence. Yet the
inference that may properly be drawn from the failure to
call evidence is available in the case of expert testimony
as well as for witnesses giving evidence of the primary
facts (see Wigmore on Evidence, Chadbourn Revision, 1979,
Vol. 2, para. 290 at p 216; Jones v. Dunkel [1959] HCA 8; (1959) 101
CLR 298 at p 321). No explanation was offered on
behalf of the applicant for its failure to call expert
evidence with respect to the weight of its aircraft. It is
appropriate to infer that the uncalled evidence would not
have assisted the applicant's case. In all the
circumstances, I find that it is probable that, if the
tanks proposed had been fitted and used, the applicant's
aircraft would have exceeded the prescribed take-off
weight.
Would the applicant have been granted approval to fly
notwithstanding their excessive weight? The discretion to
exempt an aircraft under Reg. 227(11) is not confined by
any particular criteria. It follows that, although
"entirely personal and whimsical considerations" will be
excluded (per Stephen J. in Murphyores Incorporated Pty.
Ltd. v. The Commonwealth [1976] HCA 20; (1976) 136 CLR 1 at p 12; see
also per Mason J. at pp 17-18), an examination of the
subject matter and the scope and purpose of the legislation
is necessary. Prima facie, the discretion under Reg.
227(11) must be exercised in what appears to the
decision-maker to be in the public interest (see Minister
for Immigration and Ethnic Affairs v. Maitan (1988) 78
ALR 419 at pp 427-8). In the present context,
considerations of public safety would be paramount.
The expert evidence called by the Commonwealth on the
question of the likelihood of the grant of an exemption
under Reg. 227(11) established the following: (a) an
exemption has been granted under Reg. 227(11) permitting
aircraft engaged on long range ferry flights to exceed the
certified weight by up to 10%; (b) single instance
exemptions have also been granted for emergencies such as
search and rescue work; (c) where, as here, an exemption
of more than 10% is sought on a regular basis, the
Department must be satisfied that there is no risk of
structural failure because there is involved, in substance
and in form, a re-certification of the aircraft with a new
maximum take-off weight. A complicated procedure,
including the making of appropriate technical enquiries of
the aircraft manufacturer, must be undertaken.
By letter dated 2 July, Mr. Sucher wrote to Gulfstream
Aerospace Corp. ("Gulfstream") informing it that the
applicant proposed to operate its aircraft "at low level
and gross overweight conditions" and requested
"authorisation to access design data supplied by
(Gulfstream) to the Australian Department of Aviation...We
hope that access to Fatigue and Stress Reports will provide
information on which we can base engineering justification
for overweight and extended low level operations..." No
reply to this letter was received by the applicant.
Nothing appears to have been done to follow it up.
It is not part of the Commonwealth case that it was
impossible for the applicant to be granted an exemption
under Reg. 227(11). Its case, supported by the evidence of
Mr. M.B. Aubury, an engineer in the Department's
Airworthiness Branch, is that "the substantiation required
for re-certification with a new (weight) is expensive and
time-consuming."
Both parties read affidavits sworn by Mr. Heddles, an
aeronautical engineer retained by the applicant to advise
in connection with the structural modifications proposed to
be carried out to the applicant's aircraft. By letter
dated l9 June, the Department authorised Mr. Heddles, as an
approved aeronautical engineer, to approve structural and
installation drawings for the proposed modifications
subject to the following conditions:
"...
(i) tests required to establish compliance with
Design Standards are to be carried out to
agreed (schedule) and witnessed by D of A.
(ii) electrical drawings and data are to be
approved by an appropriately authorised person
(iii) Aircraft empty weight and loading are to be
approved before flight.
(iv) J Heddles is to approve an engineering order,
or similar control document, pursuant to ANR
40(2A) and limited initially to one nominated
aircraft subject to permit to fly limitations.
(v) A Permit to Fly is required for the first of
each model. Flight tests are to be carried
out to agreed schedules.
(Note: Subject to justification, it may not
be necessary to repeat certain tests).
(vi) Reports are to be satisfactory to D of A.
(vii) The first of each model aeroplane which is
modified is to be made available to D of A for
inspection.
(viii) Flight Manual Special Supplements are to be
forwarded to D of A for approval."
As has been said, on 2 July, Mr. Sucher sought the release of
design information from Gulfstream. No response to the
request had been received by 12 September. There is no
evidence to indicate whether Gulfstream would co-operate and,
if so, when it could reasonably be expected that the
information would be received by the Department.
In his affidavit, Mr. Heddles estimated that all the
structural modifications proposed, that is, the tanks, the
bubble windows and the drop hatches, could have been
installed and certified within six weeks, provided that parts
were available. In his opinion, it would take approximately
four weeks to install and certify the tanks in the first
aircraft; if there was urgency and sufficient resources were
devoted to the task, it might be possible to complete the
procedure within two weeks. Less time would be needed for
the other aircraft. Mr. N.M. Armstrong of Airepair, an
engineer approached by the applicant to manufacture the long
range fuel tanks, also estimated that it would have taken
approximately two to three weeks to fit the tanks in the
first aircraft, and that subsequent tanks could have been
fitted in each aircraft in approximately two to three days.
Mr. Heddles was of the view that it would be possible to
install the bubble windows and drop hatch at the same time as
the tanks. Mr. Heddles was not cross-examined.
The Commonwealth did not lead any evidence to demonstrate
that any of the modifications proposed would have had any
adverse effect on the structural strength of the aircraft.
If there were any risks in this respect, it would have been
open to the Commonwealth to tender expert evidence to that
effect. The Commonwealth does not contend that it was not
possible that the applicant would be granted an exemption
under Reg. 227(11) in respect of the modifications proposed.
The Commonwealth's case is that the substantiation required
for re-certification with a new maximum take-off weight would
be expensive and time-consuming.
The question then is how long the exercise would have taken.
Mr. Heddles was of the view that six weeks should be allowed
provided parts were available. Another possible difficulty,
leading to further delay, would be the need to secure
Gulfstream's co-operation. A further limiting factor was the
need to have in service sufficient aircraft to maintain the
fleet at adequate operational levels, given that by 12
September, some of the applicant's aircraft had still not
arrived in Australia.
Against this background, considering the matter as at 12
September, it would have been reasonable to expect that it
would take approximately two months, first, to install the
tanks and, secondly, to obtain either an exemption under
Reg. 227(11) or a re-certification in respect of the maximum
take-off weight.
(3) Bubble windows
The specifications required two visual observation stations
in the rear cabin with "optically clear bubble windows large
enough to allow an observer to place head and shoulder in the
bubble with an unrestricted view of the surface beneath the
aircraft covering a semi-circle of 5 nautical mile radius
with the base line along the flight path of the aircraft.
Stations to be located on either side of the fuselage and to
allow undistorted photography clear of engine efflux to be
taken through the bubble or an appropriate opening hatch;"
(cl. 3.3.1(k)).
The installation of the bubble windows involved a
modification of the aircraft. This meant that it was
necessary for the applicant to comply with the relevant
legislative scheme which was as follows. Manufacture and
maintenance of aircraft were dealt with by Division 5 of Part
IV of the Air Navigation Regulations. By Reg. 44(3) an
appropriate person was not to carry out a modification of an
aircraft unless (a) the design of the modification had been
approved under Reg. 40 or had been specified by the Secretary
in, or by means of, a direction under Reg. 30, 43 or 39; and
(b) the modification was carried out in accordance with that
design. By Reg. 40(1), a person could apply to the Secretary
or an authorised person for approval of the design of a
modification of an aircraft. Where an applicant (a)
furnished to the Secretary or the authorised person such
evidence relating to the design to which the application
related (including evidence of the effect of the design on
the safety of an aircraft) as the Secretary or the authorised
person required; and (b) satisfied the Secretary or the
authorised person that the design conformed with any relevant
design standard in force under Reg. 26, the Secretary or the
authorised person was to give approval to the design (Reg.
40(2)).
By letter dated 19 June, the applicant provided the
Department with photographs of a prototype of a bubble window
"for (its) evaluation". Mention was also made in the letter
that the applicant was considering another type of bubble
window. By letter dated 7 July, the Commonwealth rejected
the prototype submitted because "the size of the window (did)
not allow the observer to place his head and shoulder in the
bubble".
As has been said, on 16 June and on 1 August, Mr. Heddles
submitted to the Department the Design Advices describing
modifications proposed in the form of the tanks, the bubble
windows and the drop hatch. In early August, the applicant
instructed Aero Plastics Pty. Ltd. to manufacture the
windows. The applicant informed the Department of this by
letter dated 14 August and submitted a drawing for approval.
It is not clear from the evidence whether the Department
approved what was proposed. A memorandum from Mr. Sucher to
the applicant dated 19 August indicated that Aero Plastics
was waiting for the applicant to provide details of an
approved specification and that Aero Plastics anticipated
manufacturing the windows in the following week. On 20
August, the applicant wrote to the Department informing it
that Mr. Sucher was preparing specification and installation
drawings.
There is no evidence that the bubble windows were approved
for the purposes of the Air Navigation Regulations. On the
other hand, the Commonwealth did not call evidence to suggest
that what the applicant proposed was unlikely to be approved.
Mr. Heddles was not cross-examined to suggest that the design
submitted on behalf of the applicant was not feasible from an
engineering point of view. In all the circumstances, it is
probable that the applicant's proposal would have been
approved in due course. The question then arises as to the
time which would be needed to install and certify the
windows. As has been noted, Mr. Heddles is of the opinion
that this work could have been done in conjunction with the
installation of the tanks and the drop hatch. Given Mr.
Heddles' estimates of time in this connection, and allowing
for contingencies, including the need to have aircraft
continuously available to carry out the coastwatch service,
it is probable that approximately two months would have been
needed to complete the installation and certification of the
windows.
(4) Drop hatch
The specification required that the aircraft have the
"ability to carry and drop small stores packages up to the
size of 24 cms x 24 cms x 70 cms and messages while
airborne." (cl. 3.3.1(o)).
On 16 June, Mr. Sucher submitted to the Department of
Aviation the Design Advice referred to above, describing,
inter alia, the applicant's proposal to install a drop hatch
in the fuselage. This proposal was not proceeded with. Mr.
Sucher submitted another proposal in the Design Advice dated
l August. In that Advice, Mr. Sucher described what was
proposed as "small stores release hatch mounted in the rear
window position (we request guidance on the
airworthiness/operational policy acceptability of this
position.)" There is no evidence that the drop hatch was
approved for the purposes of the Air Navigation Regulations.
On the other hand, the Commonwealth did not call evidence and
Mr. Heddles was not cross-examined, to suggest that the
applicant's proposal was not technically feasible. In his
affidavit, Mr. G. Sunderland, a Regional Airworthiness
Engineer in the Department of Aviation, said that, in
carrying out the structural modifications proposed by the
applicant, it would be expected that "some technical problems
would have to be overcome during the design and testing
phase". In his view, the project, including the installation
of the drop hatch, would have taken "well in excess of one
month". He was not cross-examined.
In August, the applicant arranged for Airepair, a division of
Australian Aerospace Museum Pty. Limited, to manufacture the
drop hatch. By 12 September, 14 hatches had been made.
In all the circumstances, it is probable that the drop
hatches would have been approved, but their installation and
certification, in conjunction with the other structural work,
would have taken approximately two months.
(5) Observers' seating
It will be recalled that the observers' seating had to be
"fully adjustable" and that the seats in the applicant's
aircraft could not be adjusted up and down. The applicant
proposed to deal with the problem by providing removable foam
pads. In July 1987, Mr. Amann informed Mr. Ramsey of the
applicant's proposal. Mr. Ramsey then said: "Fine, that
gives you up and down movement." On 1 September, Mr. Amann
informed Mr. Ramsey that the pads were being manufactured.
According to Mr. Amann (Mr. Ramsey was not called), Mr.
Ramsey said: "...if they go up and they go down that meets
(the) requirements." It is not clear from the evidence
whether the pads had been manufactured by 12 September. There
is no evidence that Mr. Ramsey or any other Commonwealth
official saw the pads and approved them. It is not clear
whether the pads were used on the flights made on 12
September. The position then is that Mr. Ramsey indicated
his approval in principle with the idea of substituting the
pads for a different kind of seating. However, there is no
evidence that Mr. Ramsey approved the pads that were
manufactured. It seems likely that the applicant would have
been able to provide a pad to Mr. Ramsey's satisfaction
within a short time.
None of this is to say that the Commonwealth represented to
the applicant that it was not requiring performance of the
contract in this respect. Although, by 12 September, matters
had progressed to the point where it seemed likely that the
Commonwealth would accept the pads as sufficient for the
purposes of the contract, the Commonwealth had not waived its
rights in this respect. No estoppel was created in this
connection.
(6) Avionics not fitted
The two 680FL aircraft were purchased in Australia on 3
September. The avionics required to be fitted by the
specification (weather radar, navigation system, radio
altimeter) had not been installed in those aircraft by 12
September. It is common ground that it would take about one
month to do this work.
(7) Air-conditioning equipment not installed or not functional
The specification called for an air-conditioning system in
each aircraft (cl. 3.3.1(p)). The inspections carried out on
12 September revealed that EXZ and EXP did not have an
air-conditioning system. There is no evidence as to the time
required to install it. The air-conditioning system in NYA,
NYED and NYF was not working effectively.
(8) Intercommunications system not functional
The specification required an intercommunications system (cl.
3.3.1(f)). It appeared, on the inspection on 12 September
that the system in NYA was not working. However, it appears
that this was only a temporary malfunction.
334. What were the chances that the Commonwealth might have used its power to cancel? The considerations are finely balanced.
335. As has been said, the fact that the Commonwealth did purport to exercise its power of termination is powerful evidence that the Commonwealth would also have proceeded to cancel under cl. 2.24. But the attempt at termination which occurred on 12 September must be viewed in its context. In this respect, the Commonwealth's letter dated 12 August is illuminating. In that letter, the Commonwealth purported to make time of the essence for 12 September. This indicated that the Commonwealth had, by 12 August, at least seriously considered the prospect of a common law termination on 12 September. It will be recalled that, by 12 August, none of the applicant's aircraft had arrived from the United States. At that stage, the applicant had failed to meet earlier start up dates. On 12 August, the applicant's prospects of achieving compliance with the deadline set for 12 September with sufficient suitable and fully equipped aircraft must then have been remote. It is not surprising that, on 12 August, the Commonwealth must have formed the view that there was a real prospect that the applicant would be unable to provide an adequate coastwatch service from 12 September. Given that prospect, the Commonwealth must have realised that it was necessary to make alternative arrangements to provide the service. Skywest, as the existing operator, was the only alternative provider of the service, at least in the short term. If Skywest were to be retained after 12 September, the Commonwealth had to act quickly. If the Commonwealth were to wait until after 12 September before moving to terminate the applicant's contract, there would be an unacceptable risk that Skywest might, in the meantime, decide to close down its operations. For these reasons, it would be highly desirable that, if the Commonwealth were to terminate the applicant's agreement, it do so quickly.
336. This is consistent with what happened. No doubt because of the difficulties in demonstrating an anticipatory breach, the Commonwealth waited until the date of commencement of operations before it acted. But if, as I have held, by virtue of the operation of cl. 2.24, the Commonwealth could only cancel after it had first given a seven days' show cause notice, the position might be very different. In particular, Skywest might not be willing to maintain its infrastructure for any significant period merely against the possibility that, at some future date, it might be asked to resume the coastwatch service.
337. Put differently, once 12 September passed and the applicant commenced its operations under the contract, the Commonwealth was restricted in what it could do by reason of the need to observe the requirements of cl. 2.24. This was a significant restriction. In the first place, it imposed a time barrier on cancellation. This meant that if the Commonwealth were to consider whether it should cancel under the provision, it would do so at a different time than the time at which the Commonwealth came to consider termination at common law. There is a substantial difference in these times. Thus there is a different context in which the decision-making processes did, or would, occur.
338. It follows, in my view, that although the giving of the notice of termination on 12 September is an important factor in assessing what would have happened if the procedure under cl. 2.24 had been followed, because the timing and thus the contexts are different, the fact that the Commonwealth attempted to terminate at common law cannot be decisive of what the Commonwealth would have done under cl. 2.24.
339. The discussions between Mr. Richardson and Mr. Shlegeris in August indicated that, if the applicant had been able to provide an entire fleet of fully equipped aircraft within one month of 12 September, the Commonwealth might not have cancelled. This is not to say that the Commonwealth then represented that the applicant had an extension of time of one month. On the contrary, as I have held, no such representation was then made by the Commonwealth. On the other hand, if officers of the Commonwealth involved in the contract were to be consulted in the course of the show cause procedure, they would not necessarily have advised in favour of cancellation if, say, an extra month were required to achieve full compliance with the contract. The present question is far more complicated because it now appears that the applicant would have needed significantly more time, in the order of about two months after 12 September, to achieve what was required.
340. This is a substantial increase in time for performance, standing alone. It is even more significant when seen in the context of the lack of endurance of most of the applicant's aircraft, being the most serious of the applicant's breaches. It is common ground that weather conditions bear directly upon the question of endurance; and that, in the "wet" season in Northern Australia, there is often difficulty in aircraft landing for the purpose of refuelling.
341. There is no evidence indicating when the "wet" season commences, but,
in my view, judicial notice could be taken of such a
matter (see P.B. Carter,
"Judicial Notice: Related and Unrelated Matters" in E. Campbell and L. Waller
(eds.), Well and Truly Tried,
1982, at p 88). According to The Australian
Encyclopaedia, 4th ed., 1983, Vol. 2 at p 257:
"...it is not usual to refer to "summer" and "winter" in342. Since it would be reasonable to expect the "wet" season to commence by November, there was some risk that the applicant's aircraft would not be fitted with the long range fuel tanks before it became impossible to land for refuelling. This would mean that the estimates of time for the installation of the long range fuel tanks were critical. Approximately two months from 12 September was needed. This would coincide with the commencement of the "wet" season.
the latitudes of less than 20 (degrees South) or so, but
instead to distinguish the wet and dry seasons. The dry
season begins in April and is relatively cool till
August, when a warmer dusty period begins. The wet
season starts with sporadic thunderstorms followed by
the north-west monsoon in November or December."
343. As I have said, the considerations for and against the cancellation of the contract in the assumed circumstances of the case are finely balanced. The exercise is necessarily a hypothetical one. The principal consideration in favour of cancellation was that it seemed the coastwatch service would not be fully provided until about the middle of November and this could lead to serious complications. The main argument against cancellation, and just as compelling as the previous consideration, was the circumstance that, by 12 September, the applicant or CVC had spent approximately 96 per cent of the expenditure required to establish the service. The applicant or CVC (principally CVC) had by then incurred expenditure of approximately $6,000,000.00 on this account.
344. Doing the best I can in the hypothetical exercise called for, I would
estimate that the chances of cancellation were even, that
is, 50 per cent.
The fourth issue: What loss did the applicant suffer as a consequence of the
loss of the benefit of the contract?
345. The applicant says that, if the contract had run its full term, the applicant would have earned substantial profits.
346. It is now agreed that, over the three year term, the applicant would have received the sum of $17,107,462.00 for its services. The arrangement was that the applicant was to be paid at 14 day intervals and, if payment was made promptly, the amount payable was to be discounted by 2%. The figure of $17,107.462.00 is arrived at after taking into account this discount. It also included any amount payable in respect of the flights carried out on 12 September.
347. The parties have also agreed on some of the items of expenditure that would have been incurred in providing the services.
348. It is now common ground that the applicant's pre-operational expenditure was $854,943.00, including the sum of $202,311.00 paid to CVC as "interest" on the funds needed to acquire the aircraft. It is agreed that the applicant would have spent $4,000,000.00 on salaries, wages and associated costs. It is also agreed that the applicant would have spent $4,000,000.00 in maintaining its aircraft. (The parties accept that $2,000,000.00 of the $4,000,000.00 would have been expended on general maintenance of the aircraft and the remaining $2,000,000.00 would have been required to maintain the aircraft engines.) It is further agreed that the applicant would have had to spend $400,000.00 on facility expenses and an additional sum of $408,000.00 on motor vehicles, licences, travel, miscellaneous items, legal and accounting fees. It is also common ground that it would have cost approximately $410,000.00 to insure the applicant's assets.
349. The remaining items of anticipated expenditure are contentious. It is convenient to deal with them separately.
350. The first contentious item is fuel costs. On behalf of the applicant, it is submitted that this item would have required expenditure in the amount of $2,825,420.00. For the reasons given in Appendix 4, the applicant's figure of $2,825,420.00 should be accepted.
351. The next contentious item is "interest" or its equivalent, under a leasing arrangement, in the form of the cost of servicing the borrowing needed to acquire the aircraft. For the reasons given in Appendix 5, I am of the view that interest or its equivalent would have been payable in the sum of $3,390,000.00.
352. On behalf of the Commonwealth, it is submitted that a "contingency" allowance of $325,000.00 should be taken into account. I agree that, ordinarily, some allowance for contingencies would be appropriate. On the other hand, the applicant claims that it would have earned additional income in the form of charter hire for carrying out search and rescue work. I am of the view that, taking a "by and large" approach, these items should be set-off with the result that, in estimating the applicant's profit under the contract, I have made no allowance for contingencies but, on the other hand, I have not allowed for extra income from search and rescue.
353. On behalf of the Commonwealth, it is contended that the applicant's costs of tendering in the sum of $40,000.00 should be allowed as an item of expenditure in performing the contract. I cannot accept this submission. The item represented the cost of winning the contract and was not an amount which would have been spent in performing it.
354. In the result, I am of the view that the applicant's net profit from the
contract would have been $819,099.00 arrived at as
follows:
Income $17,107,462355. Rounding that figure off at $820,000.00, and accepting that the applicant's claim must be reduced by one-half to allow for the contingency of cancellation under cl. 2.24, in the result, I assess the applicant's loss at $410,000.00.
Expenditure -
Pre-operational expenditure $854,943
Salaries, wages and
associated costs 4,000,000
Maintenance 4,000,000
Facility expenses 400,000
Motor vehicles, licences,
travel, miscellaneous
items, legal and
accounting fees 408,000
Insurance 410,000
Fuel 2,825,420
Interest or hiring fee 3,390,000 $16,288,363
NET PROFIT: $819,099
356. In my opinion, this is the appropriate method of assessing the applicant's damages. In TC Industrial Plant v. Robert's Queensland, supra, a similar method of assessment was suggested. That method called for a single calculation, taking the whole of the actual and probable expenditure which would have been incurred by the applicant in performing the contract and subtracting the resulting figure from the total receipts the applicant would have obtained under the contract (see at p 294).
357. The applicant made several alternative and additional claims for
damages. In my opinion, for the reasons given in Appendix
6, none of these
claims can succeed.
Claim for repayment of security deposit
358. The applicant claims that it is entitled to the repayment of a security deposit of $113,000.00 paid by it pursuant to cl. 2.5. The Commonwealth purported to forfeit the deposit on terminating the contract. Although I have held that the Commonwealth could not then terminate at common law, the question remains whether, and if so, when, the applicant would have been entitled to repayment of the deposit if the contract had been performed in accordance with its terms. That is to say, it is not enough here for the applicant to show that there was no power in the Commonwealth to forfeit on 12 September. It is still necessary to decide whether, absent any forfeiture attempt, the applicant is now entitled to the deposit. The question is to be approached on the footing that damages for breach of contract do not include compensating an injured party for entering into the contract or a sum to place him in a better financial position than if the contract had been properly performed (see C. & P. Haulage v. Middleton [1983] EWCA Civ 5; (1983) 1 WLR 1461).
359. Clause 2.5.5 provided as follows:
"2.5.5 The amount of the security will be refunded to360. In my opinion, the claim for refund of the deposit must fail. The applicant's entitlement to repayment depended upon the Secretary certifying that the contract was "satisfactorily" completed. In my view, it is unlikely that the applicant could have shown that this condition precedent was satisfied. I have already found that on 12 September the applicant was in breach of its contract in significant respects and that these breaches would not have been rectified for approximately two months. Even if, at the expiration of the term of the contract, the Secretary may have been justified in certifying that the contract had been "completed", it would not follow that the applicant would get back its deposit. It was unlikely that the Secretary would have certified that the contract was "satisfactorily" completed, given the serious delay in providing a service in accordance with the contract specification before the middle of November 1987.
the Contractor without interest as soon as
practicable after the Secretary has certified
that the Contract has been satisfactorily
completed and that there are no outstanding
moneys owing to the Commonwealth as a result of
the contract."
361. The applicant further claims to be allowed interest on the amount of
this deposit. It must follow that this claim also fails.
Claim for damages for negligent misstatement
362. This claim was not developed in argument. In any event, it would appear
that, even if the claim could be made out, no greater
sum could have recovered
than in the claim for breach of contract.
Summary of conclusions
363. I now summarise my conclusions as follows:
(1) The contract obliged the applicant to provide at leastCosts
11 suitable fully equipped aircraft on 12 September.
(2) On 12 September, the applicant provided only seven
aircraft. They were not fully equipped and, in
particular, the majority of those aircraft then lacked
the endurance required by the contract.
(3) The applicant then (i.e. on 12 September) proposed to
increase its fleet of aircraft and to carry out a number
of structural modifications to its aircraft. In
particular, the applicant proposed to install long range
fuel tanks in its turboprop aircraft. It is probable
that the applicant could have carried out all the
structural modifications within approximately two months
of 12 September and, in the meantime, provide a limited
coastwatch service its other aircraft.
(4) On 12 September, the Commonwealth attempted to terminate
the contract on common law grounds. However, by cl.
2.24 of the contract, there was laid down a procedure
for the cancellation of the contract. The procedure
under cl. 2.24 required the Commonwealth, in case of a
breach of the contract, to give the applicant a notice
requiring it to show cause why the contract should not
be cancelled. It was then a matter for the Commonwealth
to decide whether it would, or would not, cancel.
However, cl. 2.24 laid down an exclusive code in the
field of termination so that the Commonwealth no longer
had any power to terminate on common law grounds. The
Commonwealth could only proceed, if at all, under the
show cause provision.
(5) Thus, the attempt by the Commonwealth to terminate on 12
September on common law grounds was unlawful and
constituted a repudiation of the contract by the
Commonwealth.
(6) If the contract had subsisted for its full term of three
years, the applicant would have earned a profit of
$820,000.00.
(7) However, in assessing the measure of the applicant's
loss, it is appropriate to take into account the change
that, in any event, it was open to the Commonwealth to
proceed under cl. 2.24. In my opinion, there was a 50
per cent change that the Commonwealth would do this.
The consequence is that the applicant's claim must be
reduced by one-half.
(8) I assess the applicant's damages for breach of contract
as $410,000.00.
364. Each party has had some measure of sucess in the proceedings. The
applicant has succeeded on the issue of liability and on
the counter claim.
Given that the applicant pressed a substantial claim for damages (claiming an
amount in excess of $20,000.000.00),
the Commonwealth has had considerable
success on the issue of damages. On the whole, I think that it is appropriate
to order that
the applicant receive one-half of its costs of the proceedings
(cf. Trade Practices Commission v. Nicholas Enterprices Pty. Ltd.
(1979) 28
ALR 201 at pp 206-9).
Orders
365. In the result, there will be judgement for the applicant against the respondent in the sum of $410,000.00 with one-half of its costs.
366. I make the following orders:
1. The sum pay the applicant the sum of
$410,000.00.
2. The respondent pay one-half of the applicant's
costs of and incidental to the proceedings, to be
taxed.
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