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GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 50 (12 February 2003)

Last Updated: 12 February 2003

FEDERAL COURT OF AUSTRALIA
GEC Marconi Systems Pty Limited v BHP Information
Technology Pty Limited [2003] FCA 50


CONTRACT - Government procurement - outsourced contract for provision of a secure communications network for Department of Foreign Affairs and Trade - back-to-back IT contracts - claims and cross-claims of breach of contract or repudiation by subcontractor, head contractor and customer.
CONTRACT - Termination for breach - non-provision by customer of boundary security devices - termination provision invoked - customer (head contractor) defences of contract variation, affirmation by election, estoppel and waiver.
CONTRACT - Variation - oral contract - effect of oral contract - variation or discharge - formation of an oral contract in relational contract settings - difficulties with traditional analysis.
CONTRACT - Affirmation by election - principles governing - significance of an optional contract termination procedure - continued performance consistent with the contract remaining on foot.
CONTRACT - Estoppel - representations and conventional understanding that contract had been varied to remove the obligations alleged to have been breached - reliance.
CONTRACT - Express provision for termination - construction - "failure of performance" - interpretation that accords with business commonsense.
CONTRACT - Damages after termination for breach - losing contract - quantum meruit claim - unjust enrichment and contention that no benefit received from subcontractors performance - valuation of services.
CONTRACT - Financial Securities - form of security prescribed by contract - payable on demand - provision governing call on securities - demand made for payment - call made on an erroneous ground.
CONTRACT - Entire obligation - recovery of milestone payments made in advance - principles to be applied in construction of progress payment provisions.
CONTRACT - Termination of a Standing Offer to sub-contractor to be a member of a panel having the opportunity to participate in tenders to Department of Defence - incorrect termination under the Agreement - efficacy of later reliance on a "termination for convenience" provision to justify termination.
CONTRACT - Repudiation - subcontractor's purported termination for breach repudiatory - improvident contract - acceptance.
CONTRACT - Duty of good faith and fair dealing - exercise of a power to terminate governed by.
CONTRACT - Damages - back-to-back contracts - Hadley v Baxendale - head contractor performing work "from scratch" that the subcontractor was obliged to perform - recoverable heads of damages.
CONTRACT - Damages - effect of subsequent agreement between customer and head contractor varying the original head contract.
CONTRACT - Damages - repudiation by subcontractor - claim for loss of benefit of head contract - actual costs incurred - saved costs of performance - anticipated profits.
CONTRACT - Damages - head contractor's costs of performing the work the subcontractor failed to do - claim for loss of return on labour and resources that had to be diverted to this use - whether a recoverable head of damages - proof of loss - applicable principles - claim for unprovided for overhead costs - whether a recoverable head of damages - proof of loss - applicable principles - dispute management costs - proof of loss - applicable principles - loss of use of money - weighted average cost of capital - proof of loss.
CONTRACT - Performance Guarantee by third party - subcontractor's parent company - conditional performance guarantee coupled with an indemnity for "costs and expenses" - construction - scope of conditional guarantee - scope of indemnity - "costs and expenses directly incurred".
CONTRACT - Claim by head contractor against Commonwealth mirroring claims against it by the subcontractor - independent claims as well of breach of contract arising from alleged decisions taken, misrepresentations and non-disclosure - failure by the Commonwealth to disclose its actual intentions in relation to provision of boundary security devices.
TRADE PRACTICES ACT - Claim against the Commonwealth - denial that it was "carrying on a business" - significance of evidence of business activity - DFAT's purposes in acquiring a secure communication system and its associated intellectual property rights.
CONTRACT - Delay claims - claim by Commonwealth for losses suffered in consequence of delayed performance by head contractor - effect on delay damages of later variation agreement.
CONTRACT - Delay claims - heads of claim - additional project management costs incurred - extent to which, if at al, costs attributable to the breach - provision by Commonwealth of accommodation and facilities for an extended time in Commonwealth buildings - whether an actual loss - applicable principles - quantification of loss - use of a default measure.
CASES
Phillips v Ellison Brothers Pty Ltd [1941] HCA 35; (1941) 65 CLR 221 referred to
Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93 applied
Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1986) 162 CLR 221 referred to
Trimis v Mina [1999] NSWCA 140 referred to
Liebe v Molloy [1906] HCA 67; (1906) 4 CLR 347 referred to
Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd (1981) 36 ALR 567 applied
Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251 referred to
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 187 ALR 92 referred to
Bartlett v Stanchfield 19 NE 549 (1889) referred to
Beatty v Guggenheim Exploration Co 122 NE 378 (1919) referred to
W J Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189 referred to
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 referred to
John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43 referred to
Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 172 ALR 346 applied
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266 referred to
Tekmat Pty Ltd v Dosto Pty Ltd (1990) 102 FLR 240 referred to
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 referred to
Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 referred to
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 referred to
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 referred to
Sinclair, Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310 referred to
Graham Evans Pty Ltd v Stencraft Pty Ltd [1999] FCA 1670 referred to
Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 referred to
South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 referred to
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 referred to
Re Theodorou [1993] 1 Qd R 588 referred to
Australian Guarantee Corporation Ltd v Balding [1930] HCA 10; (1930) 43 CLR 140 referred to
Modern Building Wales Ltd v Lemmer and Trinidad Co Ltd [1975] 1 WLR 1281 referred to
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 applied
Yau's Entertainment Pty Ltd v Asia Television Ltd [2002] FCA 338 (Full Court) applied
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601 referred to
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 referred to
Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 referred to
Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 applied
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 applied
Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyds L Rep 391 referred to
Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622 referred to
Champtaloup v Thomas [1976] 2 NSWLR 264 referred to
Majik Markets Pty Ltd v S & M Motor Repairs Pty Ltd (No 1) (1987) 10 NSWLR 49 referred to
Cities Service Helix Inc v The United States 543 F 2d 1306 (1976) referred to
Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41 applied
United Australia Ltd v Barclays Bank Ltd [1941] AC 1 referred to
Larratt v Bankers and Traders' Insurance Co Ltd (1941) 41 SR (NSW) 215 referred to
Petrie v Dwyer [1954] HCA 75; (1954) 91 CLR 99 referred to
Davenport v R (1877) 3 App Cas 115 referred to
Haynes v Hirst (1927) 27 SR (NSW) 480 referred to
Central Estates (Belgravia) Ltd v Woolgar (No 2) [1972] 1 WLR 1048 referred to
Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 referred to
Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444 referred to
Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327 referred to
Larking v Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221 applied
Johnson v Agnew [1980] AC 367 referred to
Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214 referred to
Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 applied
Government Employees Superannuation Board v Martin (1997) 19 WAR 224 referred to
Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 referred to
Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394 referred to
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 applied
National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548n referred to
Elsea Holdings Ltd v Butts (1986) 6 NSWLR 175 referred to
Riseda Nominees Pty Ltd v St Vincent's Hospital (Melbourne) Ltd [1998] 2 VR 70 referred to
Legione v Hateley [1983] HCA 11; 152 CLR 406 referred to
Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641 applied
Low v Bouverie [1891] 3 Ch 82 referred to
Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 referred to
Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 referred to
Mortgage Acceptance Nominees Ltd v Australian Thoroughbred Finance Pty Ltd (1996) 69 SASR 302 referred to
Austral Standard Cables Pty Ltd v Walker Nominees Pty Ltd (1992) 26 NSWLR 524 referred to
Mackay v Dick (1881) 6 App Cas 251 referred to
Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288 referred to
Big River Timbers Pty Ltd v Stewart (1999) 9 BPR 16,605 referred to
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 referred to
Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 referred to
Minchillo v Ford Motor Company of Australia Ltd [1995] 2 VR 594 referred to
Mitsui Construction Co Ltd v Attorney-General of Hong Kong (1986) 33 BLR 1 referred to
J Kitchen & Sons Pty Ltd v Stewart's Cash and Carry Stores [1942] HCA 18; (1942) 66 CLR 116 applied
Moschi v Lep Air Services Ltd [1973] AC 331 referred to
Heyman v Darwins, Ltd [1942] AC 356 referred to
Byrnes v Jokona Pty Ltd [2002] FCA 41 referred to
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 applied
Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 applied
Honner v Ashton (1979) 1 BPR 9478 referred to
Ross T Smyth & Co Ltd v TD Bailey & Son [1940] 3 All ER 60 referred to
Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 referred to
Italmare Shipping Co v Ocean Tanker Co Inc [1982] 1 WLR 158 referred to
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 referred to
Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1995] 2 Qd R 350 referred to
Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 applied
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 referred to
Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd [1936] HCA 6; (1936) 54 CLR 361 referred to
Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129 referred to
Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 referred to
Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] 1 AC 1056 referred to
Boomer v Muir 24 P 2d 570 (1933) referred to
Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 185 ALR 335 referred to
Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd [1994] HCA 61; (1994) 182 CLR 51 referred to
Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221 referred to
Slowey v Lodder (1901) 20 NZLR 321 referred to
Lodder v Slowey [1904] AC 442 referred to
Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 referred to
Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1998) 15 BCL 158 referred to
Steele v Tardiani [1946] HCA 21; (1946) 72 CLR 386 referred to
Hoenig v Isaacs [1952] 2 All ER 176 referred to
Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124 referred to
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 referred to
Walsh v Kinnear (1876) SCR(NSW) 434 referred to
Pickering v Ilfracombe Railway Co (1868) LR 3CP 235 referred to
McLachlan v Nourse [1928] SASR 230 referred to
Markham v Bernales (1906) 8 WAR 208 referred to
The Tergeste [1903] P 26 referred to
Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 referred to
Wood Hall Ltd v Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443 referred to
Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 referred to
Reid Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1988) 15 BCL 158 referred to
Washington Constructions Co Pty Ltd v Westpac Banking Corporation [1983] 1 Qd R 179 referred to
Malaysia Hotel (Australia) Pty Ltd v Sabemo Pty Ltd (1995) 11 BCL 50 referred to
Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) [1978] HCA 45; (1978) 141 CLR 335 referred to
Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 referred to
Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 referred to
Concut Pty Ltd v Worrell (2000) 176 ALR 693 referred to
Krygoski Construction Co Inc v The United States 94 F 3d 1537 (1996) referred to
College Point Boat Corporation v The United States 267 US 12 (1925) applied
John Reiner & Co v The United States 325 F 2d 438 (1963) referred to
Hancock Electronics Corp v Washington Metropolitan Area Transit Authority 81 F 3d 451 (1996) referred to
Pan Foods Company Importers and Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd [2000] HCA 20; (2000) 74 ALJR 791 referred to
McMahon Constructions Pty Ltd v Crestwood Estates [1971] WAR 162 referred to
Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 applied
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 applied
Satellite Estate Pty Ltd v Jaquet (1968) 71 SR(NSW) 126 referred to
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 referred to
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11; [1980] 1 WLR 277 referred to
Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 referred to
Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 referred to
Etna v Arif [1999] VSCA 99; [1999] 2 VR 353 referred to
Alcatel Australia Ltd v Scarcella (1988) 44 NSWLR 349 referred to
Gary Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 referred to
Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382 referred to
Carmichael v Adirondack Bottled Gas Corporation of Vermont 635 A2d 1211 (1993) referred to
NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR 481 considered
Robinson v Harman (1848) 1 Ex 850 applied
Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454 applied
Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 referred to
Radford v De Froberville [1977] 1 WLR 1262 referred to
Cormier Enterprises Ltd v Costello (1980) 108 DLR (3d) 472 referred to
Conquest v Ebbetts [1896] AC 490 referred to
TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130 referred to
Tito v Waddell (No 2) [1977] Ch 106 applied
Hadley v Baxendale (1854) 9 Ex 341 applied
C Czarnikow Ltd v Koufos [1967] UKHL 4; [1969] 1 AC 350 applied
Alucraft Pty Ltd (in liq) v Grocon Ltd (No 2) [1996] 2 VR 386 referred to
Agius v Great Western Colliery Company [1899] 1QB 413 referred to
Hammond & Co v Bussey (1887) 20 QBD 79 referred to
Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1 referred to
Christmas Island Resort Pty Ltd v Geraldton Building Co Ltd (No 4) (1995) 16 WAR 277 applied
Tate & Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149 referred to
Hydraulic Engineering Co Ltd v McHaffie, Goslett & Co (1878) 4 QBD 670 referred to
R and H Hall Ltd v W H Pim (Junior) and Co Ltd (1928) 33 Com Cas 324 referred to
Royal Pioneer Paper Box Manufacturing Co Inc v Dejonge 115A 2d 837 (1955) referred to
Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 referred to
S & D Mechanical Contractors Inc v Enting Water Conditioning Systems Inc 593 NE 2d 354 (1991) applied
Lloyd v Stanbury [1971] 2 All ER 267 referred to
Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 applied
Ronnoc Finance v Spectrum Network Systems Ltd (1997) NSWLR 624 referred to
Fink v Fink [1946] HCA 54; (1947) 74 CLR 127 referred to
US v Curtis T Bedwell & Sons Inc 506 F Supp 1324 (1981) referred to
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 referred to
Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125 referred to
Price v Commissioner of Highways [1968] SASR 329 referred to
Commonwealth Railways Commissioner v Hodson (1970) 16 FLR 437 referred to
The Argentino (1888) 13 PD 191; affd (1889) 14 App Cas 519 referred to
The Hebridean Coast [1961] AC 545 referred to
Oldcastle v Guinea Airways Ltd [1956] SASR 325 referred to
Telecom Corporation of New Zealand v Clear Communications Ltd (1995) 32 IPR 573 referred to
Dart Industries Inc v Décor Corporation Pty Ltd [1993] HCA 54; (1993) 179 CLR 101 referred to
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41 (2 October 2002) referred to
Apand Pty Ltd v Kettle Chip Company Pty Ltd [1999] FCA 483; (1999) 162 ALR 505 referred to
Sunley (B) & Co Ltd v Cunard White Star Ltd [1940] 1 KB 740 referred to
Ellis-Don Ltd v The Parking Authority of Toronto (1978) 28 BLR 98 referred to
The Mediana [1900] AC 113 referred to
Nauru Local Government Council v New Zealand Seamen's Industrial Union of Workers [1986] 1 NZLR 466 referred to
Parta Industries Ltd v Canadian Pacific Ltd (1974) 48 DLR (3d) 463 referred to
Homes By Calkens Inc v Fisher 634 NE 2d 1039 (1993) referred to
McCarty Corp v Industrial Scaffolding Inc 413 So 2d 1322 referred to
Bank of America Canada v Clarica Trust Co (2002) 211 DLR (4th) 385 referred to
Holloway v McFeeters [1956] HCA 25; (1956) 94 CLR 470 referred to
Davies v Nyland (1975) 10 SASR 76 referred to
Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 referred to
Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1984) 153 CLR 491 referred to
Parr v Australasian Asiatic Trading & Engineering Co Pty Ltd [1958] VR 198 referred to
Maritime Services Board of New South Wales v Posiden Navigation Incorporated [1982] 1 NSWLR 72 referred to
F G Minter v Welsh Health Technical Services Organisation (1980) 13 BLR 1 referred to
NT Power Generation v Power & Water Authority [2002] FCAFC 302 applied
Sirway Asia Pacific Pty Ltd v The Commonwealth of Australia [2002] FCA 1152 referred to
Corrections Corporation of Australia v Commonwealth of Australia [2000] FCA 1280; (2000) 104 FCR 448 referred to
RT & YE Falls Investments Pty Ltd v State of New South Wales [2001] NSWSC 1027 referred to
Paramedical Services Pty Ltd v The Ambulance Service of New South Wales [1999] FCA 548 referred to
JS McMillan Pty Ltd v The Commonwealth (1997) 77 FCR 337 referred to
Mancorp Pty Ltd v Baulderstone Pty Ltd (No 2) (1990) 60 SASR 120 referred to
Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732 referred to
Commonwealth of Australia v Silverton Ltd (1997) 130 ACTR 1 referred to
Anthanasopoulos v Moseley [2001] NSWCA 266 referred to
Westwood v Cordell [1983] Qd R 276 referred to
Commissioner for Railways v Luya, Julius Ltd [1977] Qd R 395 referred to
United States v Wyckoff Co 271 US 263 (1926) referred to
BOOKS
Farnsworth, Changing Your Mind: The Law of Regretted Decisions (1998)
Chitty on Contracts, vol 1, (28th ed, 1999)
Chitty on Contracts, vol 2, (28th ed, 1999)
Halsbury's Laws of Australia, vol 3(2)
Farnsworth, Contracts (3rd ed, 1999)
White and Summers, Uniform Commercial Code, vol 1, (4th ed, 2000 reprint)
Unidroit, Principles of International Commercial Contracts (1994)
Lando and Beale, Principles of European Contract Law (2000)
Cheshire and Fifoot, The Law of Contract (8th Aust ed, 2002)
Lewison, The Interpretation of Contracts (2nd ed, 1997)
Restatement of Contracts, Second (1981)
Carter and Harland, Contract Law in Australia (4th ed, 2002)
Dal Pont and Chambers, Equity and Trusts in Australia and New Zealand (2nd ed, 2000)
Butterworths, The Law of Contract (1999)
Wilken and Villiers, Waiver, Variation and Estoppel (1998)
Anson, Law of Contract (8th ed, 1895)
Anson's Law of Contract (27th ed, 1998)
Dobbs, Law of Remedies, vol 1, (2nd ed, 1993)
Dobbs, Law of Remedies, vol 3, (2nd ed, 1993)
Palmer, Law of Restitution (1978)
Mason and Carter, Restitution Law in Australia (1995)
Halsbury's Laws of England, vol 3, (1st ed)
Brooking on Building Contracts (3rd ed, 1995)
Keating on Building Contracts (7th ed, 2001)
Corbin on Contracts, vol 3A, (1960)
64 American Jurisprudence 2d, §165
Carter, Breach of Contract (2nd ed, 1991)
Seddon, Government Contracts (2nd ed, 1999)
Trietel, Law of Contract (8th ed, 1991)
Greig and Davis, The Law of Contract (1987)
McGregor on Damages (16th ed, 1997)
Tilbury, Civil Remedies, vol 2, (1993)
Jacobs, Damages in a Commercial Context (2000)
Burrows, Remedies for Torts and Breach of Contract (2nd ed, 1994)
22 American Jurisprudence 2d, §469, §70, §444, §447
Trindade and Cane, The Law of Torts in Australia (3rd ed, 1999)
Waddams, The Law of Damages (3rd ed, 1997)
Todd (ed), The Law of Torts in New Zealand (3rd ed, 2001)
Arrowsmith et al, Regulating Public Procurement (2000)
CHAPTERS IN EDITED BOOKS
Eisenberg, "Relational Contracts" in Beatson and Friedman, Good Faith and Fault in Contract Law, 296 (1995)
JOURNAL ARTICLES
Snyder, "The Law of Contract and the Concept of Change: Public and Private Attempts to Regulate Modification, Waiver and Estoppel" (1999) Wis L Rev 607
Goldwasser and Ciro, "Standards of Behaviour in Commercial Contracting" (2002) 30 Aust Bus Law Rev 369
H K Lücke, "Non-Contractual Arrangements for the Modification of Performance: Forbearance, Waiver and Equitable Estoppel" (1991) 21 WALR 149
Carter, "Termination Clauses" (1990) 3 JCL 90
Carter, "Discharged Contracts: Claims for Restitution" (1997) 11 JCL 130
Claybrook, "Good Faith Termination and Formation of Federal Contracts" (1997) 56 Md L Rev 555
Peden, "The Meaning of Contractual Good Faith" (2002) Aust Bar Rev 235
Farnsworth, "Good Faith in Contract" (2002) AMPLA Yearbook (forthcoming)
"Comment Note: Overhead Expense as Recoverable Element of Damages" 3 ALR 3d 689 (US)
Sharpe and Waddams, "Damages for Lost Opportunity to Bargain" (1982) 2 OxJLS 290
Seddon, "Crown Immunity and the Unlevel Playing Field" (1998) 5 Agenda 467
STATUTES
Federal Court of Australia Act 1976 (Cth), s 51A
Trade Practices Act 1974 (Cth), ss 52, 2A, 2C(1)(c)(i)
Uniform Commercial Code (US), §2-209(2), §1-207, §2-209(5), §1-102(3)
GEC MARCONI SYSTEMS PTY LIMITED trading as EASAMS AUSTRALIA v BHP INFORMATION TECHNOLOGY PTY LIMITED and OTHERS
NG733 of 1997
FINN J
12 FEBRUARY 2003
CANBERRA

IN THE FEDERAL COURT OF AUSTRALIA


NEW SOUTH WALES DISTRICT REGISTRY

NG733 OF 1997

BETWEEN:

GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
APPLICANT

AND:

BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
RESPONDENT
BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FIRST CROSS-CLAIMANT
GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
FIRST CROSS-RESPONDENT
GEC MARCONI AUSTRALIA PTY LIMITED
(ACN 000 287 614)
SECOND CROSS-RESPONDENT
THE COMMONWEALTH OF AUSTRALIA
THIRD CROSS-RESPONDENT
THE COMMONWEALTH OF AUSTRALIA
SECOND CROSS-CLAIMANT
BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FOURTH CROSS-RESPONDENT

JUDGE:

FINN J

DATE OF ORDER:

12 FEBRUARY 2003

WHERE MADE:

CANBERRA


THE COURT ORDERS THAT:
1. The parties bring in short minutes of orders to give effect to these reasons.
2. Further hearing to consider the question of costs is adjourned to a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA


NEW SOUTH WALES DISTRICT REGISTRY

NG733 OF 1997

BETWEEN:

GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
APPLICANT

AND:

BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
RESPONDENT
BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FIRST CROSS-CLAIMANT
GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
FIRST CROSS-RESPONDENT
GEC MARCONI AUSTRALIA PTY LIMITED
(ACN 000 287 614)
SECOND CROSS-RESPONDENT
THE COMMONWEALTH OF AUSTRALIA
THIRD CROSS-RESPONDENT
THE COMMONWEALTH OF AUSTRALIA
SECOND CROSS-CLAIMANT
BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FOURTH CROSS-RESPONDENT

JUDGE:

FINN J

DATE:

12 FEBRUARY 2003

PLACE:

CANBERRA


REASONS FOR JUDGMENT
TABLE OF CONTENTS

INTRODUCTION 8
The Language and Processes of Software Development 10
PART I: 12
A THE ADCNET CONTRACTS 12
B An Introductory Overview 21
(1) The Principal Actors 21
(2) A General Chronology 24
PART II: GEC MARCONI'S CLAIM 36
A GEC Marconi's Claims and BHP-IT Defences: an Overview 36
(1) The Primary Complaints and Defences 36
(2) The Subsidiary Complaints 37
(3) The Non-Provision of STUBS 38
1. THE EMULATION VARIATION AGREEMENT 39
(a) Additional Factual Material 39
(i) The ADCNET project to November 1995 39
(ii) The 23 and 25 October letters 56
(b) Relevant Sub-Contract Provisions 65
(c) Applicable Principles 65
(i) Was writing a prerequisite? 65
(ii) Formation of a contract of variation 69
(d) Findings and Conclusions 75
(e) GEC Marconi's Attack on the Agreement 87
(i) Non-compliance with the cl 45.1 writing requirement 87
(ii) The contract contains inconsistent provisions 88
(iii) The contract was inherently uncertain 88
(iv) A contingent agreement 95
(f) Post-November 1995 97
(i) The November correspondence concerning the emulator 97
(ii) Sub-Contract Amendment 30 98
(iii) GEC Marconi's 14 December risk report 98
(iv) Change Request 3060/Contract Amendment 31 98
(v) Change Request 3015: Acceptance Test Plan 102
(g) Additional Observations 104
2. AFFIRMATION BY ELECTION 105
(a) Additional Factual Material 105
(b) Relevant Sub-Contract Provisions 106
(c) Applicable Principles 106
(d) Submissions and Conclusions 110
3. ESTOPPEL 117
(1) Estoppel and Clause 45 117
(2) Estoppel and the Obligation to Provide STUBS 118
(a) Additional Factual Material 119
(b) Applicable Principles 128
(c) Submissions and Conclusions: Representation/Understanding and Reliance 131
(d) Findings and Conclusions: Detriment 137
4. WAIVER 142
5. THE PROPER CONSTRUCTION AND THE APPLICABILITY OF SUB-CLAUSES 40.8 and 40.9 144
(a) The Issue of Interpretation 145
(b) The Applicability of Cl 40.8 and Cl 40.9 150
6. NON-PAYMENT FOR MILESTONE 4000 154
(1) The Construction Issues 154
(a) Relevant Sub-Contract Provisions 154
(b) Additional Factual Material 159
(c) Submissions and Conclusions 162
(2) The Factual Issues 167
(a) Additional Factual Material 168
(i) The ATD 168
(ii) The TASDD 176
(b) Submissions and Conclusions 178
(i) The ATD 178
(ii) The TASDD 183
(c) GEC Marconi's Reply: Estoppel 184
(3) Outcome 187
7. MILESTONE 4000: ADDITIONAL DEFENCES 187
(1) The SDP Defence 188
(2) The Invoice Defence 189
(3) The cl 40.8 Defence/The cl 16.1 Reasonable Grounds Defence 190
(4) The Affirmation Defence 190
8. GENERAL DEFENCE 193
9. PECUNIARY RELIEF/DAMAGES 194
(1) The Nature of the Claim Made 194
(i) Was quantum meruit an available remedy? 196
(ii) The Limits of Quantum Meruit 199
(2) The cl 38 "Damages" Cap 200
(i) The quantum meruit claim 201
(ii) The calls on the bank guarantees 202
10. THE SUBSIDIARY CLAIMS 204
11. THE CALL ON FINANCIAL SECURITIES 204
(a) The Contractual Setting 205
(b) Applicable Principles: an Entire Contract/Entire Obligation 209
(c) The Obligation to Achieve Milestone 5000 211
(d) The Call on the Financial Securities: Principles and Conclusions 213
12. THE CONVERSION OF THE STUBS EMULATOR 215
13. THE TERMINATION OF THE STANDING OFFER AGREEMENT 217
(a) The construction and interrelationship of sub-clauses 4.3 and 4.4 219
(b) "Constructive Termination for Convenience": Applicable Principles 220
(c) Additional Factual Material 223
(d) Submissions and Conclusions on Liability 224
(e) Other matters 227
16. THE DELAY AND PROLONGATION CLAIM 227
(a) The Contractual Setting 230
(b) The Basis of the Claims Made 232
(c) The Defences 233
(i) Non-compliance with cl 46 and cl 47: The Diary Entries 233
(ii) Non-compliance with cl 46 and cl 47: Estoppel 236
(iii) The Integration Defence 243
(iv) The "Entire Obligation" Defence 244
(d) Conclusion 244
PART III: BHP-IT's FIRST CROSS-CLAIM 244
1. THE REPUDIATION CLAIM 245
(a) The Factual Setting 245
(b) Applicable Principles 262
(c) Submissions and Conclusions 262
(d) Breach of the Implied Term ("Good Faith and Fair Dealing") 269
2. DAMAGES 272
(a) A Brief Chronology 272
(b) Applicable Principles 274
3. THE HEADS OF CLAIM 276
(i) The recording of costs 279
(ii) BHP-IT's Internal Margin 280
4. LOST BENEFIT OF THE SUB-CONTRACT 281
5. LOST BENEFIT OF THE HEAD CONTRACT 281
6. COSTS INCURRED BETWEEN JUNE 1995 AND DECEMBER 1996. 281
7. Costs Of Performing The Variation Agreement 281
(a) Additional Factual Material 281
(b) Submissions and Conclusions 291
(i) The claims for the lost benefit of the Head Contract/costs incurred until December 1996. 298
(ii) Costs of Performing the Variation Agreement 306
8 PROJECT COSTS INCURRED FROM JANUARY-MAY 1997 318
9 DISPUTE MANAGEMENT COSTS 319
10 MONEYS OWING FOR PERSONNEL PROVIDED 323
(a) Background Setting 323
(b) Submissions and Conclusions 327
11 LOSS OF USE OF MONEYS 329
12 Third Party Liability Costs 333
13. THE INDEMNITY CLAIM 333
14. THE PERFORMANCE GUARANTEE 336
15 CONCLUSION ON DAMAGES 342
PART IV: BHP-IT's SECOND CROSS-CLAIM 342
(1) Introduction 342
The principal actors and bodies 344
Matters of weight and credit 345
(2) Factual Setting 347
8. 1993 - end of 1994 348
10. Exploring alternative strategies 353
(iii) Decision Making in DFAT 356
(iv) Communicating decisions to BHP-IT and GEC Marconi 372
1. THE CONTRACT CLAIM 378
(a) Relevant contractual provisions 378
(b) Factual findings 380
(c) Conclusions: Contract Claim 393
2. THE TRADE PRACTICES ACT CLAIM 398
(1) "Carrying on a Business" 399
(a) Applicable Principles 399
(b) Factual Setting 401
(c) Findings and Conclusions 403
(d) Other Matters 405
PART V: THE COMMONWEALTH'S CROSS-CLAIM 406
1. The 1997 Variation Agreement 407
(a) Background 407
(b) The Terms of the Variation Agreement 407
(c) The Construction Dispute 411
(d) Applicable Principles 412
(e) Conclusions 413
2. THE INDIVIDUAL HEADS OF CLAIM 417
(1) Retention of the IBM Classified Message Switch System 417
(a) Factual Setting 419
(b) Findings and Conclusions 428
(2) Project Management Costs 435
(a) Additional Factual Material 436
(b) Submissions and Conclusions 440
(3) The Edmund Barton Building Expenses 443
(a) Contractual Setting 444
(b) Factual Setting 444
(c) Submissions, Findings and Conclusions 445
(4) The RG Casey Building Expenses 451
(a) Additional Factual Material 452
(b) Findings and Conclusions 452
(5) The Cost of Expedited Release 3 Software 453
(6) Conclusion 453
PART VI: CONCLUSION 453
SCHEDULE 1: Table of Acronyms/Glossary 455
SCHEDULE 2: Principal Actors 466
SCHEDULE 3: Figure 471
SCHEDULE 4: Principal Committees and Groups 472

INTRODUCTION
1 The title of Allan Farnsworth's recent book, Changing Your Mind: The Law of Regretted Decisions, encapsulates the burden of this proceeding and the issues it raises. Two of the principal actors, GEC Marconi Systems Pty Ltd ("GEC Marconi") and the Commonwealth, made contractual commitments and then sought to resile from them. This litigation reflects the consequences of their actions.
2 On 14 September 1994 the Commonwealth and BHP Information Technology Pty Ltd ("BHP-IT"), and then BHP-IT and EASAMS (Australia) Ltd ("EASAMS") - a predecessor of GEC Marconi - entered into back-to-back fixed price contracts for software development and systems integration in Phase 2 of the Australian Diplomatic Communications Network Project ("ADCNET"). The Diplomatic Communications Network was a secure network for communication to and from Australia's overseas missions. It was operated from Canberra through the Department of Foreign Affairs and Trade ("DFAT") as a service to all Australian Government agencies.
3 The ADCNET project had several facets. One involved upgrading and enhancing the security of that Network using new technologies. A security element envisaged in the project required the use of boundary security devices which prevented classified data being sent from ADCNET computers to less secure networks as a result of errors in computing software or equipment, or because of successful attacks on ADCNET computers. The actual boundary security devices to be used in implementing the back-to-back contracts ("the STUBS devices") were to be supplied by the Commonwealth to BHP-IT, which in turn would supply those devices to GEC Marconi for integration with the ADCNET software being developed by GEC Marconi. Each contract at the time of its execution had provisions to this effect.
4 GEC Marconi took over EASAMS in about October 1994. The EASAMS contract with BHP-IT was then novated to substitute GEC Marconi for EASAMS as the contractor.
5 The failure of the Commonwealth, hence of BHP-IT, to supply the STUBS devices provided one of two alleged breaches of the BHP-IT/GEC Marconi contract relied upon by GEC Marconi to justify its termination of the contract. The other alleged breach related to the non-payment of a contractual milestone ("Milestone 4000").
6 The ensuing legal proceeding initiated by GEC Marconi against BHP-IT led to cross-claims, first, by BHP-IT against GEC Marconi, GEC Marconi Australia Pty Ltd and the Commonwealth and, secondly, by the Commonwealth against BHP-IT. The various disputes raised by the parties relate, in the main, to alleged breaches of one or other of the two fixed price contracts ("the ADCNET contracts"). The matter is a complex one and its complexity has been exaggerated by the number of discrete claims made (and defences raised) both in GEC Marconi's original claim and in the cross-claims made by BHP-IT and by the Commonwealth. A further cause of complication is that, because of the back-to-back nature of the two ADCNET contracts, contractual claims arising out of one contract can have flow - on effects into the other.
7 The hearing of the matter ran over many weeks. That, coupled with the number of claims made and the time span of the events examined in the proceeding, has necessitated the preparation of reasons for judgment of no little length. I have resorted to several expedients to render as intelligible as I can the voluminous, often technical, material to which I must refer.
8 There are four schedules to these reasons. The first contains a lengthy glossary of terms, abbreviations and acronyms (of which there are many). The language of software engineers, if sometimes evocative, is not always accessible to persons otherwise reasonably competent in the English language. While several of the descriptions given are themselves contentious, I should emphasise that the descriptions are intended to be no more than aids to understanding. They do not purport to embody findings on disputed matters. The second schedule is a list of the principal actors in the events to be described in these reasons. They are identified individually by reference to the organisation or entity to which each belongs and to the respective position(s) held in that body. The third schedule reproduces a figure that described the sequence of development of the ADCNET software and the documentation that was to be produced in that process. It provides a map of sorts of the intended course of the ADCNET contracts. The final schedule contains a description of the various committees that had some part to play in the events narrated in these reasons. Some are merely in-house committees of one or other of the parties. Others are joint committees involving two or more of the parties.
9 The preparation of these schedules has been undertaken with the assistance of all of the parties for which I am grateful. While they have been included as reference aids, the reasons themselves will also contain the appropriate description of a person, acronym, committee, etc when reference is first made to that person, etc.
10 For ease in exposition I have divided these reasons into six Parts. Part I outlines the major provisions of the ADCNET contracts. It describes the principal persons and bodies who participated in the events to be considered. And it gives a brief general chronology of the circumstances giving rise to GEC Marconi's claims. Part II deals with GEC Marconi's claims against BHP-IT and BHP-IT's defences to those claims. Part III considers BHP-IT's cross-claims against GEC Marconi and the second respondent, GEC Marconi Australia Pty Ltd. Part IV deals with BHP-IT's cross-claims against the Commonwealth. Part V relates to the Commonwealth's cross-claim against BHP-IT. Part VI is a brief statement of conclusions. There is an unavoidable degree of overlap between the Parts because of the back-to-back nature of the contracts.
11 It has been necessary to reproduce a considerable body of documentary evidence in these reasons. I have not, in the main, attempted to indicate obvious errors in spelling, grammar and syntax in passages quoted. They have been reproduced as composed.
The Language and Processes of Software Development
12 It is necessary at the outset to provide some necessarily brief and superficial explanation of certain of the terms and methods employed in the ADCNET software development so as to assist understanding both of documents relied upon, and of issues raised, in this proceeding.
13 The ADCNET software was designed, developed, integrated and tested in accordance with the requirements specified by the Commonwealth in a document described as the Functional Requirements Specification ("the FRS"). The FRS was prepared by EASAMS in conjunction with the Commonwealth during a phase of the ADCNET project that led up to the execution of the ADCNET contracts of present concern.
14 The procedures to be followed and processes to be employed by EASAMS/GEC Marconi in producing the ADCNET software as a contract deliverable were detailed in what was known as the IPD Software Development Plan ("the SDP"), again a document prepared by EASAMS. Both the FRS and the SDP were amended and updated, each going through several versions.
15 The methodology employed in the development of the software in accordance with the FRS required the following steps to be taken sequentially: (i) Preliminary Design; (ii) Detailed Design; (iii) Coding and CSU Testing; (iv) CSC Testing; (v) Integration Testing; and (vi) Formal Qualification Testing. This sequence is represented diagrammatically in the figure in Schedule 3 to these reasons. Some parts of the development methodology require explanation.
16 A "CSU" was a Computer Software Unit. A "CSC" was a Computer Software Component. A CSU was the smallest element of software that could be tested. A CSC was made up of several CSUs. The purpose of CSC Testing was to test (a) the CSUs developed; (b) their integration to produce a CSC; and (c) the integration of CSCs (if necessary) to produce a "Build" for integration testing.
17 A "Build" was an installable subset of the system. "Integration Testing" was of each build using tests specified in a previously developed document, the Integration Test Description ("the ITD"), the build being tested against the software requirements specified in the Software Requirements Specification ("the SRS"). As with the FRS, the SRS was prepared by EASAMS in the earlier phase of the ADCNET project.
18 "Formal Qualification Testing" or "Acceptance Testing" was conducted to demonstrate that every testable requirement in the FRS (and supporting documents) had been met by the ADCNET software that was to be delivered under the contracts. The testable requirements of the FRS were each expressed using the mandatory word "shall". The Acceptance Tests used had to conform to the Acceptance Test Plan ("the ATP") and were to be conducted according to the Acceptance Test Description ("the ATD"), both the ATP and ATD being documents agreed with DFAT.
19 The terminology of "integration" is of importance in this proceeding. When used in relation to software development, it served two purposes. The first was to describe the process of bolting together CSUs to produce CSCs, CSCs to produce Builds, and ultimately Builds to produce the completed ADCNET software. The second was to describe one of the forms of test, ie Integration Testing, that was performed on Developed Software. The term was used as well in the ADCNET contracts to describe amongst other things the integration of the ADCNET software with hardware and software items supplied by the Commonwealth. This usage is what is described in the documentation as "integrating the System".
20 Those points at which the ADCNET software interacted with items supplied by the Commonwealth are described in the documentation as "interfaces". This again is a term that recurs in the documentation and other evidence.
21 A distinct concept of no little importance in this proceeding is that of "surface emulation". As the experts called in this matter were in agreement concerning the concept, I refer for convenience to the description given of surface (or interface) emulation by Professor Raymond Offen, a Professor of Information Technology at Macquarie University, who was called by GEC Marconi:

"One commonly practiced form of emulation is interface emulation, used where one hardware/software sub-system (A), which interacts, inter alia, with another (B), needs, for whatever reason, to be fully tested before B is available. A can still be tested, before B is available, if one develops an interface emulator for B, which mimics some or all of the interactions between A and B, as defined in an interface specification, but has none of the functionality required of B itself. From A's point of view, an interface is all it ever sees of B and if this behaves correctly then A can be fully tested. For example, if A has to send a signal to B, initiating a particular B-mediated event and then pause until it receives an acknowledging signal back from B - indicating that the B-mediated event, however complex, has taken place and is satisfactorily completed - before it (A) can proceed further, all the interface emulator has to do is mimic the acknowledgment. From the point of view of testing A's functionality it is irrelevant as to whether or not the B-mediated event actually took place."

22 The term "test harness" is used in the contractual documentation in a way which is synonymous with emulation.
PART I:
A THE ADCNET CONTRACTS
23 Save as to parties the Commonwealth/BHP-IT contract ("the Head Contract") and the BHP-IT/GEC Marconi contract ("the Sub-Contract") were at the time of their execution relevantly identical save where I indicate to the contrary. As the principal claims made in the proceeding relate to the latter agreement, reference here will be made to its provisions alone. As some provisions of the contract are relevant only to a particular claim I will defer detailed reference to those provisions until that claim is considered.
24 In the Sub-Contract BHP-IT was referred to as "the Customer" and GEC Marconi as "the Contractor". The contract recitals stated that:

"1. The Customer wishes to procure the supply of software development services and the integration of the System in accordance with this Contract; and
2. The Contractor has agreed to supply the software development services and integrate the System in accordance with the provisions of this Contract."

25 The "System" so referred to was defined in cl 1.1 to mean "the working system which complies with this Contract and comprises the CSE and CSI". The same clause defined "CSE" to mean Contractor supplied equipment. "CSI", a subject matter important to GEC Marconi's claim, was defined to mean "the Customer supplied items to be supplied by the Customer under this Contract and referred to in clause 7".
26 Clause 7, insofar as presently relevant, imposed the obligation on the Customer to supply the CSI: cl 7.1; and then provided in cl 7.2 that:

"CSI specified in Schedule 6 shall at the time of its supply by the Customer to the Contractor comply with the specifications, if any, set out in Schedule 6."

Schedule 6, which was one of sixteen schedules to the contract, listed and provided for the provision of the CSI. The "Stubs devices and related equipment and software" were identified in cl 1.4(b) of the Schedule to be part of the "Test and Integration/Acceptance Test System". I would note in passing that cl 1.2 of the same Schedule provided in part that:

"CSI shall include the equipment and non-Developed Software as defined in subclause 1.4 below ... [s]uch equipment and non-Developed Software may be subject to change as a result of revising the Preliminary Architecture Design Document for the purposes of preparing the Final Architecture Design Document": emphasis added.

Further reference will be made to the Architecture Design Document ("the ADD") below.
27 Clause 1.1 of the Contract defined "Integration" in respect of the System to include the integration services set out in Schedule 4. That Schedule listed "Contractor Supplied Services and Charges". Clause 1.1 of the Schedule provided:

"The Contractor shall provide the following services.
...

(c) Integration of the Developed Software with the following CSI operating on Hewlett-Packard's UX BLS operating system (version 9.08) or Hewlett-Packard's UX operating system (version 9.04):
...

(iv) Security Equipment
The Security Equipment shall consist of Stubs devices, designed and manufactured in accordance with the Stubs Requirements Specification (reference 1403.01.004)."

28 The "Developed Software" referred to in cl 1.1(c) was defined in cl 1.1 of the Contract to mean "the software that is to be developed and supplied in accordance with this Contract and includes any associated integration services". Further reference will be made to this software below.
29 Clauses 4 and 5 of the Contract stipulated particular obligations of the Contractor and Customer respectively. Clause 5 provided (inter alia):

"5.1 The Customer shall take all reasonable measures to maintain the processing environment as constituted by the elements of the CSI.
...

5.3 The Customer shall supply the CSI in accordance with clause 7 and shall perform its obligations specified in the Project Plan and the Implementation Plan pursuant to subclause 10.1.
...

5.6 Except where otherwise provided for in the Contract, the Customer, Delegate, Project Officer and Supervisor agree that in the exercise of any obligation, function or power imposed or conferred on them under this Contract they will:
(a) act in a fair and reasonable manner; and
(b) act within the time prescribed under this Contract or, where no time is prescribed, within a reasonable time."

30 I would note in passing of cl 5.6, first, that all of the persons referred to there other than the Customer are defined to be officers of the Customer in cl 1.1 of the Contract; and, secondly, that the Contract did not expressly impose a like obligation on the Contractor in exercising its obligations etc under the Contract.
31 The "Project Plan" and "Implementation Plan" referred to in cl 5.3 of the Contract were each defined in cl 1.1. "Project Plan" meant the project plan set out in Schedule 7. That Schedule summarised the responsibilities of the Commonwealth, the Customer and the Contractor in Table 7.1 which itself designated the "Supply and maintenance of all hardware (including STUBS) and COTS software" to be the responsibility of the Commonwealth. I would note in passing that "COTS software" was Commercial Off The Shelf software. Clause 1.1 of the Schedule - incorrectly described as cl 2.1 in the Schedule - concluded with the observation in the BHP-IT/GEC Marconi contract (though not in the Commonwealth-BHP-IT contract) that:

"Any responsibility identified in Table 7.1 as Commonwealth shall be assumed by the Customer [ie by BHP-IT]."

Table 7.2 of the same Schedule provided a timetable for the delivery of CSI items. Insofar as it related to STUBS, it provided:

Reference

CSI Description

Date required to be provided to Contractor


...

3

Detailed Software Interface Specification for Stubs Untrusted Workstation/Server Software
Note: The Detailed Software Specification for Stubs Untrusted Workstation/Server Software shall be in accordance with the Interface Design Criteria for the Detailed Software Interface Specification for Stubs as set out in Attachment A to Schedule 7.

1/12/94

4

Stubs Untrusted Workstation and Server Software

01/04/95

...

10

Stubs equipment and associated software

01/08/95


It is unnecessary at this point to explain what was comprehended by the various items described in the Table.
32 Two other responsibilities of the contractor set out in the Project Plan which are of relevance were:

"WP2100 Requirements and Design Maintenance
Updating of the Customer's Functional Specifications, CSCI Software Requirements Specification and the Architecture Design Document to incorporate approved Contract Amendments. This work involves the preparation of the changes to the Document, internal review and approval of the changes with the Customer and the incorporation of the changes.
WP4500 Development of any Test Harnesses required for CSCI and acceptance testing."

33 The "Implementation Plan" referred to in cl 5.3 of the Contract was defined to mean "the time schedule for the performance of this Contract set out in Schedule 8". Reference will be made to that Schedule in detail when considering the specific GEC Marconi claim that BHP-IT failed to pay Milestone 4000.
34 Clause 7.1 of the Contract provided that after delivery of the CSI at the times and places stated in the Project Plan:

"the Contractor shall incorporate the CSI into the System or utilise the CSI in the integration of the System in accordance with the Customer's Functional Specifications."

The "Customer's Functional Specifications" were defined in cl 1.1 of the Contract to mean the specifications "set out or identified in Schedule 1". That Schedule indicated that the relevant specifications were:

"(a) Functional Requirements Specification (Version 3.0);
(b) Preliminary Architecture Design Document (Version 1.0)."

35 The Functional Requirements Specification ("the FRS") to which it will be necessary to refer on a number of occasions in these reasons is of central importance in GEC Marconi's claim based on the non-provision of STUBS. I have referred already to the purpose of the FRS: see "The Language and Processes of Software Development". The Architecture Design Document ("the ADD") described the architecture of Release 3 of the ADCNET system. It identified the hardware and software components of the system and described how they were to be configured to meet the requirements set out in the FRS.
36 Clause 9 of the Contract dealt with "Supply and Integration of the System". Five sub-clauses require mention. They are:

"9.1 The Contractor shall, if necessary with the assistance of the Customer, prepare a specification known as the Final Architecture Design Document for all parts of, and the whole of, the System before the Developed Software is supplied.
9.2 The specification referred to in subclause 9.1 shall be submitted to the Customer for review and subsequent acceptance or otherwise in accordance with the dates specified in the Implementation Plan.
9.3 The Customer's assistance in preparation of any specifications under this Contract, or giving approval of any specifications prepared by the Contractor, shall not vary or limit in any way whatsoever the Contractor's obligations under this clause or the Contract to supply the Developed Software or integrate the System in accordance with the Contract.
9.4 The System shall be integrated in stages in accordance with the Contract, including the Project Plan and the Implementation Plan.
...

9.6 The Contractor shall integrate the System in accordance with the Contract Specifications."

37 Clauses 9A to 9D provided for the development, delivery and installation of the Developed Software. Reference need only be made to cl 9B and this for the purpose of indicating the documentary hierarchy it ordains. I will refer further below to the hierarchy in contractual documentation. Clause 9B provided:

"The Developed Software supplied by the Contractor shall conform to:
(a) the Customer's Functional Specifications [ie the FRS and the ADD]; and
(b) the specifications and representations in respect thereof, including the Developed Software Detailed Design Specification, communicated specifically by the Contractor to the Customer in writing;
and to the extent that there is any inconsistency between the specifications referred to in paragraph (a) and those referred to in paragraph (b), those referred to in paragraph (a) shall, to the extent of any inconsistency, be deemed to be the specifications to which the Developed Software supplied by the Contractor must conform."

38 It should be noted in passing that cl 27 of the Sub-Contract vested in the Commonwealth title to, and intellectual property rights in, the Developed Software "upon its creation". The Sub-Contract, further, obliged the Contractor to supply Services and the Developed Software which complied with the standards set out in the SDP and any subsidiary documents to it: cl 55, Schedule 3.
39 After the Developed Software had been delivered and installed on the prescribed equipment (which included the "Security Equipment": see above Schedule 4 cl 1.1), it was to undergo acceptance testing. Provision for this was made in cl 9E of the Contract. I would again note in passing that issues relating to the possible acceptance testing of the Developed Software in the absence of the STUBS devices have loomed large in this proceeding.
40 Clause 9E.0.1 provided in part:

"The Acceptance Tests shall be carried out in accordance with the test cases as agreed between the Customer and the Contractor and based on the Testing and Acceptance Criteria as defined in Schedule 9. The Contractor is responsible for testing the Developed Software and those aspects of the CSI with which the Developed Software interfaces, and to reasonably demonstrate that the remaining software components of the CSI are unaffected as a result of the integration of the Developed Software with the CSI."

The Acceptance Test was to be "conducted on the System" although all that the Customer would then accept from the Contractor was the Developed Software only: cl 9E.0.2.
41 The Contract, it should be noted, made express provision for what courses could be taken if during a specific Acceptance Test "a failure occurs which is due to a defect in the CSI": cl 9E.3.5A. One possible course was the Acceptance Test to be deemed to have been passed.
42 Clause 9E.5 dealt with the Acceptance Tests. It provided, in part, that:

"9E.5.1 The Contractor shall prepare a Test Plan and Test Descriptions in accordance with the Testing and Acceptance Criteria as set out in Schedule 9 for approval by the Customer prior to commencement of the Acceptance Tests.
...

9E.5.3 The System shall be tested in accordance with the relevant Test Plan and Test Descriptions. ...
9E.5.4 The Acceptance Tests for the Developed Software shall, unless otherwise specified in the Test Plan, be carried out by the Contractor in accordance with the Project Plan, Implementation Plan and Test Plan and shall demonstrate to the Customer and the Commonwealth that the Developed Software integrated with the CSI meets the Customer's Functional Specifications."

Express provision was made for what was to occur "[w]here the System [did] not meet the performance Acceptance Tests as referred to in ... Schedule 9".
43 Schedule 9 was entitled "Testing and Acceptance Criteria" and it specified the criteria to be used to develop an Acceptance Test Plan ("ATP") and Test Descriptions for "acceptance of the System": cl 1.1. Clause 2.2.1, relating to Qualification Testing provided:

"The qualification of the Developed Software shall be based on the adherence of the software development to the testing and quality provisions as defined in the Software Development Plan together with a series of Acceptance Tests which will demonstrate that the software complies with the Functional Requirements Specifications. These Acceptance Tests will be for specific test cases only and will be designed to show that the Developed Software complies with testable "shall" statements in the Functional Requirement Specification."

44 Acceptance Testing was thus linked directly to what were described as the "testable `shall' statements" in the FRS. The language of the FRS in describing the individual functions specified for the System used declaratory and mandatory language: "the system shall ..."; "an authorised user shall be able ..."; "the interface shall ..."; "validation shall"; etc. Such were the "testable shalls" that the test cases were to demonstrate could be met. It is part of GEC Marconi's case that, with the non-provision of STUBS, the testable shalls of the FRS could not all be tested fully in accordance with the Contract.
45 A provision of some importance in this proceeding is cl 11 of the Contract. It dealt with "Variations of Contract" and provided:

"11.1 If either Party wishes to vary the Contract, that proposing Party shall submit a copy of the proposed variations to the other Party. The receiving Party shall advise the proposing Party within 10 normal working days, or such other period as is mutually agreed between the Parties, of receipt of the variations either:
(a) that the receiving Party accepts the variations; or
(b) that the receiving Party rejects the variations, and the reasons for such rejection.
11.1A Where the Customer requests the Contractor to assess the feasibility and cost of undertaking a proposed variation, the costs incurred by the Contractor in undertaking the assessment shall be paid for by the Customer in accordance with the time and materials rates as set out in Table 4.3 of Schedule 4. Where the Contactor proposes a variation the costs incurred by the Contractor in assessing the proposal shall be borne by the Contractor.
11.2 If the receiving Party accepts the variations, the Contract Specifications shall be deemed to incorporate the accepted variations from the date upon which the receiving Party notifies the proposing Party in writing that it accepts the variations.
11.3 If the receiving Party rejects the proposed variations, the Contractor and Customer shall jointly use reasonable endeavours to reach agreement on the proposed variation. Where agreement cannot be reached the Contractor shall continue to integrate the System in accordance with the unvaried Contract."

I would draw particular attention in this to the structured process the clause envisaged and to the reasonable endeavours provision of cl 11.3.
46 Relatedly, cl 45 of the Contract provides:

"45.1 The provisions of this Contract shall not be varied either in law or in equity except by agreement in writing signed by the Customer and the Contractor.
45.2 A waiver by either Party in respect of a breach of a provision of this Contract by the other Party shall not be deemed to be a waiver in respect of any other breach and the failure of either Party to enforce at any time any of the provisions of this Contract shall in no way be interpreted as a waiver of such provision."

47 The principal defence raised by BHP-IT to GEC Marconi's claim based on the non-provision of the STUBS devices is that the Sub-Contract was varied even if this was not done in accordance with the above provisions of the Sub-Contract.
48 The Contract made express provision for termination for default by either party. The provisions relating to termination by the Contractor were as follows:

"40.8 Where the Customer is in breach of an obligation under this Contract so that there is a failure by the Customer to perform this Contract, the Contractor may, by notice in writing to the Customer, specify that breach and where that breach is capable of being remedied require the Customer within 32 days of receiving such notice to remedy that breach or commence appropriate action to remedy that breach.
40.9 Where the Customer has not:
(a) remedied the breach referred to in subclause 40.8 within 32 days of receiving a notice (including because the breach was incapable of being remedied); or
(b) commenced appropriate action to remedy that breach within 32 days of receiving a notice and remedied the breach within a reasonable time after that period has elapsed;
the Contractor may, by notice in writing to the Customer, terminate this Contract without prejudice to any right of action or remedy which has accrued or which may accrue in favour of either Party."

49 Again I would emphasise the structured process ordained by the provision. GEC Marconi invoked this provision in terminating its contract with BHP-IT.
50 There are five clauses that individually are of significance to particular claims brought by or against GEC Marconi and of which mention should be made here. Clause 16 provided for the making of milestone payments in accordance with the payment plan provided in Schedule 8. Clause 17 required the Contractor to provide an unconditional financial undertaking from an approved guarantor. In clauses 36.1 and 36.1A each party respectively agreed to indemnify the other from designated losses. Clause 38 imposed a damages cap in respect of actions between the parties arising out of the operation of the Sub-Contract. Clause 39 was a liquidated damages clause.
51 Finally, as is apparent from the above, the contract is premised upon the existence of, or the creation of, a body of subordinate documents most being of a technical character. To obviate problems arising from inconsistency between the contract and those documents and between those documents themselves, cl 2 of the contract specified an order of documentary precedence. It was as follows:

"2.1 In the event of any inconsistency between the clauses of this Contract, the Schedules to this Contract and the content of any other Document, the order of precedence shall be:
(a) the Clauses of this Contract;
(b) the Schedules to this Contract; and
(c) the content of any other Document.
2.2 In the event of any inconsistency between:
(a) the Customer's Functional Specifications [ie the FRS and the ADD]; and
(b) other Contract Specifications;
the Customer's Functional Specifications shall prevail to the extent of the inconsistency."

B AN INTRODUCTORY OVERVIEW
(1) The Principal Actors
52 There is a very large cast of persons and bodies who participated in the events to be narrated in this Part. It is useful to identify the principal participants at the outset. The evidence to be considered is overwhelmingly documentary. The persons to whom I wish to refer were often enough the authors of documents or of communications that are of central importance to the resolution of the issues with which I am concerned.
53 First, DFAT. The Information Technology Branch ("the ITB") of the Department had direct responsibility for the delivery and development of the Department's information technology requirements including the ADCNET project. The Commonwealth's contract with BHP-IT was managed from this branch. The project manager for the Department was Leslie George Cook ("Les Cook"). He joined DFAT in 1971 with a background in computing systems and information technology. He left the Department in 1989 but was engaged by it as a consultant, first, to assist in the definition of, and then to manage, the ADCNET project. He retained the position of project manager until 25 March 2000.
54 The head of the ITB from 1990 to 1996 was Anthony Skinner, who was an Assistant Secretary (a public service rank in the Senior Executive Service ("the SES")) in DFAT. A subordinate of his in the ITB was Robert Nichols. Mr Nichols had worked on the ADCNET project from 1989. He described himself as an assistant to Les Cook. He was not a member of the SES.
55 The ITB was one of five branches within the Corporate Services Division ("the CSD") of DFAT. The senior officer of that Division from 1993 to 1997 was Robert Cotton, a First Assistant Secretary of the Department. One of his responsibilities was the oversight of the ITB. Mr Skinner reported to him. Mr Cotton in turn reported to Clive (Kim) Jones, a Deputy Secretary of DFAT who had the general oversight of three Divisions including the CSD.
56 Secondly, BHP-IT. The company's project manager for the ADCNET contracts was Kyrill Brent. Mr Brent commenced employment with BHP-IT in July 1989 having worked in the Australian Public Service since 1966. He participated on BHP-IT's behalf in the earlier phases of the ADCNET project that commenced in 1989 and led to the 1994 contract. He ceased to work on the ADCNET contracts in May 1997.
57 During 1994 and 1995 Ian Dart was BHP-IT's National Manager for Systems Integration Services and, as such, was responsible for all systems integration including the ADCNET project. It was Mr Dart who signed the ADCNET contracts on BHP-IT's behalf. In 1996 he was appointed Group General Manager of BHP-IT. Mr Brent reported to him indirectly in this position through his own superior.
58 Thirdly, GEC Marconi. It was GEC Marconi's predecessor, EASAMS, that first participated in the ADCNET project being BHP-IT's subcontractor for the ADCNET Release 1 contract. That contract was entered into in December 1990. Its Project Director for EASAMS from 1991 to 1994 was Roger Cooke. From 1994 to 1997 Mr Cooke was Canberra Branch Manager for GEC Marconi, a position that gave him responsibility for projects being carried out in Canberra. He was EASAMS' signatory to the Sub-Contract in 1994 and to GEC Marconi's contract when the Sub-Contract contract was novated shortly thereafter.
59 The project manager for that contract from its inception was Peter Wishart. Mr Wishart had been previously employed by EASAMS and had worked on the ADCNET project from 1991 to 1993. He ceased being project manager in January/February 1996 and ceased his employment with GEC Marconi shortly thereafter. His successor was Edward Goldsmith who in turn left the project and the company in August 1996.
60 The General Manager of the division of GEC Marconi responsible for software development and systems integration in the period from September 1994 to November 1995 was Lindsay Pears. He was replaced then by Ian Sharp. As General Manager Mr Pears, then Mr Sharp, were responsible for the conduct of the ADCNET project. In October 1996 Mr Sharp became managing director of GEC Marconi. It was Mr Sharp who terminated the Sub-Contract.
61 Fourthly, the various persons - BHP-IT and GEC Marconi - who made up the actual ADCNET project team, were physically located at DFAT's Canberra office in the Administrative Building until their relocation to the Edmund Barton Building in September 1996. BHP-IT's ADCNET staff was of the order of 10 people (including Mr Brent), though some additional BHP-IT staff worked on the project under GEC Marconi's direction and control. GEC Marconi's staff was about 50 persons (including Mr Wishart and then Mr Goldsmith), though there was significant fluctuation in the numbers involved.
62 Finally, a note on nomenclature. After its takeover of EASAMS, GEC Marconi continued to trade as "EASAMS Australia". In consequence both names have been used in correspondence and in this proceeding to describe the applicant. In these reasons I will refer to the applicant as GEC Marconi save where it would be an anachronistic to do so. Quotations drawn from documents that refer to the company as EASAMS will be left in their original form.
63 To avoid possible confusion I have resorted to the expedient of referring to DFAT's Mr Cook and GEC Marconi's Mr Cooke as Les Cook and Roger Cooke respectively. This follows the course taken during the trial.
64 Distinctly, BHP-IT is commonly referred to in documents as the PSI. This is an acronym for the description "Prime Systems Integrator". This usage is retained in these reasons.
(2) A General Chronology
65 The following is a brief chronological overview of matters relevant to the GEC Marconi/BHP-IT claims and defences. It should not be taken as making, or suggesting, findings on matters that are in issue between the parties.
66 From the early 1970's DFAT embarked on the course of developing computing systems to automate many of the processes of its secure Diplomatic Communications Network. That Network at that time utilised message switching centres in Canberra, London and Washington to receive and send electronic communications to and from overseas posts and governmental agencies. In 1979 the Department commissioned its first computerised message switch system ("the IBM message switch") that had been built by IBM.
67 In 1988 DFAT commenced the ADCNET project. As conceived, its first stage involved the replacement of the existing communications network (which was used to carry formal messages, informal messages, telephone, facsimile and data transmissions) with a single network; the IBM switch was to be replaced with a new security system; and secure, modern office automation was to be provided for communications staff in overseas posts, regional offices in Australia and in Canberra.
68 DFAT invited expressions of interest for the design and development of the ADCNET project in late 1989. In March 1990 BHP-IT entered into a teaming arrangement with EASAMS and they began work together on the preparation of a joint tender in response to a Request for Tender that had been issued by DFAT. That tender, submitted around July 1990, was successful. On 13 and 14 December 1990 the Commonwealth and BHP-IT and BHP-IT and EASAMS entered into back-to-back time and materials contracts. The objects of these contracts, as recited in the latter of the two contracts, was to specify, design, develop and implement Stage 1 of ADCNET.
69 It was envisaged at the time of the contracts that BHP-IT (hence EASAMS) was to design software to meet the security baseline defined for the ADCNET system. Boundary security was, apparently, a part of that baseline. The object of boundary security was to prevent classified data being sent from ADCNET computers to less secure networks as a result of errors in the software or equipment of the ADCNET computers or of successful attacks on the ADCNET computers being made via electronic connections to less secure networks. This security was required in addition to `need to know' security mechanisms which would control access to data stored in the ADCNET computers by persons with direct access to terminals connected to those computers.
70 The approach that was to be taken to boundary security resulted, apparently, from an agreement reached between DFAT and the Defence Signals Directorate ("DSD"), a unit within the Department of Defence ("Defence"). It required the development of a security "gateway" to allow the interconnection of networks. That gateway involved, first, the use of an encrypted seal which would be added to the document to be exported by the person who created or modified that document, and then the checking of that seal by a gateway computer before allowing the export of the document.
71 In mid-1992, DSD advised DFAT that the Defence Science and Technology Organisation ("DSTO"), another unit within Defence, had built a prototype version of what became known as the STUBS devices and that these devices were likely to offer the most secure means of providing boundary security for ADCNET. DFAT was subsequently informed that the STUBS devices were to be developed as a commercial product by AWA Defence Industries Pty Ltd ("AWADI"). It then commenced discussions with AWADI concerning the possible use of STUBS for ADCNET. BHP-IT and GEC Marconi became aware of this development in early 1993.
72 In the course of the time and materials contract, EASAMS designed and developed what became known as Release 1 of the ADCNET software. Originally intended to fall within Stage 2 of the ADCNET project, this Release was of computer software for ADCNET systems to be installed at overseas posts. This appears to have been an accelerated security measure. The process of installation abroad commenced in 1992.
73 As part of its work EASAMS also prepared design documents that were to be used in the next phase of the ADCNET project. Importantly, in conjunction with the Commonwealth, it developed the FRS, this being the document that would govern the requirements for the work to be done in that phase.
74 In 1993 discussions commenced between the Commonwealth, BHP-IT and EASAMS concerning the contractual arrangements that were to obtain for the next phase of the project. This phase involved the development of what was known as the Release 3 software and its integration with the ADCNET system. DFAT advised BHP-IT and EASAMS that the STUBS devices were the preferred choice for boundary security. The 1994 contracts were prepared on the basis the Commonwealth would supply and be responsible for the functionality of STUBS related hardware and software and that BHP-IT's (hence GEC-Marconi's) responsibility would be to integrate the STUBS devices with the Release 3 software. A schedule to the resultant contracts (Schedule 7) provided a timetable for the Commonwealth's delivery of (inter alia) STUBS related items, the first element of which was to be provided by 1 December 1994.
75 On 14 September 1994 the Commonwealth, BHP-IT and EASAMS executed the back-to-back contracts that are the subjects of this proceeding. The contract price fixed for the Head Contract was $9,609,569 and for the Sub-Contract, $6,218,260. Contemporary internal BHP-IT documentation projected a gross profit on its contract of $835,912.
76 At the time of execution of the ADCNET contracts the Commonwealth had not concluded an agreement with AWADI for the supply to it of STUBS hardware and software, though negotiations to this end were in train. On 1 December 1994 the Commonwealth failed to deliver to BHP-IT (which in turn failed to deliver to GEC Marconi) the first contractually scheduled STUBS related deliverable. This was the STUBS Software Interface Specification ("the STUBS SIS"). That document was later purchased by the Commonwealth from AWADI and supplied directly to GEC Marconi on 6 January 1995 though its adequacy was questioned thereafter.
77 On 22 December Les Cook sent a minute to Tim Harris, GEC Marconi's Systems Engineering Manager, whose principal responsibility was the integration and acceptance testing of the ADCNET software. That minute was aimed at initiating discussion on whether additional software might be provided to emulate the STUBS devices and software, the same question having previously been raised with BHP-IT. The emulation of STUBS is a matter that looms large in this proceeding. It is appropriate to indicate here that the concept of "surface emulation" has earlier been described: "Introduction: the Language and Processes of Software Development".
78 From early in the performance of the contracts GEC Marconi found itself unable to meet the contracted milestone dates for delivery of project "deliverables". It was over a month late in completing the second milestone (Milestone 2000) scheduled for 8 November 1994. By late March it was apparent to GEC Marconi that it would be four weeks late in meeting Milestone 3000 and that a project schedule slippage of 13 weeks was forecast. By late April that slippage had grown to 17 weeks.
79 DFAT had contracted to supply STUBS Untrusted Workstation and Server Software by 1 April 1995. It failed to do so. This software was in fact never supplied. By 12 April Mr Brent in correspondence was seeking Les Cook's "formal advise (sic) on the status of STUBS so that DFAT and the PSI can adopt appropriate contingency measures".
80 On 18 May Mr Brent again wrote to Les Cook that letter suggesting amongst other things that "it would be prudent to examine alternatives to STUBS".
81 As will become apparent when the circumstances giving rise to BHP-IT's cross-claims against the Commonwealth are narrated, Les Cook and the ITB had been considering from at least January 1995 what options there were should STUBS not be available. In March 1995 he prepared two option papers in which he recommended that STUBS be abandoned and that another option ("Option C") be adopted, that option having a design based on sealing and gateways as was the option suggested to Mr Cook by Mr Brent in his 18 May letter.
82 From July onwards the parties' correspondence focussed increasingly on surface emulation of the STUBS devices. This correspondence is set out in detail later in these reasons. Here it will be referred to in very general terms.
83 On 20 July 1995 Mr Brent inquired of Mr Wishart of GEC Marconi's capacity to design and develop an emulator for STUBS. Mr Wishart confirmed it possessed that capacity by letter of 3 August 1995.
84 On 25 July Les Cook wrote a letter to Mr Brent (which was forwarded to GEC Marconi on 4 August 1995) that indicated that:

"it is not possible to provide sufficient STUBS devices to meet the requirements of the Acceptance Test Plan. In order to allow the testing to complete, it will be necessary to emulate the STUBS devices. A change request will be raised for this work as soon as agreement has been reached on the use of emulation and the means of achieving it."

85 It should be noted in passing that 1 August 1995 was the day on which the Commonwealth, hence BHP-IT, had contracted to provide the STUBS equipment and associated software. On 10 August and again on 24 August Les Cook wrote to Mr Brent concerning the emulation of the STUBS devices, the latter letter disputing the contention that the need to emulate STUBS would result in significant delays to the ADCNET development schedule. Both letters were forwarded to GEC Marconi the day after they were written.
86 On 6 September 1995 DFAT raised a change request (CR 3049) under its contract with BHP-IT seeking the development of STUBS emulation software. CR 3049 was forwarded to GEC Marconi on 8 September with a request for a quotation for undertaking the scoping of the change request. The emulation envisaged by CR 3049 was a full surface emulation of the STUBS devices. Less than a week later, on 13 or 14 September Mr Brent and Roger Cooke were advised by Les Cook that STUBS had been cancelled and would not be provided as CSI under the ADCNET contracts. Les Cook also made known around this time that DFAT had an alternative strategy.
87 On 26 September Les Cook wrote to Mr Brent and e-mailed Mr Wishart confirming that STUBS would not be supplied for acceptance testing. This letter is central to BHP-IT's defence of GEC Marconi's claim and is considered in detail later in these reasons.
88 On the same day DFAT raised CR 3052 to have investigated "the feasibility of the STUBS replacement strategy outlined in the attached minute". The minute referred to was a document sent by Les Cook to Mr Harris of GEC Marconi that outlined design principles for the STUBS replacement. It noted that "[b]oundary security will continue to be based on the concept of sealing and gateways".
89 Sometime in September 1995 Mr Wishart contacted a self-employed software consultant, Peter Newton, and invited him to scope an emulator for STUBS. On 3 October Mr Newton provided Mr Wishart with a preliminary paper titled "STUBS Emulation" the purpose of which was to enable Mr Wishart to consider whether the emulator Newton was proposing would meet Wishart's requirements. Two further versions of the paper were produced, one on 9 October, the other on 30 October.
90 On 5 October Mr Wishart signed GEC Marconi's quote for scoping CR 3049. It was forwarded by BHP-IT to DFAT for approval the following day. And on 11 October that approval was given and a request was made by DFAT for a quote for implementing CR 3049. On 23 October and 25 October Mr Wishart wrote separate letters each of which attached GEC Marconi's costing to implement CR 3049. It was in the order of $31,507. As will be seen, the relationship of these two letters and the status of the first is a matter in issue in this proceeding.
91 By mid-October it was apparent within GEC Marconi that the company faced a potential loss of $1 million or greater on the ADCNET contract. On 18 October Mr Pears instructed Roger Cooke to hire or contract a new project manager but to retain Mr Wishart as a Technical Manager. Pears indicated to Cooke that "[t]he bottom line is that the company is not prepared to carry a potential loss of $1M or greater".
92 On 26 October Les Cook signed the Contract Amendment to give effect to CR 3049. It was CA 23 in the Head Contract. Mr Brent signed the amendment for BHP-IT on 1 November. No like amendment was formally signed for the Sub-Contract though on 1 November Mr Brent notified Mr Wishart that formal approval had been given by DFAT for GEC Marconi to develop the STUBS emulation software.
93 In early November 1995 Mr Sharp replaced Mr Pears as GEC Marconi's General Manager.
94 On 8 November DFAT raised a further change request (CR 3057). The accompanying letter described its burden:

" STUBS REPLACEMENT - CHANGE REQUEST
Attached is a change request which proposes a set of changes to the FRS which will allow the replacement of the STUBS sealer and gateway devices with an approach based on the KIV-7 encryption device.
Accompanying the change request form are the following documents which define the scope of the change request:
a. `STUBS Replacement - FRS Changes'; and
b. `KIV-7 Sealer/Gateway Interface Specification'."

GEC Marconi was requested to provide a quotation for scoping the work required. A scoping price of $79,482.85 was later provided by GEC Marconi.
95 Throughout November both a number of further change requests were raised and proposals were made to modify contract amendment proposals, to amend documentation referenced in the contract so as to remove references to STUBS devices and software and to add references to STUBS emulation software. On 25 November Mr Harris of GEC Marconi sent an Acceptance Test Plan ("ATP") so modified to BHP-IT for approval under CR 3015. On 28 November he sent a similarly modified Architecture Design Document ("ADD") to BHP-IT for approval under CR 3060. The latter change request is of some importance in the defence raised to GEC Marconi's claim based on the non-provision of STUBS.
96 On 13 November 1995 Les Cook wrote to Mr Brent a letter addressing Mr Newton's paper on STUBS emulation. He pointed out that a number of required functions could not be tested by the emulator. Mr Wishart wrote to Mr Brent on 22 November responding specifically to the concerns so raised by Mr Cook.
97 Following a transitional period in late January and early February 1996 Ed Goldsmith replaced Mr Wishart as GEC Marconi's project manager.
98 On 6 February 1996 an invoice for developing the STUBS emulator under CR 3049 was rendered by GEC Marconi. Sometime prior to 9 February the emulation software was demonstrated by Mr Newton. On the 9th Mr Cook wrote to Mr Brent confirming that:

"to the degree of detail presented, the emulation will be adequate to enable formal qualification testing of the release 3 software to be performed."

BHP-IT paid the GEC Marconi invoice for CR 3049 on 19 February 1996.
99 On 6 February 1996 Roger Cooke wrote to Mr Brent concerning the next contracted milestone, Milestone 4000, which related to Test Readiness Review ("TRR"). The letter stated in part:

"There is a conflict in the contract baseline documentation regarding the conduct of the Test Readiness Review. The contractual deliverable's in the document which takes precedence, namely the contract, does not provide deliverable's to enable the TRR as the SDP requires until the final milestone. We are proposing to replace the TRR milestone (Milestone 4000) with three milestones namely Milestone 4100, 4200 and 4300."

The letter proposed that the contracted milestone payment be split between the three milestones proposed.
100 Mr Brent wrote to Les Cook on 9 February 1996 proposing that Milestone 4000 be split as suggested by Roger Cooke. Les Cook replied on 12 February rejecting this proposal though he agreed to participate in the documentary review required by the TRR in accordance with a revised and three-staged schedule commencing on 26 February and finishing on 2 May 1996.
101 A GEC Marconi Project Status Report of 23 February 1996 forecast a loss of $4.317 million on the ADCNET contract and a schedule slippage of up to 18 months.
102 On 23 February a meeting took place between Mr Brent and Messrs Sharp, Goldsmith and Becker of GEC Marconi. Mr Becker at that time was Commercial Manager of the Company. In a letter written to Mr Dart on 26 February, Mr Brent gave a resumé of that meeting in which GEC Marconi is said to have made the point that it perceived "that the inability of DFAT to supply STUBS as per the contract may constitute a default on the part of DFAT and BHP-IT". This was the first occasion on which this view had been communicated to BHP-IT. A further meeting between GEC Marconi, BHP-IT and DFAT was held on 29 February 1996 at which GEC Marconi put the same view to DFAT, again for the first time.
103 On 1 March Mr Goldsmith sent a facsimile to Mr Sharp in which he indicated that he had located a letter and a memorandum authored by Peter Wishart concerning testing the ADCNET software. In light of them Mr Goldsmith indicated that:

"I don't think you have a viable case to say that the system won't work if it is tested against the emulator. I also don't think that you can make much of a case that DFAT can't use the system without STUBS. It is their risk."

104 On 4 March 1996 Mr Brent sent Mr Goldsmith a copy of CR 3057 together with a detailed definition of the scope of work (dated 22 November 1995) asking that he be provided with evidence of work to substantiate the funding for the CR. Mr Goldsmith replied on 8 March providing the information sought, but also indicating that GEC Marconi was "not prepared to offer a price for this CR in isolation". It wished "to offer a price recognising Customer induced delays and frustrations of the Contract".
105 A letter to Mr Brent from Mr Goldsmith of 12 March invoiced BHP-IT for Milestone 4000 in the sum of $1,250,000. The letter claimed GEC Marconi had met its obligation in relation to the TRR. On 21 March Mr Brent wrote to Mr Goldsmith refusing to authorise payment for the Milestone. He did not consider that the TRR requirements of the contract and the Software Development Plan had been met.
106 The Sub-Contract (Schedule 6) made provision for BHP-IT to supply its own personnel to GEC Marconi on a time and materials charge out rate. By early March 1996 disagreement was emerging between the parties as to the hours claimed by BHP-IT and of the time still due to GEC Marconi. By late March a dispute had arisen and on 26 March 1996 GEC Marconi rejected a BHP-IT invoice for $157,036.81 rendered on 22 March 1996.
107 On 28 March Mr Sharp wrote to BHP-IT providing GEC Marconi's response to CR 3057. It was proposed that the contract be concluded on completion and payment of Milestone 4000; that there be a 4 month time and materials contract period at the end of which a Critical Design Review would be held; and that the company would then be in a position to confirm "an appropriate arrangement for progression of the Contract to its conclusion". The letter indicated that GEC Marconi believed that "a rough order of magnitude price for completion of the Contract, as proposed, is $8,000K with completion in the latter part of 1997". This proposal was not accepted by BHP-IT.
108 On 2 April Mr Sharp wrote a letter to Mr Brent that stated, in part, that BHP-IT had overlooked that:

"
1. BHP-IT is contractually obligated to supply STUBS to EASAMS. That has not occurred and, as we understand it, will never occur. BHP-IT is thus in breach of contract.
Moreover, the failure to supply STUBS makes it impossible for EASAMS to complete its contract. EASAMS has done what it can do to minimise the breach. This includes emulating the AWADI STUBS interface and the submitted response to the suggestion that the STUBS be deleted from the contract and replaced by an alternative solution incorporating KIV-7.
The fact remains that BHP-IT is in breach. It is now further in breach by reason of your refusal to pay the Milestone payment of $1,250,000 against Milestone 4000.
If that attitude continues then EASAMS will prepare and serve a Notice of Breach."

109 On the following day (3 April 1996) a Notice of Breach was served on BHP-IT. It alleged the following breaches:

"1. You have failed to provide STUBS hardware and associated documentation and software as Customer Supplied Items ("CSI") under the contract.
You have failed to supply CSI in accordance with Clause 7 and have failed to perform your obligations specified in the project plan and the implementation plan pursuant to Sub-clause 10.1.
2. You have failed to pay the Milestone payment of One million two hundred and fifty thousand dollars ($1,250,000.00) pursuant to Invoice 14248 of 12 March 1996.
3. You have failed to comply with your obligations under the contract. You have failed to act in a fair and reasonable manner. Refer paragraphs 1 and 2 above.
4. You have failed to act within the time prescribed in the contract for provision of STUBS as CSI and/or failed to act within a reasonable time.
5. You have misled EASAMS in relation to the delay in supply of STUBS and inability to supply STUBS.
6. You have failed to act reasonably pursuant to Clause 9E.2.1.
7. You are in breach of Clause 16.1 in failing to make payment. Refer paragraph 2 above."

The notice concluded with the following demand:

"You are required in respect of that breach, where that breach is capable of remedy, to remedy that breach within thirty-two (32) days of receiving this Notice or commence appropriate action to remedy that breach."

110 The notice was forwarded by BHP-IT to DFAT on 11 April 1996 and served as BHP-IT's Notice to the Department under the Head Contract. On 17 April DFAT responded to the notice denying any alleged breach arising from the non-provision of STUBS and contending that the Contract Amendment consequent upon CR 3049 varied the contract to remove the obligation to provide STUBS CSI and, instead, to require the development of STUBS emulation software.
111 BHP-IT also responded to GEC Marconi's notice on 17 April. It later repeated its denial of any of the alleged breaches in a letter from its in-house lawyer, Margaret Beattie, to Mr Sharp on 3 May 1996. The penultimate paragraph of that letter stated:

"Alternatively, if a breach has occurred (which we deny) then it does not constitute "a failure by the Customer to perform this Contract" for the purposes of clause 40.8. Alternatively, if at any stage you had a right to terminate the contract (which is denied) then you are estopped from now exercising that right or otherwise have lost those rights by virtue of without limitation your acceptance of the instructions concerning the development of STUBS emulation software and your delay."

112 On 20 May Les Cook made a presentation to BHP-IT and GEC Marconi as to how the contract could be concluded and ADCNET deployed without STUBS. The proposals envisaged the initial retention of the IBM message switch as a security device. It would be replaced progressively by a new message switch system using Release 3 software.
113 On 30 May DFAT wrote to BHP-IT indicating what it saw as BHP-IT's obligations in relation to the completion of the ADCNET contract. It went on to propose changes to specified documentation "to remove any ambiguity arising from the use of STUBS emulation". This letter was forwarded to GEC Marconi which replied to BHP-IT on 18 June. The reply stated in part:

"We note it is proposed that various documentation changes be made to the contract and other documentation. This clearly is a proposal to vary the contract. We advise that we reject the proposal/variations. We are prepared to use reasonable endeavours to reach agreement. If however agreement cannot be achieved we note that pursuant to clause 11.3 of the contract, the contract will remain unvaried. Any endeavours to reach agreement are without prejudice to our rights concerning termination of the sub-contract and/or any other rights or remedies we may have."

On the same day a second Notice of Breach was served on BHP-IT. It added a new breach to those specified in the first notice. This alleged a failure to pay $78,482.85 pursuant to an invoice of 8 March 1996 in respect of CR 3057. BHP-IT again denied the allegations and indicated in relation to the CR 3057 invoice that payment had in fact been made.
114 Ed Goldsmith ceased to be GEC Marconi's project manager on 30 August 1996.
115 On 24 September 1996 a third Notice of Breach was served on BHP-IT. It was similar in substance to the first although it added the additional alleged breach:

"You have stated that BHP-IT
(i) will not supply either STUBS or a STUBS replacement; and
(ii) that BHP-IT does not have any obligation to supply same.
Such statement or conduct evinces an intention on the part of BHP-IT not to be bound by the terms of the contract and as such is a repudiation of such contract."

116 On 10 December 1996, GEC Marconi served a notice of termination of the ADCNET sub-contract on BHP-IT. The Notice relied upon BHP-IT's not having remedied the alleged breaches in the three Notices of Breach (save that in relation to the CR 3057 invoice payment).
117 As part of the process of vacating the DFAT supplied premises at which it conducted its ADCNET work, GEC Marconi wrote to BHP-IT on 12 December directing that:

"3. STUBS Interface Emulator files should be deleted from the system and the backups."

118 For its part, consequent upon the receipt of the Notice of Termination, BHP-IT (a) wrote a letter on 24 December 1996 to the second cross-respondent, GEC Marconi Australia Pty Ltd, calling upon a Performance Guarantee it had given on 31 October 1994 in respect of GEC Marconi's performance of the ADCNET contract; (b) treated GEC Marconi's Notice of Termination as a repudiation of the contract and it communicated to GEC Marconi its acceptance of that repudiation on 21 January 1997; (c) terminated a separate standing offer agreement it had entered into with GEC Marconi on 6 February 1995 in relation to GEC Marconi's possible provision of services to BHP-IT as a member of the Defence Preferred Systems Integrator panel; and (d) wrote three letters to Banque Nationale de Paris calling upon Unconditional Financial Undertakings given covering the payments made to GEC Marconi in respect of Milestones 1000 ($1,250,000), Milestone 2000 ($1,250,000) and Milestone 3000 ($1,375,000).
119 BHP-IT assumed the performance of the ADCNET contract in the absence of GEC Marconi. Its contract with the Commonwealth was varied on 24 December 1997. Its performance of the original and then the varied contract will be outlined later in these reasons: see below Part III: Damages:
120 The present proceeding was commenced by GEC Marconi against BHP-IT on 11 September 1997.
PART II: GEC MARCONI'S CLAIM
A GEC MARCONI'S CLAIMS AND BHP-IT DEFENCES: AN OVERVIEW
(1) The Primary Complaints and Defences
121 The Amended Statement of Claim particularises 14 respects in which BHP-IT is alleged to have failed or refused to comply with its contractual obligations. These 14 matters are referable to one or other of two primary complaints. The first was BHP-IT's failure to provide STUBS hardware and software as required by the Sub-Contract. The second was BHP-IT's failure to pay GEC Marconi for its achievement of Milestone 4000, again as required by the Sub-Contract.
122 Each of these failures, it is said, severally justified GEC Marconi in terminating the Sub-Contract in accordance with the provisions of cll 40.8 and 40.9 of the contract. The proper construction of those provisions is very much in issue as are the claims that BHP-IT was in breach of its contractual obligations by failing either to supply STUBS or to pay for Milestone 4000.
123 In relation to the non-provision of STUBS, BHP-IT has contended that the Sub-Contract was amended by agreement in about November 1995 to remove the obligation to provide STUBS and to substitute the use of the STUBS emulator for Acceptance Testing. Alternatively, it is said, GEC Marconi elected to affirm the Sub-Contract notwithstanding the non-provision of STUBS, or else it waived the obligation that STUBS be provided, or was estopped from asserting that STUBS was required to be provided.
124 As to the non-payment of Milestone 4000, BHP-IT asserts that GEC Marconi was not entitled to be paid as it had not complied with the requirements for payment under the Sub-Contract or else that BHP-IT had reasonable grounds for considering it had not and was in consequence contractually justified in refusing payment. Alternatively it is alleged GEC Marconi affirmed the Sub-Contract after the first Notice of Breach had been served.
125 Distinctly, BHP-IT claims that GEC Marconi was subject to an implied contractual duty to act honestly, fairly and reasonably in giving any notice of termination and it breached that duty in giving the notices.
126 In addition to its reliance upon the termination under cl 40 of the Sub-Contract, GEC Marconi alleges that BHP-IT's breaches of contract amounted to a repudiation of the contract which GEC Marconi accepted. BHP-IT's response is that if it did breach the contract as claimed, those breaches did not go the root of the Sub-Contract and did not amount to a failure to perform it. GEC Marconi was in consequence not entitled to terminate the Sub-Contract under the general law.
127 The damages GEC Marconi claims it suffered in consequence of the breaches and termination are sought to be recovered primarily on a quantum meruit claim. BHP-IT contests the availability of such a claim in the factual setting in which it has been made.
(2) The Subsidiary Complaints
128 There are four additional and discrete claims made by GEC Marconi. These are claims for loss suffered because:
(i) BHP-IT wrongfully called upon the bank guarantees for $3.875M provided by GEC Marconi as security under the Sub-Contract;
(ii) BHP-IT wrongfully converted the STUBS emulator after the Sub-Contract was terminated;
(iii) BHP-IT repudiated the Standing Offer Agreement in respect of DPSI panel services;
(iv) BHP-IT has failed or refused to pay GEC Marconi delay and prolongation costs required by the Sub-Contract.
Clause 38 of the Sub-Contract imposes a cap on damages in respect of actions between the parties arising out of the operation of the Sub-Contract. BHP-IT has relied upon this provision to limit any damages recoverable by GEC Marconi to the cap of $8,600,000. For its part GEC Marconi contends that cl 38 does not apply to its quantum meruit claim.
129 The two primary complaints, the four subsidiary complaints and the damages cap defence will be considered separately and sequentially in this Part.
(3) The Non-Provision of STUBS
130 GEC Marconi's claim has a beguiling simplicity: BHP-IT was obliged to provide STUBS; it failed to do so; and that failure justified termination of the Sub-Contract both at common law and under cl 40 of the contract. The complexity in dealing with the claim arises primarily from the diverse array of defences that BHP-IT has marshalled against it. These defences have their own and different legal foundations and factual underpinnings. For ease in exposition, the course I intend to take initially is to assume that unless a defence can be made out, GEC Marconi can establish its claim. I will in consequence consider the defences first. As will become apparent, the volume of factual material virtually compels the taking of this course.
131 The principal defences raised were as follows:
1. The Sub-Contract was varied so as to remove the obligation to provide STUBS and permit the use of emulation software in its place to complete the Sub-Contract ("the Emulation Variation Agreement"). This agreement, I would note, is a composite of what in the pleadings are referred to as the STUBS Emulation Agreement and the Sub-Contract Variation Agreement.
2. GEC Marconi affirmed the Sub-Contract both after it had been notified that STUBS would not be provided and after it had served its first notice of breach ("Affirmation by Election").
3. As a result both of representations made by GEC Marconi and relied on by BHP-IT and of the common understanding acted on by the parties, GEC Marconi was estopped from denying that BHP-IT was no longer required to provide STUBS and that GEC Marconi would no longer assert any right to require its provision ("Estoppel").
4. In the circumstances, GEC Marconi waived or dispensed with BHP-IT's obligation to deliver STUBS and substituted for it STUBS emulation software as an alternative means of performing the contract ("Waiver").
5. The non-provision of STUBS was not a repudiatory breach at common law or one that permitted termination under cl 40 of the Sub-Contract ("Improper Termination").
6. When GEC Marconi terminated the Sub-Contract it was not itself ready, willing and able to perform the Sub-Contract ("Ready, Willing and Able").
1. THE EMULATION VARIATION AGREEMENT
(a) Additional Factual Material
132 I preface the following narrative with the observation that it has been necessary to set out in some detail the contents of a significant number of the documents that are said to bear on the issue of the alleged variation agreement. Extensive written submissions have been made analysing the burden of many of the documents to which I will refer.
(i) The ADCNET project to November 1995
133 As indicated in the "General Chronology", in 1993 the Commonwealth selected the STUBS devices as its preferred choice for boundary security and BHP-IT and EASAMS became aware of this. At the time of execution of the Head Contract and Sub-Contract the Commonwealth had not concluded an agreement with AWADI for the supply to it of STUBS hardware and software, though negotiations to this end were in train. BHP-IT concedes it was aware of this when it signed both contracts.
134 From early in the life of the ADCNET contracts all parties were aware of the possibility that it might be necessary to resort to emulation of the STUBS devices for some purposes at least. In a "Pre-Review Check Sheet" prepared by GEC Marconi on 18 November 1994 for the projected Preliminary Design Review ("PDR") of 23 November 1994 a major defect identified in the Acceptance Test Plan (a document to be approved at the PDR) was described in the following fashion:

"The ATP specifies some 25 STUBS devices to be provided (19 for Phase A and 6 for Phase B). The contract provides for the delivery of a small number of Stubs devices (2 sealers, 1 KDC and 1 gateway) to be installed by 1/8/95 - i.e. some time after the commencement of Phase A testing.
Present indications from AWADI are that, at best, a prototype system could be installed by 1/8/95. Production units would not start to be delivered until January 1996. The ATP should be amended accordingly.
This means that it may be necessary to emulate the sealing of documents during performance testing in Phase A."

135 On 22 December 1994 Les Cook wrote directly to Mr Harris of GEC Marconi on the subject of "Emulation of STUBS Devices". The letter contained a handwritten notation from Les Cook that stated: "This is to initiate discussion of practicality at this stage". The letter itself indicated that the supply of STUBS equipment and software was "likely to be too late to allow testing and integration of PSI software without some form of emulation". The emulation envisaged was such as to ensure that "all PSI software (other than emulation) operates unchanged whether STUBS is emulated or not". I would note in passing that a modified version of this letter was revived by Mr Cook in July 1995 by which time the emulation of STUBS was a live issue.
136 The Acceptance Test Plan, that was approved on the completion of PDR (which seems to have occurred in mid-January 1995), provided that (cl 3.3.3.4.1.1.1):

"The availability of Stub devices during the Acceptance testing is likely to be limited and will not be sufficient for the Minimal Message Switch to support the Acceptance Tests. The use of simulators and/or interface stubs and any test waivers related to the Stub device will be resolved by agreement between the Customer and the Contractor."

137 On 20 February a Project Management Committee meeting was held that was attended by, amongst others Les Cook, Mr Brent and Mr Wishart. Mr Wishart produced a report of that meeting on the same day. It noted:

"10. DFAT getting even more concerned with STUBS. Very high possibility that STUBS will not be available in any quantities for testing. Some possibility that STUBS may never be available. LGC [Les Cook] considering other options, will keep us informally advised and raise CR's for any work to build emulators or (worst case) rework of security policy."

138 By this time a default had already occurred under the contracts in relation to the delivery of STUBS related items. The STUBS Software Interface Specification ("the STUBS SIS") was required to be delivered on 1 December 1994. Delivery occurred on 6 January 1995 but was alleged by GEC Marconi to be deficient in some respects. The STUBS untrusted workstation and server software in turn was scheduled for delivery on 1 April 1995. It was never delivered. Delay in its delivery was foreshadowed by Les Cook as early as 19 December 1994.
139 The issue of the possible emulation of STUBS was again raised at a Project Management committee meeting of 29 March 1995. Mr Wishart's notes of that meeting recorded:

"DFAT may raise a CR to conduct acceptance tests without STUBS devices.
DFAT to make a judgment on whether STUBS is in the project or not within next 4 weeks."

140 On 26 April an internal memorandum of GEC Marconi prepared by Mr Pears recorded a meeting with Mr Dart of BHP-IT concerning ADCNET. It recorded in part:

"1. ... Broke the news that we could be up to 17 weeks late as a result of under estimation of Code & Unit Test (CUT) phase.
...

4. It is highly likely that the customer will be unable to deliver a key piece of CFI/CFE, the AWADI STUBBS device. We will then be in a position to remove LD's [liquidated damages] by negotiation of the scope of ensuing delay. We should know by June/July, and resolve by October."

141 Earlier, on 12 April, Mr Brent wrote a letter to Les Cook that concluded with a request for his "formal advise (sic) on the status of STUBS so that DFAT and the PSI can adopt appropriate contingency measures". Mr Brent's concern with STUBS was reiterated in a letter of 18 May 1995. It warrants quotation in full (omitting formal parts). I should preface this by noting that the reference in it to HPUXBLS is a reference to the "Hewlett Packard Unix `B' Level Secure Operating System". The letter stated:

" RE: STUBS
During the course of recent project management meetings there has been a lot of discussion concerning the status of STUBS. The situation in brief is as detailed below:
* STUBS Software Interface Specification is delayed 4 months;
* STUBS delivery is likely to be delayed;
* STUBS may not be delivered at all;
* the Department does not have a contract for the delivery of STUBS;
* high level discussions between AWA, DFAT, Defence are imminent and will decide the outcome. This may well be that the STUBS program is cancelled within AWA.
The impact of these developments on the PSI has been that:
* all work on STUBS-related design has been halted due to a four month delay in the supply of the software interface specification;
* the uncertainty associated with STUBS has thrown into doubt the viability of the entire system;
* if STUBS is not available then the current ADCNET architecture and the associated design are invalid.
In the light of the position described above it would be prudent to examine alternatives to the use of STUBS. Suggested options are:
* implement the necessary boundary security functions in software on HPUXBLS and seek appropriate waivers from DSD concerning accreditation for the system;
* conduct an international technology search/review in order to identify device(s) which could conceivably meet ADCNET objectives/needs;
* explore the options for the design and implementation of an alternative security architecture.
Whatever the outcome of STUBS availability we need to move quickly on all fronts in order to contain significant and costly delays to the ADCNET program.
In the context of the current position I request an urgent and extensive conference between the Department and the PSI concerning this issue."

142 Les Cook was overseas at the time of this letter, returning on 28 May. He did not reply to it until 6 June, his reply indicating:

" STUBS
As you have noted, there is great uncertainty surrounding the supply of STUBS to the Department in time for the deployment of ADCNET Release 3 in Canberra. The Department's Executive are schedule to meet within the next 10 days to determine whether to proceed with STUBS or to accept an alternative method of providing ADCNET boundary security.
I agree with your analysis of the broad options available. Of these, I have advised the Department's management that only the first is a practical option. The reasons for this are noted below."

After outlining the proposal that had been put to the DFAT executive, the letter concluded:


"DSD is in the process of commenting on the proposal and the Department intends to make a decision on the use of STUBS or this approach within the next two weeks. I will, of course, inform the PSI as soon as such a decision is reached. In the meantime, I have recently sent a copy of the outline design proposal to you and I would welcome comments on it."

143 As was noted in the "General Chronology", it will become apparent when the circumstances giving rise to BHP-IT's cross-claims against the Commonwealth are narrated that Les Cook and the ITB had been considering from at least January 1995 what options there were should STUBS not be available. In March 1995 Mr Cook prepared two option papers in which he recommended that STUBS be abandoned and that another option ("Option C") be recommended, that option having a design based on sealing and gateways as was the HPUXBLS option suggested to Mr Cook by Mr Brent in his 18 May letter.
144 By July 1995 neither BHP-IT nor GEC Marconi had been informed by DFAT whether or not it was proceeding with STUBS. A meeting of the Acceptance Test Team (involving DFAT and BHP-IT representatives) occurred on 7 July 1995, the minutes of that meeting noting, inter alia, that:

"3.1.5 Action: There are a number of issues with the connection of External Partitions to the test system given the lack of STUBS.
Status: PSI is still unaware of DFAT official position on STUBS. RN to provide PSI with advice in relation to the go ahead with the emulation of STUBS for testing. R Nichols to speak to L Cook regarding contract variations and will then advise."

These minutes were copied to Mr Wishart and Mr Harris of GEC Marconi.
145 GEC Marconi's risk analysis report of 19 July - such a document was prepared almost monthly under the direction of Mr Wishart - dealt with STUBS in the following manner:

"Ref: 14
Title: STUBS Availability date and numbers
Description: The earliest available date for the STUBS device and the number of devices available on that date may present some problems for the development and testing efforts.
RAP Details: DFAT/BHP to advice [sic]
Status: MEDIUM risk"

146 Mr Brent wrote to Mr Wishart on 20 July 1995 seeking information on a variety of STUBS related matters. Two of these were (i) the impact on the formal test program if STUBS was not available and (ii) GEC Marconi's capacity to design and develop test harnesses simulating STUBS. In cross-examination and again in re-examination Mr Wishart confirmed that he understood the second query to relate to the development of an emulator that would enable the acceptance testing of the ADCNET system. His letter in response of 3 August indicated in relation to these two matters, first, that GEC Marconi would not accept responsibility for any issues identified with STUBS during formal acceptance testing if STUBS was not available for integration and system testing; and, secondly, that GEC Marconi had the capabilities to design and develop test harnesses for STUBS.
147 On 25 July Les Cook wrote to Mr Brent raising the issue of a change request to allow emulation of the STUBS devices. That letter was an adaptation of the letter sent to Mr Harris on 22 December 1994 to which reference has been made above. Insofar as presently relevant it stated:

" SUPPLY OF STUBS DEVICES FOR ACCEPTANCE TESTS
1. As previously stated in meetings, it is not possible to provide sufficient STUBS devices to meet the requirements of the Acceptance Test Plan. In order to allow the testing to complete, it will be necessary to emulate the STUBS devices. A change request will be raised for this work as soon as agreement has been reached on the use of emulation and the means of achieving it.
...


4. It is proposed that all STUBS sealers and gateways required by the Acceptance Test Plan be emulated. Some of the untrusted software will also be emulated.
5. The emulation should ensure that, to the degree possible, all PSI software (other than that which provides the emulation) operates unchanged whether STUBS is emulated or not. ...
6. The emulation should allow all cases of success or failure of STUBS functions to be tested, in so far as they are relevant to PSI software, without requiring changes to PSI software. It should include the creation of audit log information as defined in the STUBS SIS."

148 Mr Brent forwarded this letter to Mr Wishart on 4 August 1995, his own letter indicating that:

"I would appreciate your advice on the issues raised with specific reference to:
- schedule impact
- viability of the proposed approach
- any other issues."

149 It appears to be common ground between the parties that the 25 July letter contemplated that the proposed emulator would be used for acceptance testing.
150 The contracted date for the delivery of the STUBS devices was 1 August 1995. On 4 August Mr Wishart wrote to Mr Brent indicating that GEC Marconi had "not yet received anything or any indication of when it will arrive".
151 On 10 August Les Cook revisited the question of emulation of STUBS in a letter to Mr Brent. The letter was forwarded to GEC Marconi the following day. The context of the letter related to DFAT's requirements for agreement to an extension of the contract schedule. The subject of delays occasioned (inter alia) by the non-provision of STUBS related materials had by now become contentious. The letter stated in part:

"As discussed with Mr Cooke and at no additional charge to DFAT, software will be developed by the PSI to emulate AWADI's untrusted workstation software and the STUBS devices. The emulation will include and allow to be tested all components of the interface as described in the STUBS Software Interface Specification dated 1 December 1994 and previously provided to the PSI.
As this will allow acceptance testing to proceed in the absence of AWADI's untrusted workstation software and STUBS devices, any defect in the PSI's Developed Software which may be encountered when STUBS is implemented will be remedied under the warranty for the Developed Software, provided that AWADI's untrusted workstation software complies with the Software Interface Specification."

In cross-examination Roger Cooke accepted of this letter that DFAT was proposing an emulator suitable for acceptance of the R3 software, though he also insisted that he thought there would be at least one sealer and gateway available.
152 A letter from GEC Marconi to BHP-IT of 21 August signed by Mr Pears but prepared by Mr Wishart and Roger Cooke, responded to DFAT's proposals in the 10 August letter. Its focus was on delay claims and the proposed extension to the contract schedule. Mr Pears put forward GEC Marconi's proposals which would "wipe the slate clean for any existing delay claims including pending claims for non delivery of STUBS". It proposed amongst other things that it would "Implement a STUBS test harness suitable for development and acceptance of R3". A benefit it saw stemming from its proposal was that DFAT would no longer be dependent on the delivery of STUBS to allow GEC Marconi "to continue development and to conduct acceptance". Mr Wishart, but not Roger Cooke, accepted that he knew by this time that it was most unlikely that STUBS would be available at all.
153 Les Cook wrote a further letter on emulation to Mr Brent on 24 August which again was forwarded to GEC Marconi on the following day. This letter, though of a technical character and directed primarily at suggestions that emulation of STUBS would occasion delays, is of some importance. It was incorporated by reference into Change Request 3049 ("CR 3049"), this CR relating to the development of STUBS emulation software. The emulation it contemplated was a full surface emulation of STUBS that was compliant with the STUBS SIS, the emulation being developed in two phases. The object of the two phase proposal was to minimise delay to the project arising from the need to emulate the STUBS devices.
154 In a report to GEC Marconi's project management team of 28 August, Mr Wishart referred to the contract negotiations to extend the schedule and noted that GEC Marconi did not agree with DFAT's negotiation position that lack of STUBS devices should not hold up the project. The report also noted that STUBS devices were due on 1 August and that they would be required on 28 August 1995. He recorded he intended to raise a diary entry which would say that STUBS had not been received yet. The minute on this matter continued: "Actual resolution of issue will almost certainly bee (sic) via the contract negotiations, but we need the diary entry to document our formal position." The diary entry was raised the following day. It referred back to GEC Marconi's letter to Mr Brent of 4 August (noted above). Les Cook wrote two responses on the diary note. The first was that:

"DFAT advised the PSI formally on 25 July 1995 that STUBS would not be provided for acceptance testing and requested action to emulate the devices to minimise schedule delay. This advice was apparently ignored in the referred correspondence."

Secondly, in response to a further comment of Mr Wishart in the diary note requiring DFAT to "advise delivery date of STUBS equipment and software ASAP", Les Cook wrote: "This has been done, see above", this being a reference to his first notation. Mr Wishart in oral evidence indicated that he saw Les Cook's comments at the time though he was uncertain as to precisely when. Extrinsic evidence suggests it may well have been only at the end of September.
155 The change request foreshadowed in Les Cook's letter of 25 July was sent by Mr Brent to Mr Wishart on 6 September. The letter accompanying the change request (CR3049) - sought a quotation for undertaking the scoping of the change request. The purpose of CR3049 was to "[d]evelop STUBS emulation software". It described the "scope of work" as:

"Develop STUBS emulation software in a way that will minimise the impact on the project schedule (refer to Mr Cook's letter dated 24/8/95)."

156 In GEC Marconi's risk analysis report of 8 September the following was recorded:

"Ref: 14
Title: STUBS Availability date and numbers
Description: The earliest available date for the STUBS device and the number of devices available on that date may present some problems for the development and testing efforts.
RAP Details: STUBS devices will not be available in time. DFAT proposing use of a STUBS emulator to be constructed by the PSI and used for acceptance. Being considered in contract negotiations.
Status: MEDIUM risk."

157 The "contract negotiations" referred to were the ongoing ones concerning delay claims, cost of additional work and contract schedule extension. As part of those negotiations Roger Cooke wrote to Mr Brent on 11 September detailing GEC Marconi's proposal to amend the ADCNET contract. These involved a schedule amendment of eleven weeks and an increase to the contract price by $195,000. In its reference to STUBS the proposal stated insofar as relevant:

"However, in fulfilment of our obligation under the Contract to take reasonable action to mitigate the effect of Customer delay, EASAMS proposes that a STUBS interface emulator be developed in order that ADCNET software development and testing as planned can continue without further impact to the schedule. This is not a requirement and is an increase in scope."

158 A meeting or meetings occurred between representatives of DFAT, BHP-IT and GEC Marconi on 13 and/or 14 September. Les Cook, Mr Brent, Roger Cooke and Mr Wishart were among those present. Roger Cooke's evidence, which I accept, was that the meeting had been scheduled to discuss various delay claims. At that meeting Les Cook announced that STUBS had been cancelled.
159 Though the evidence is unclear as to timing - there appears to have been a meeting as well on 15 September - Les Cook in this composite of meetings (i) briefly outlined DFAT's alternative strategy for boundary security based on the use of an encryption device (known as KIV-7) as the sealer and gateway; and (ii) indicated in relation to GEC Marconi's contract amendment proposal, that DFAT wished to include the STUBS replacement issue in the negotiations. The evidence in this paragraph is drawn from a memorandum of Roger Cooke of 15 September 1995, and from the witness statements of Roger Cooke and Les Cook. I merely note I do not accept as accurate Mr Brent's recollection of the meeting(s).
160 Mr Brent wrote to Les Cook on 15 September outlining BHP-IT's and GEC Marconi's proposals for a contract schedule extension and the price increase of $195,000. Mr Brent reiterated his views on contract schedule extension in a further letter of 25 September in which he indicated as well that BHP-IT had not received "any formal notification of the demise of the STUBS program" and that, though there had been considerable discussion regarding the proposed STUBS emulation software there had been "no formal agreement or agreed specification for the STUBS emulator".
161 At a meeting on 22 September 1995 between Les Cook and the GEC Marconi "team leaders" it was confirmed that, with only a "cut down" emulator now being envisaged, new Application Program Interface specifications ("the API") would need to be defined.
162 On 25 September Les Cook prepared a minute to be sent directly to Mr Harris of GEC Marconi outlining the design principles for the STUBS replacement. That document indicated that boundary security was to continue to be based on the concept of sealing and gateways. Mr Harris' evidence is that he received the minute on or about the date it bore.
163 Around this time Mr Wishart had engaged a software consultant, Peter Newton, to scope an emulator for STUBS. Mr Wishart recognised that with the abandonment of STUBS conformance with the STUBS SIS was no longer important. His Project Management Report of 26 September 1995 noted that it had been agreed that Mr Newton would prepare a specification for submission to DFAT outlining GEC Marconi's approach to emulation.
164 A document of great significance in this proceeding was sent by Les Cook to Mr Brent on 26 September 1995. An e-mail copy was received by Mr Wishart on the same day. The first four paragraphs were in the following terms.

"I confirm my informal advice to you of 15 September 1995 that AWADI will not continue with the development and supply of the STUBS security devices.
The Department informed the PSI on 25 July 1995 (ref PSIR3-207) that it would be unable to supply STUBS devices for Acceptance Testing. The letter recommended that the STUBS devices be emulated to enable development and testing to continue and proposed that a change request be raised to investigate the use of AWADI-developed software to perform the emulation. The PSI did not accept this approach and proposed instead that it develop the emulation software. DFAT agreed to this course of action and raised a change request on 6 September. To date, this change request has not been returned to the Department with a quotation.
There has been considerable discussion on the functional and contractual requirement for a comprehensive STUBS emulator. DFAT stated that the functional requirement was that the emulation meet all the requirements of the STUBS Software Interface Specification as previously supplied to the PSI. A cost of $40,000 has been stated for the emulator in several draft letters from the PSI. DFAT has indicated that it regards this figure as high but probably acceptable and understands that development work has commenced. The vehicle for formal agreement on the scope of work and cost must be the change request already raised by the Department.
Because the Department had previously informed the PSI that STUBS devices would not be provided for development and acceptance testing and had asked that emulation be considered, there was no urgent reason for it to provide formal advice that the STUBS program will not be continued until official advice has been received that this is correct. It is now important that a strategy to replace these devices be agreed by all parties, including the Department's security authorities and DSD. In order to avoid further schedule delays, the Department has agreed that an emulation of the STUBS devices should proceed in the interim to the extent necessary to complete the development and testing of ADCNET software which depends on the functioning of the interfaces to STUBS devices. To the extent practical, this emulation should be reduced from a full emulation of the STUBS interface to the minimum functions which will allow ADCNET software to be tested. DFAT is awaiting advice from the PSI as to the extent of such an emulation and whether this will be scoped in response to the original change request or whether that CR should be cancelled and replaced with another. The most recent development was that Mr Wishart and Mr Newton will examine the specification and advise.
Despite the lack of a formal response to the CR, the Department accepts that continued work on the emulator is a valid delay mitigation strategy. ..."


165 In relation to delay claims, the letter sought an agreement that was fair to both sides and stated that DFAT considered that "any such agreement must include a strategy for STUBS replacement". The cost of work necessary to examine strategies to replace STUBS were to be covered by one or more change requests.
166 On the same day Les Cook signed and sent CR 3052. It related to the feasibility of the STUBS replacement strategy. A quotation for undertaking the scope of work was requested. Attached to CR 3052 was a copy of the 25 September minute sent to Mr Harris. The change request was forwarded to GEC Marconi on 5 October and was responded to (in the form of a commentary on the paragraphs of the minute attached to CR3052) on 12 October 1995. I would note in passing that that response led to the raising in early November of a change request for the STUBS replacement (CR3057), a matter referred to later in this narrative.
167 To anticipate matters slightly, Mr Brent responded to Les Cook's 26 September letter on 4 October. His letter stated in part:

"Notwithstanding advice from the Department regarding unavailability of STUBS, work on STUBS emulation and related matters is in my view, outside the contracted scope of work. Consequently unequivocal agreement is necessary regarding the scope and impact of the variation to the contracted scope of work."

In relation to the delay and contract schedule extension proposals previously put to DFAT by BHP-IT and GEC Marconi in September of 1995 (referred to above), and which Les Cook's letter linked to "a strategy for STUBS replacement", the letter indicated that:


"My concern is that deliberation on STUBS replacement may be protracted and inconclusive since the issue involves matters of DFAT security policy and an external agency (DSD).
Accordingly, I believe that consideration of our proposal by the Department should not be predicated on work associated with the development of the STUBS replacement strategy. In this context the Department should be aware that our proposal for contract extension is also our claim for delay costs and schedule impact."

168 Les Cook's response of 12 October 1995 accepted that the work on emulation was outside the contracted scope of work. In reference to the subject of delay claims (another topic referred to by Brent), the letter commented:


"The Department remains willing to avoid a protracted examination of the details of each claim, provided that an overall position can be reached which both sides consider to be fair and which allows the project to move forward to a successful completion. Just as it was important to the PSI to include in this the effects of non-provision of STUBS, it is important to the Department that an agreement include the strategy for completion of the project in the absence of STUBS. Without a satisfactory resolution of this matter, the software will be of little value to DFAT. The Department has proposed such a strategy in some detail. It has also raised change requests to allow the PSI to examine the strategy and to estimate its cost and schedule effect. I trust that the PSI will move as quickly as possible to complete this work so that the overall negotiation on contract variations to allow the project to move to completion may be concluded."

169 Les Cook's evidence was that at the time he wrote this letter he believed the best outcome was to see the ADCNET project completed with a substitute for STUBS rather than with no STUBS and no substitute provided it was practicable and that this remained his view. In cross-examination he suggested that the observation that " the software will be of little value" was not accurate.
170 Mr Newton prepared a paper entitled "STUBS Emulation" on 3 October, the purpose of which was to enable Mr Wishart to consider whether the emulator Newton was proposing would meet Wishart's requirements. That paper was sent to Mr Brent on 9 October, the accompanying letter stating in part:

" STUBS Emulation
The attached paper describes the basic approach for developing a minimal STUBS emulator for ADCNET (as per CR3049). If you have any comments on this approach then please return them as soon as possible. Specifications for the APIs are being developed and will be made available as soon as possible."

In light of submissions made by GEC Marconi I would emphasise the references (i) to a "minimal STUBS emulator ... (as per CR3049)" and (ii) to "the APIs being made available as soon as possible". The foreshadowed APIs were forwarded to Les Cook on 16 October by Mr Brent along with a revised version of Mr Newton's draft paper.
171 On 11 October Mr Brent was provided with a DFAT letter containing Les Cook's comments on Mr Newton's original 3 October draft paper. By 30 October Newton had produced a further paper entitled "STUBS-E STUBS Emulation" which sought to address Mr Cook's comments and which further detailed the proposed emulator. To anticipate matters which will be narrated more fully below (i) Les Cook did not respond with comments on the Newton draft sent to him on 16 October until 13 November; (ii) Mr Newton's evidence is that he did not see Les Cook's 13 November comments and that he had finished developing the emulation software prior to that date.
172 To backtrack somewhat, on 5 October Mr Wishart signed the "ADCNET Release 3 Scoping and Costing Request Sheet" for CR 3049. The cost given for undertaking scoping of CR 3049 was $4617.82. Mr Brent in turn signed a like document for transmission to DFAT. The cost given in that document of $6,014 included BHP-IT's margin on GEC Marconi's quotation. Les Cook approved BHP-IT's quotation on 10 October. On 11 October by letter to Mr Wishart, Mr Brent in turn confirmed DFAT's approval of the initial quotation. He went on to request Mr Wishart to provide a detailed quotation for implementation of the work necessary to build the emulation software. In his oral evidence Mr Wishart accepted that the emulation was to be the cut down emulation the specifications for which were being prepared by Mr Newton.
173 On 16 October Mr Wishart sent a memo to Mr Breden (Commercial Manager, GEC Marconi) seeking his approval of the draft quotation of $18,389.86 he had prepared. The memorandum indicated insofar as is relevant that:

"DFAT has raised a change request (CR 3049) to cover implementation of the cut down emulator for STUBS. The focus of the emulator is now to allow development of the rest of the system to proceed with minimal delay. It is no longer required that the emulator be compliant with the STUBS Specification.
...


The costs shown below are to implement the emulator and cover our costs in rescheduling to minimize the impact of the late delivery of the STUBS devices (or replacement). ...
The software will not be developed with the process defined in the ADCNET Software Development Plan. It will [be] developed using rapid prototyping type methods with minimal external reviews, targetted at producing non-production software. The software is only to be used for development, integration and acceptance of the system under the contract. Warranty after acceptance will not apply since the software will not be used after the system has been accepted (this last point has not yet been proposed to the customer, it will be stated in the CR cost to complete)." Emphasis added

174 This quotation was revised on 18 October by Mr Wishart. The new price was $31,507.86 which included over $13,000 for re-work of the schedule. It was sent to Mr Breden for approval and was copied to Roger Cooke under cover of a facsimile which also included the earlier 16 October memorandum. That approval was given shortly thereafter.
175 On 23 October 1995, in a letter of contested importance in this proceeding, Mr Wishart sent Mr Brent GEC Marconi's quotation for CR 3049. Omitting formal parts, the letter stated:

" CR3049 (Cut-down Stubs Emulator)
The price shown for the attached Change Request (CR3049) are to implement the emulator and cover our costs in rescheduling to remove any impact of the late delivery of the STUBS devices (or replacement).
The software for CR3049 will not be developed with the process defined in the ADCNET Software Development Plan. It will be developed using rapid prototyping type methods with minimal external reviews, targeted at producing non-production software. The software is only to be used for development integration and acceptance of the system under the contract. Warranty after acceptance will not apply since the software will not be used after the system has been accepted.
In order to avoid an impact on the project of the delay to STUBS we will reschedule the work to put the STUBS related work later in the project. This involves examination of the CSC dependencies and a rescheduling of most of the CSC's. This allows the STUBS work to be done later and still maintain the project schedule. The cost for this work is shown under the Rework of Schedule item. This rescheduling removes the need for a delay claim associated with late delivery of the STUBS devices (or replacement)."

176 The minutes of a GEC Marconi Project Management Team meeting of 24 October recorded that Mr Wishart received a phone call from Kyrill Brent "today (ie 24 October) concerned that a delay claim for STUBS would not be lodged, since the STUBS emulator CR covered it. [Peter Wishart] to discuss with [Roger Cooke]."
177 On 25 October 1995 a further letter was written to Mr Brent by Mr Wishart enclosing GEC Marconi's quotation for CR 3049. Omitting formal parts, it stated:

" CR3049 (STUBS Emulation)
Attached is the cost to complete for CR3049. Please note that the late delivery of STUBS devices (or replacement) may be the subject of delay claims."

The reason for this letter and its relationship to that of 23 October are matters of real contention which are considered in detail below: "The 23 and 25 October letters".
178 CR 3049 was submitted by Mr Brent to DFAT for approval. The CR was attached as part of Contract Amendment No 23 ("CA23"). CA23 was signed by Les Cook on 26 October 1995 and later by Mr Brent on 1 November 1995. The form of the CA was as follows:
ADCNET Release 3 Contract NOT A CONTRACT VARIATION

DETAILS OF CONTRACT AMENDMENT PROPOSAL

SCOPE OF WORK TO BE UNDERTAKEN (use additional sheets if required):
Development of STUBS emulation software for the Department of Foreign Affairs and Trade.
Amendment Instructions
Release 3 Contract
There are no variations to the Release 3 Contract.

PRICING: This amendment has no impact on the firm price.
Firm Price: $40,029 which remains firm for 14 days from the date submitted.
Payment Plan: This amendment has no impact on the payment plan.
Schedule Impact/Comments (performance/architectural/PDR/CDR/etc):
The scope of work has an impact of 5 day impact to the Release 3 Schedule.

AUTHORISATION:
*Contractor: [K Brent] 1/11/95 ADCNET Project Director
for BHP Information Technology Pty Ltd
*Customer: [L Cook] 26/10/95 ADCNET Project Manager
for Department of Foreign Affairs & Trade
*Note: Signature by both parties constitutes an amendment to the Contract.


The internal contradictions in this document as to whether it varied the contract were a matter of submission.
179 On 1 November Mr Brent wrote to Mr Wishart indicating that DFAT had given approval for GEC Marconi to develop the STUBS emulation software and BHP-IT agreed the quotation for $31,507.06 to undertake the work. Mr Brent did not, though, prepare a formal Contract Amendment document for the Sub-Contract corresponding to CA23. He was not able to explain in evidence why he did not. I would note in passing that it is BHP-IT's submission, denied by GEC Marconi, that it is clear from the documentary evidence that by November 1995 all of the parties, including GEC Marconi, objectively intended and agreed:
(1) to remove the obligation upon BHP-IT and the Commonwealth to deliver STUBS and correspondingly to remove the obligation upon GEC Marconi and BHP-IT to integrate STUBS into ADCNET; and
(2) to use an emulator to be constructed by GEC Marconi in performing the contracts, and in carrying out acceptance testing, so as to allow completion of the contracts.
180 BHP-IT goes on to submit that the alleged contract variation to the Sub-Contract for which it contends was manifest in later actions of the parties after 1 November. Before turning to those actions it is convenient to refer to the evidence on the relationship of the 23 and 25 October letters.
(ii) The 23 and 25 October letters
181 My concern for the moment is not with the ultimate effect to be given the two letters as such. It is with the evidence concerning their relationship.
182 I have referred above to the contents of the two letters and to the minutes of the GEC Marconi Project Management team meeting which recorded a call from Mr Brent concerning delay claims for STUBS.
183 In their Witness Statements both Roger Cooke and Mr Wishart recount a conversation between them, said to have been initiated by Mr Cooke in which he indicated that the 23 October letter could be misinterpreted as it could be read to suggest that emulation would cure future delays. Mr Wishart in turn stated he would go to Kyrill Brent and recover the letter.
184 In his oral evidence Roger Cooke indicated that while his witness statement referred only to his objection to the issue of delay claims, he objected to the entire letter. He acknowledged that he was aware that one of the central issues in this proceeding was whether the emulation software was to be used for development, integration and acceptance of the ADCNET system but that nowhere in his statements did he record his objection to that part of Mr Wishart's 16 October memorandum to Mr Breden or to the 23 October letter which said the emulation software would be so used. He equally accepted that there was no contemporary GEC Marconi document that recorded such an objection.
185 Mr Wishart's oral evidence confirmed that of his Witness Statement that he saw Mr Brent and indicated he wanted it back. He said Mr Brent expressed surprise at the language of the letter. Mr Wishart did accept that it was possible the letter was not given back. From discovery in this proceeding it is clear that the original of the letter of 23 October as also that of 25 October remained with BHP-IT on its Change Request file. However a copy of only the latter letter was on BHP-IT's Correspondence file.
186 Mr Brent, while denying the occurrence of any meeting and conversation concerning the return of the letter, conceded he had no recollection whether or not the claimed meeting occurred.
187 Finally Mr Wishart accepted in oral evidence that the second paragraph of the 23 October letter concerning the use to be made of the software reflected what he thought was his understanding at the time and that this was that the emulator would allow completion of acceptance testing of the ADCNET Release 3 software. He had no recollection of what he was trying to convey in the third paragraph of that letter.
188 As I will indicate below, GEC Marconi's contention is that the 25 October letter superseded the 23 October letter so withdrawing any offer, or nullifying any representation made, in the earlier letter. BHP-IT and the Commonwealth contend that the purpose of the 25 October letter, having regard to the events giving rise to it, was to withdraw that part of the 23 October letter contained in its third paragraph that related to delay costs.
(iii) From November 1995
189 By 4 November 1995 DFAT had prepared in draft form a document entitled "KIV-7 Sealer/Gateway Interface Specification". On 8 November Les Cook sent CR3057 to Mr Brent. The accompanying letter stated in part:

" STUBS REPLACEMENT - CHANGE REQUEST
Attached is a change request which proposes a set of changes to the FRS which will allow the replacement of the STUBS sealer and gateway devices with an approach based on the KIV-7 encryption device.
Accompanying the change request form are the following documents which define the scope of the change request:
a. `STUBS Replacement - FRS Changes'; and
b. `KIV-7 Sealer/Gateway Interface Specification'
Please note that the latter document is a draft at this stage as development is continuing to prove that the interfaces to the KIV-7 behave as described ...
Also accompanying the change request are the following documents which are not a party of the change request but contain explanatory material which may assist the PSI in determining the extent of the proposed changes and the reasoning behind them:
a. `STUBS Replacement - Design Principles';
b. `STUBS Replacement - Encryption Device Performance';
c. `STUBS Replacement - Routing Principles and Examples'.
The first of these is is (sic) a reply to your letter KB-752 which was a critique of the original draft proposal."

The change request was forwarded to Mr Wishart seeking a quotation for undertaking the scope of work. That quotation ($79,482.85) was provided on 27 November together with an outline of the scope of work. That outline disclosed it was based on the following assumptions:

"i That the CR will be approved by end Feb 1996. ...
...

iii KIV-7 devices will be treated as CSI.
iv Hardware changes to the Test and Integration Facility (TIF) to install KIV-7 devices and make them operational in the agreed reconfigurations will not be the responsibility of EASAMS. Software configuration of the TIF (except KIV-7 devices) will be the responsibility of EASAMS." Emphasis added.

Approval for the scoping was given by Les Cook on 7 December 1995.
190 Returning to November, the issue of delay claims and contract schedule extension again became a subject of correspondence in early November. On 10 November Mr Brent wrote to Mr Sharp of GEC Marconi seeking his support and cooperation in progressing certain matters "to a successful conclusion". These were described as follows:
. our client the Department of Foreign Affairs and Trade has issued a detailed specification for changes to the ADCNET Functional Requirements Specification and subsequent development and implementation of an alternative to the STUBS device. This specification was referred to EASAMS for scoping under cover of change request 3057 dated 8 November, 1995;
. our formal proposal to the Department for contract amendment and schedule extension included the development of a STUBS emulator but did not include the development of a STUBS alternative: Thus CR3057 constitutes an additional scope of work;
. the Department has indicated that in order to give our proposal for contract amendment favourable consideration a priced quotation for the implementation of CR3057 is required. This task needs to be completed quickly to facilitate the passage of our proposal and the establishment of a new contract baseline;
. in order to substantiate our proposal for contract amendment and schedule extension BHP IT and the Department require a revised schedule to be submitted for detailed analysis and ratification. ...
I am concerned that some of these matters have been outstanding for some time without resolution. In my view we have an excellent opportunity to "reset" the project baseline. I would not wish to see this opportunity forgone."
191 To again anticipate matters, discussions took place between Mr Brent and Les Cook concerning delays occasioned by STUBS and otherwise. On 1 December Mr Brent wrote to Les Cook proposing extensions to the Contract Acceptance Date for (inter alia) the Canberra System. Les Cook replied on 5 December. The letter stated:

" PROJECT DELAYS
The Department is not prepared to agree to an extension of the project schedule outside the contract mechanisms of change requests and claims for excusable delay, except in the case of a comprehensive agreement including the settling of all outstanding diarised incidents and the change requests relating to STUBS replacement, Xerox batch printers and the use of Applixware version 3.2 for HP/UX BLS.
As you have noted, there is a possibility that the contracted date for delivery of the Canberra software, after adjustment for currently approved change requests, will be reached before agreement is achieved. This would mean that the PSI had technically defaulted in the terms of the contract and that liquidated damages would commence. I note that the PSI is probably already in default of the contract, having failed to meet the contracted date for milestone 4000 even if the most generous view of possible claims for excusable delay is taken.
We believe that, provided that scoping of the referenced change requests is performed promptly, it should be possible to reach agreement before liquidated damages become payable. If it becomes likely that this will not be achieved, the Department will consider individual claims for excusable delay where these have been diarised and are reasonable within the requirements of the contract.
It is not the Department's intention to require liquidated damages to be paid if a comprehensive agreement on changes to the contract schedule is close to achievement. The Department is prepared to accept that a comprehensive agreement will nullify any liability for liquidated damages which would, under the terms of the existing contract, become due before the date of the agreement, provided that this occurs before 1 March 1996. If no agreement has been reached by 1 March 1996, the contract will be unchanged and liquidated damages will be payable from the contracted dates of milestones 5000 and 6000, modified by approved change requests and agreed delay claims."

192 Again to return to November, on 13 November Les Cook responded to a BHP-IT letter of 16 October which enclosed a copy for comment of Mr Newton's revised interface specifications for the STUBS emulator. This response post-dated the agreement on CR3049. Nonetheless Les Cook commented that the proposed interface design was sound in concept but had been simplified to the point at which some required functions could not be tested. These included five matters to which he referred specifically. The response went on to indicate:

"Although it has been agreed that it is no longer necessary to emulate STUBS-specific actions such as particular audit messages, it is important that all functionality included in the ADCNET software can be tested. It was for this reason that DFAT agreed to the cost of the emulation change request, which was greater than had been proposed by the PSI for a full scale emulation of the STUBS software interface specification."

193 The letter was forwarded to Peter Wishart for comment. In his oral evidence he accepted that it was apparent from Mr Cook's letter that what was wanted was an emulator that would enable completion of the ADCNET contract. In his reply of 22 November 1995 Mr Wishart commented that:

"The cutdown STUBS emulator was intended to provide a mechanism to exercise all paths through the IPD code which could be affected by the STUBS device. While this is being done mostly in the STUBS emulator, some components are more effectively implemented by changes directly to the IPD code."

He then replied specifically to the individual matters raised by Les Cook, and concluded: "I believe that this addresses all the issues raised in the correspondence": emphasis added. In cross-examination directed at the first of the above-quoted sentences Mr Wishart accepted that the "exercising" process for which the emulator was to be used would permit the Release 3 software to be "ultimately acceptance tested".
194 I earlier indicated that Mr Newton's evidence is that he did not see the 13 November comments of Les Cook. He likewise did not see, or speak to Mr Wishart about, the contents of 22 November reply. He nonetheless indicated in evidence that Mr Wishart's replies could have been based on the Newton paper of 30 October and that those replies did not seem to require any additional knowledge or discussion.
195 I would also note in passing that BHP-IT and the Commonwealth contend, but GEC Marconi denies, that the above Cook-Wishart correspondence provides written confirmation of the Emulation Variation Agreement.
196 In December 1995 and January 1996 first the Commonwealth and then GEC Marconi agreed a contract amendment to the Head Contract (CA45) and to the Sub-Contract (CA30). The amendment incorporated changes to Schedule 8 of the two Contracts to reflect an extension of time to complete the work approved in twenty-eight change requests one of which was CR3049.
197 In GEC Marconi's risk analysis report of 14 December 1995 the following was recorded:

"Ref: 13
Title: STUBS Availability date and numbers
Description: The earliest available date for the STUBS device and the number of devices available on that date may present some problems for the development and testing efforts.
RAP Details: STUBS devices will not be available in time. DFAT proposing use of a STUBS emulator to be constructed by the PSI and used for acceptance. STUBS devices is (sic) not being used on ADCNET.
Status: CLOSED."

198 As indicated in PART I, "The ADCNET Contracts", the Architecture Design Document ("the ADD") described the architecture of Release 3 of the ADCNET system. It identified the hardware and software components of the system and described how they were to be configured to meet the requirements of the FRS. The ADD was prepared by GEC Marconi and was deliverable under the Sub-Contract. Along with the FRS, the ADD was one of the designated "Customer's Functional Specifications" in Schedule 1 of the Sub-Contract. One of GEC Marconi's contractual obligations was to update the ADD to incorporate approved contract amendments to the Sub-Contract: Schedule 7, cl 2.2, WP2100.
199 Mr Harris, as GEC Marconi's Systems Engineering Manager, was responsible for updating the ADD. Consequent upon the abandonment of the STUBS devices, Mr Harris made a number of amendments to the ADD in November 1995 which were forwarded to Mr Brent in CR3060 on 28 November. The accompanying letter he wrote stated, in part, that:

"The Attached CR is for changes to the Architecture Design Document. It has been updated to include the current definition of logical servers and mapping of these to CSC's. It has reference to STUBS KDC devices, Sealer Workstations etc. removed or replaced by STUBS emulation software."

Paragraph 1.2 ("System Overview") in its unamended form provided, insofar as relevant, that:

"Additional security specific software will provided (sic) as per COTS Software. This functionality will include:
. STUBS sealer and Gateway (Hardware and Software)."

Mr Harris' proposed amendment read:

"Additional emulation of security specific software will provided (sic) to emulate COTS Software. This functionality will include:
. STUBS sealer emulation and STUBS Gateway emulation (Hardware and Software)."

Some number of other STUBS related amendments was also made to the ADD though some references to STUBS devices remained, as also did a reference to "trusted import/export gateway".
200 CR3060 was approved in turn by BHP-IT and by Les Cook and resulted in Contract Amendment 31 (CA31) to the Sub-Contract (signed 19 December 1995) and CA42 to the Head Contract. The relevant contract amendment instructions in each case were:

"Architecture Design Document
Replace the amended pages of the Architecture Design Document (ADD), Version 2.0 with the new pages. When completed, the Architecture Design Document becomes Version 2.1.
Release 3 Contract
The Contract should be amended to refer to the Architecture Design Document as Version 2.1 (Schedule 1 in the Contract)."

201 Schedule 9 of the Sub-Contract specified the criteria to be used to develop an Acceptance Test Plan ("the ATP"). The ATP was to be used to show that the Developed Software complied with the "testable shalls" of the FRS. It was again Mr Harris who was responsible for developing and maintaining the ATP.
202 On 9 November 1995 Les Cook wrote to Mr Brent indicating that a current contract amendment proposal was by then out of date given "recent decisions to [inter alia] replace STUBS". That contract amendment related to the ATP. Mr Cook now proposed changes which included:

"b) delete references to Stubs devices, Stubs workstations and Stubs software from the CSI List in Appendix C.
c) add references to Stubs emulation software where appropriate."

The letter concluded with the observation that "[o]nce agreement on the STUBS replacement has been reached, further changes to the ATP will be necessary".
203 Mr Cook's letter was forwarded by Mr Brent to Mr Wishart on 13 November under the heading CR3015. Mr Harris responded to Mr Brent that the changes to the ATP had been made as requested. The documentation was then sent to Les Cook for approval. By this time, though, Les Cook was proposing that the contract amendment be delayed to reflect change to the ATP which would be necessary following the approval of contract amendments for (amongst others) "the replacement of Stubs": letter to Mr Brent of 30 November 1995. He nonetheless proposed the making of further amendments to the ATP.
204 On 18 December Mr Cook's letter was forwarded to Mr Wishart by Mr Brent, who asked that Mr Cook's requested amendments to the ATP be made. Mr Wishart made a notation on that letter which he copied to Mr Harris which included:

"I do not want to wait for the other issues to be resolved before accepting this CR. I propose to flag delays to TRR until this is resolved."

205 The amended ATP was sent to Mr Brent on 7 February 1996 under cover of a letter from Mr Goldsmith who had replaced Mr Wishart as GEC Marconi's project manager. The letter, insofar as presently relevant, stated that the changes incorporated into the new version of the ATP included:

"Removed STUBS Sealers, STUBS Devices, KDC workstations, STUBS Audit workstations and STUBS conversion. STUBS Gateway workstations remain. STUBS conversion software changed to STUBS emulation software."

It went on to reject as "not practical" Les Cook's proposal to delay the contract amendment until the details of (inter alia) the STUBS replacement CR was finalised.
206 It was Mr Harris' evidence in his Witness Statement that though he made the amendments to the ATP it was not his understanding then that the emulation software proposed would enable Formal Qualification Testing ("FQT") without the FRS being amended.
207 The amended ATP was approved by the Commonwealth on 6 March 1996 subject to two minor amendments for which its further approval was not needed. Mr Brent forwarded CR3015 to Mr Goldsmith for signature on 8 March 1996. This was never signed by GEC Marconi.
208 On 23 February GEC Marconi intimated to BHP-IT for the first time that the inability of DFAT to supply STUBS might constitute a default on the part of DFAT and BHP-IT. This view was reiterated at a tri-partite meeting of the parties on 29 February 1996.
209 The first notice of default was served on 3 April.
210 There is an additional piece of evidence to which reference should be made. It relates to KIV-7 and I wish briefly to refer to certain of the oral evidence that touched upon it. Mr Wishart in cross-examination did not agree with the proposition that the agreement entered into in relation to CR3049 was to enable the ADCNET contracts to be completed within a reasonable time. He described his own state of mind on the matter to be:

"I believe that the STUBS cutdown emulator agreement was dependent upon reaching agreement on the alternative STUBS strategy. So in my view in agreeing to the STUBS emulator I was aware that we had to have a replacement for STUBS strategy and that there was a CR forthcoming in that area."

Les Cook's evidence in cross-examination was that, when STUBS was known to be unavailable, the best option DFAT had was KIV-7 though it required further investigation.
(b) Relevant Sub-Contract Provisions
211 In the description of "The ADCNET Contracts" in Part I of these reasons I referred to those provisions of the Sub-Contract and the related contractual documentation that have some bearing on the question whether the alleged Emulation Variation Agreement was entered into by BHP-IT and GEC Marconi. Those provisions are (i) cl 45 of the Sub-Contract which required any variation to be in writing; (ii) cl 11 that stipulated the procedure to be followed in effecting a variation; (iii) cl 1.2 of Schedule 6 to the Sub-Contract which envisaged the possibility of change to CSI to be provided by BHP-IT (including the STUBS devices) as a result of revision of the ADD; and (iv) cl 2.2 of Schedule 7 which included within GEC Marconi's project management function the development of test harnesses for CSCI and acceptance testing. Additionally cl 2.2.4.1 of Schedule 9 required that a test harness be used for Interface Acceptance Testing where operational equipment was not available. For present purposes I need only indicate that a "test harness" is a type of emulation usually taking the form of emulation software.
212 Both the relevance and the proper interpretation or effect of the above provisions are contested by the parties. These are matters considered below in "Applicable Principles" and in "Submissions and Conclusions".
(c) Applicable Principles
(i) Was writing a prerequisite?
213 Clause 45 of the Sub-Contract required any contractual variation to be in writing. BHP-IT's primary case is that the Emulation Variation Agreement was in writing. It claims in the alternative, though, that cl 45 does not preclude the making of an oral or implied contract, or else, if the requirements of cl 45 were required to be but were not satisfied, the parties by their conduct clearly intended to waive formal requirements. GEC Marconi's contention is that, as the variation was not in writing, the alleged variation was ineffective. Compliance with cl 45 was mandatory. As to the alleged waiver, it is contended, that it was not open to BHP-IT to make this submission as it did not plead waiver of cl 45.
214 The pleading point apart, the submissions raise the question whether the legal effect of cl 45 was to render ineffective any subsequent implied or oral contract the purport or effect of which was to vary the Sub-Contract?
215 That question must, in my view, be answered in the negative for reasons of principle and of authority.
216 (1) While there is a voluminous case law concerned with the consequences that can flow from non-compliance with formal requirements imposed by statute, as for example the Statute of Frauds and its offsprings: see Phillips v Ellison Brothers Pty Ltd [1941] HCA 35; (1941) 65 CLR 221 at 243-244; Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93 at 112-113, 122-124; Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1986) 162 CLR 221; Trimis v Mina [1999] NSWCA 140; it has no bearing on the present question which involves the legal effect to be given to self-imposed, not externally imposed (ie imposed by law), formal requirements. Further, the consequences of non-compliance with statutory requirements fall to be determined under the shadow of the legislative purpose of the particular statutes in which they may be found: cf Chitty on Contracts, vol 1, para 4-003 (28th ed).
217 (2) The principal cases in this country dealing with non-compliance with contractually imposed written modification clauses are those dealing with claims to be paid for extra work or services rendered under contracts which require written orders or written agreements for such works or services: Liebe v Molloy [1906] HCA 67; (1906) 4 CLR 347; see generally, Halsbury's Laws of Australia, vol 3(2), 65-1145. The conclusions to be drawn from the cases in this category are that (i) notwithstanding the writing requirement, it is open to the parties by express oral agreement or by contract implied from conduct to impose further or different rights and obligations on each other from those contained in the original contract: Liebe v Molloy, above at 353-355; Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd (1981) 36 ALR 567 at 576ff; or (ii) that one party may so induce or encourage the other's assumption on which it relies that the relevant formal requirements need not be complied with, as to be estopped from later setting up those requirements: Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251. The relevant principle, for present purposes, was stated concisely by Ellicott J in the Crothall Hospital case in the following terms (at 576):

"It is open to the parties to a written contract to vary it. This may be done in writing or, except where the contract is required by law to be evidenced in writing, by oral agreement. The agreement to vary may be express or implied from conduct." Emphasis added.


The common, often fatal, difficulty experienced by a party in seeking to make out a contract to vary has been the evidentiary one of proof of the contract itself: see Liebe v Malloy, above; Trimis v Mina, above at [64].
218 (3) For an alleged subsequent variation to be contractually effective notwithstanding non-compliance with the written modification requirement, it must itself otherwise satisfy the requirements of a valid contract, ie "the terms of the arrangement must be certain, and ... there must generally be real consideration for the agreement": Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 187 ALR 92 at 99; and see below, "Formation of a contract of variation".
219 (4) Internationally, the law varies widely as to the efficacy of what are commonly described as "no oral modification" clauses (a description I will use hereafter). The common law rule in the United States has traditionally denied effect to such clauses: eg Bartlett v Stanchfield 19 NE 549 (1889); Farnsworth, Contracts, §7.6 (3rd ed). As Cardozo J observed in Beatty v Guggenheim Exploration Co 122 NE 378 (1919): "Whenever two men contract, no limitation self-imposed can destroy their power to contract again". Article 2-209(2) of the Uniform Commercial Code, in contrast, gives mandatory effect to a writing requirement for modification: see White and Summers, Uniform Commercial Code, vol 1, §1-6 (4th ed, 2000 reprint); see also Unidroit, Principles of International Commercial Contracts, Art 2.18. In the European Union, there are countries that give only evidential value to a no oral modification clause, while in others such clauses are enforced: see Lando and Beale, Principles of European Contract Law, Art 2:106, where the respective positions in the countries of the European Union are described.
220 (5) The usual objection raised to depriving a no oral modification clause of legal effect is that it involves a failure to give effect to what the parties have agreed. In the present case GEC Marconi has raised just this objection. The vice in it, though, is that a later oral or implied contract is itself an agreement. As a US commentator recently observed (Snyder, "The Law of Contract and the Concept of Change: Public and Private Attempts to Regulate Modification, Waiver and Estoppel" (1999) Wis L Rev 607 at 640):

"The question for the court is not whether to honour the parties' original agreement, but rather which of their agreements should be effective. To say that contract law should enforce the parties' agreement, therefore, does not resolve the issue. The question is whether to enforce the first agreement or the second.
The common-law courts addressing [no oral modification] issues chose the second. This choice makes a fair amount of sense; the later agreement probably reflects what the parties want better than their earlier agreement does."


I would add that the opinion expressed in the second quoted paragraph is particularly appropriate to relational contracts which, as in the present instance, may be evolutionary in character.
221 (6) Though lacking legal effect in the face of a subsequent oral or implied agreement, it seems to be accepted that a no oral modification clause can have significant evidentiary effect. As Holmes J commented in Bartlett v Stanchfield, above: "The [clause] is a fact to be taken into account in interpreting the subsequent conduct of the plaintiff and defendant"; see also Principles of European Contract Law, above, Art 2:106.
222 (7) As a practical matter, the lack of legal efficacy of a no oral modification clause may be attributable as much to the law of estoppel as it is to the apparent policy of the law to favour a later agreement over an earlier one: cf Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd, above, 275ff; see also W J Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189 at 213. As Farnsworth observes: "In most cases [in the US] holding such clauses ineffective ... the party that seeks to escape the effect of the no oral modification clause has relied upon the oral modification": Contracts, 450 (3rd ed).
223 I have not here made reference to the various submissions advanced by the parties concerning the legal effect which ought be given cl 45.1 of the Sub-Contract. I mean no disrespect in so doing. While there may be interesting questions yet to be resolved in applying the relevant principles to claims for extra works/variations under building contracts containing writing requirements for such works: see eg the judgment of Mason P in Trimis v Mina, above, at [55]ff; the principles themselves are not, in my view, open to serious question - the more so in a court of first instance: see Liebe v Malloy, above; the Crothall Hospital case, above.
(ii) Formation of a contract of variation
224 By way of prefatory comment I use the term "relational contract" in what follows and in these reasons generally as signifying no more than that it is "a contract that involves not merely an exchange, but also a relationship, between the contracting parties": Eisenberg, "Relational Contracts", in Beatson and Friedman, Good Faith and Fault in Contract Law, 296 (1995). Likewise, I should not be taken as suggesting that special rules apply to such contracts though I will indicate, as is well accepted, that particular rules of contract law have greater or less ease of application in relational contract settings. However, I would suggest that account should be taken of such contracts as we shape and develop contract law: see eg Goldwasser and Ciro, "Standards of Behaviour in Commercial Contracting" (2002) 30 Aust Bus Law Rev 369.
225 There has been a number of recent instances in which courts in this country have given extended attention to the principles governing contract formation: see eg Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153; John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43. The parties, reasonably, have not suggested that a like exposition is again necessary in this instance. For present purposes I would merely note the following propositions which are relevant to issues raised in this proceeding.
226 (1) Parties to an existing agreement may vary or extinguish some of its terms by a subsequent agreement: Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd, above. In so doing the parties will have made "two contracts": Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 172 ALR 346 at 350; with the latter, no less than the former being subject to the ordinary rules governing contract formation: eg BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266 at 286; Tekmat Pty Ltd v Dosto Pty Ltd (1990) 102 FLR 240 at 248.
227 (2) Conduct engaged in for the purposes of ongoing commercial arrangements is not always readily susceptible to the traditional forms of analysis employed by common lawyers for the purposes of determining whether a contract has been formed: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117. This can be particularly the case when dealings are analysed on an offer and acceptance basis. So in Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 81, Ormiston J was prepared to accept:

"that agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances."

Likewise in Integrated Computer Services Pty Ltd, above, at 11,118 McHugh JA observed that:

"in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed."

228 (3) "In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances": Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255.
See also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550.
229 (4) Post-contractual conduct is admissible on the question whether a contract was formed though it is not admissible on the question of what that contract, if formed, means: Brambles Holdings Ltd v Bathurst City Council, above, at 163-164; Lord Steyn, "The Intractable Problem of The Interpretation of Legal Texts", 9ff, The John Lehane Memorial Lecture (2002).
230 (5) The need frequently arises in relational contracts of significant duration to adjust terms to accommodate changed or unforeseen circumstances. For that reason it is common for such contracts to make express provision for variation. Nonetheless, and notwithstanding their contract, parties in an ongoing business relationship equally commonly "regulate their relationships in accordance with what they consider is fair and reasonable or commercially necessary at particular points in time rather than by reference to a priori rights and duties arising under a contract": Integrated Computer Services Pty Ltd, above, at 11,117.
231 (6) There are two discrete classes of case where, notwithstanding that the agreement of the parties does not finally settle what is intended to be the totality of their anticipated rights and obligations inter se, that agreement nonetheless can constitute a valid, effectual and binding contract. The first class of case, now well accepted: see John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd, above; is where the parties are content to be bound immediately and exclusively by the terms they have so far agreed upon while expecting to negotiate additional terms that will be embodied in a further contract that will be in substitution for the first contract: Sinclair, Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310; Graham Evans Pty Ltd v Stencraft Pty Ltd [1999] FCA 1670, Full Court of the Federal Court of Australia. The second class of case is where, for the purposes of bringing about what is anticipated will or may be their ultimate legal relationship, the parties separately contract for discrete steps or stages leading to that anticipated relationship. Common examples are a process contract followed by a substantive contract: eg Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151; or contracts dealing with discrete periods or discrete subject matters of the anticipated relationship: cf South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 at 700-701. What differentiates this class of case from that earlier mentioned is that a later contract is not intended to be in substitution for the first contract. Rather it is an additional and different contract.
232 As will be seen, both of the above classes of case are relevant in this matter.
233 I will in my "Findings and Conclusions" refer to one distinct matter of legal principle that has not been the subject of detailed submissions, though it arises out of an assertion made by GEC Marconi. This relates to how inconsistencies between the content of an original agreement and that of a later variation agreement are to be resolved, the inconsistencies being created by the variation agreement.
Submissions
234 The following is intended only as a broad outline of the respective conclusions each of the parties invites me to reach as to the existence and scope of the alleged Emulation Variation Agreement. In the following section ("Findings and Conclusion"), I refer to more detailed aspects of the quite voluminous written and oral submissions made by the parties on the Emulation Variation Agreement.
235 The parties' submissions reflect the temporal division (pre- and post- 1 November 1995) made in the factual narrative above. I imply no criticism in saying that while this allows for a more ordered consideration of a volume of material, it somewhat artificially contrives the framework for judging the consequences to be attributed to communications and conduct engaged in by the parties in what was clearly a continually evolving relationship that was confronting changing circumstances for which complex responses were necessary. I will comment further on this matter in my "Findings and Conclusions" which, for the same reasons of convenience, adopts the temporal division in the parties' submissions to which I have referred.
236 BHP-IT's case can be put shortly. In its primary form it is that BHP-IT's acceptance on 1 November of GEC Marconi's offer to undertake CR3049 gave rise to the Emulation Variation Agreement. The scope of that agreement was to be discerned from anterior correspondence (or anterior correspondence and conduct). The agreement removed both BHP-IT's obligation to provide STUBS as CSI and GEC-Marconi's obligation to integrate it with the ADCNET software. It substituted for those obligations an agreement that the Sub-Contract was to be completed using emulation software for acceptance testing. The agreement to emulate necessarily carried with it an agreement to amend all subsidiary documents such as the FRS so as to enable emulation to be used effectively up to and including acceptance testing. Subsequent contract variations such as that flowing from CR3060 evidence the carrying into effect of the Emulation Variation Agreement.
237 BHP-IT contends that, while no formal contract amendment document was executed by the parties, it nonetheless is contained in the correspondence and associated documents that passed between the parties from the 25 July 1995 letter onwards. That documentation was sufficient to satisfy the writing requirement of cl 45.1 of the Sub-Contract. In any event, it is said, cl 45.1 was ineffective to defeat the Emulation Variation Agreement if it did not satisfy cl 45.1 as it was a later valid and binding contract. It was also contended that GEC Marconi waived its right to insist on cl 45.1 (a matter considered under the heading "Waiver" below).
238 The secondary submission advanced by BHP-IT was that the Emulation Variation Agreement (having similar terms to that advanced in the primary submission) was agreed or confirmed in January 1996 as a result of change requests and/or contract amendments made in December 1995 and January 1996 (ie CA30, CR3060 and CR3015 and its associated documentation).
239 Before noting GEC Marconi's response to BHP-IT it is convenient to note as well the Commonwealth's submissions on this matter. The Commonwealth's interest in BHP-IT's defence of the GEC Marconi claim is twofold. First, BHP-IT in its Further Amended Cross-claim against the Commonwealth seeks an indemnity and/or damages in respect of any liability BHP-IT may bear to GEC Marconi. Secondly, given the notices of breach served by BHP-IT on the Commonwealth are substantially identical to those served by GEC Marconi on BHP-IT, to the extent that BHP-IT is able successfully to resist the claims made against it by GEC Marconi for breach of the Sub-Contract, so also should the Commonwealth be able to resist the claims made by BHP-IT under the Head Contract.
240 Because their respective interests in defending the claim by GEC Marconi are common, the Commonwealth has in the main been content to adopt BHP-IT's submissions albeit with some elaboration on occasion. Save for Mr Wishart's letter to Mr Brent of 23 October 1995, all of the relevant documentation relied upon by BHP-IT to establish the variation agreement either originated with, or was passed to, the Commonwealth.
241 There are several additional Commonwealth submissions that require notice. First, it is claimed that under Schedule 6 of the Head Contract and of the Sub-Contract, the CSI (including STUBS) could be changed in the manner envisaged in that Schedule (ie by revising the Preliminary ADD). Such a change was made as a result of CR3060 which removed references in the ADD to STUBS devices etc and replaced these with references to STUBS emulation software.
242 Secondly, the Commonwealth emphasises that the possible need to emulate for acceptance testing had been raised at the very inception of the two contracts. Likewise, the issue of whether STUBS would be available at all was known by BHP-IT and GEC Marconi from at least February 1995.
243 Thirdly, it was contended that the basis upon which the parties contracted in entering into the respective Emulation Variation Agreements was that the Head and Sub-Contracts would be completed using the emulator but that at the same time they would explore the feasibility of a replacement for STUBS.
244 Fourthly, to the extent that it is said by GEC Marconi that it was technically impossible to complete the contract using the emulator (unless the FRS was amended to remove those "testable shalls" that presupposed STUBS had been supplied), neither the Commonwealth nor BHP-IT could insist on requirements that could not be demonstrated using the emulator once they had required the contract to be completed with the emulator.
245 GEC Marconi's response to BHP-IT's defence is two tiered. The first focuses upon the writing formalities and variation procedures ordained by cl 45.1 and cl 11 of the Sub-Contract. The second's concern is with whether there was an Emulation Variation Agreement.
246 As to the ordained contractual formalities, it is contended that (i) the writing requirements of cl 45.1 were mandatory but were not complied with; (ii) before the Sub-Contract could be varied otherwise than in accordance with cl 45.1 that clause itself had to be varied to permit such variation, but such did not occur in the instant case; (iii) even if the writing requirement was not mandatory, the Court, nonetheless, should be slow to infer that the parties intended a contractual amendment in circumstances where the requirements of cl 45 and cl 11 were not adhered to but had previously been adhered to regularly when amendments were intended.
247 As to the alleged Emulation Variation Agreement, GEC Marconi accepts that a contractual relationship was created as a result of BHP-IT's acceptance of GEC Marconi's offer to undertake CR3049 but that the resultant contract was not at all as BHP-IT suggests. It is acknowledged that the terms of that contract were not to be found simply in what was stipulated in the 24 August letter which was annexed to CR3049 as that was varied by conduct (and in particular in correspondence) up to 1 November. But it is contended that what was agreed was neither that emulation was to replace the obligation to supply STUBS so as to allow completion of the Sub-Contract, nor that the emulator was to be used for acceptance testing. The purpose of CR3049 as agreed after it was announced that STUBS was cancelled was to enable the development of the ADCNET software to continue. An emulator was necessary for that purpose as the ADCNET software was designed with an interface to STUBS and it was not then known with what it would eventually interface. From the time of STUBS' cancellation alongside emulation discussions there were discussions for the replacement of STUBS with KIV-7 being contemplated for this purpose. Those discussions made it improbable that the parties had agreed to delete the obligation to provide STUBS and to complete the Sub-Contract using the emulator. It is GEC Marconi's contention that no change to the parties' contractual rights was intended unless and until agreement was reached on a replacement.
248 Distinctly, GEC Marconi submits that the agreement propounded by BHP-IT was so inherently uncertain as to be incomplete and unenforceable. It did not identify what were the consequential changes that needed to be made to the FRS, the ADD and other contract-mandated documentation. Nor did it provide an agreed mechanism for working out those changes.
249 The events which occurred after 1 November, it is said, are of no assistance in the matter either because they are post-contractual and cannot be used to determine what were the terms of the antecedent contract, or because they do not confirm or carry forward contractually the alleged Emulation Variation Agreement.
(d) Findings and Conclusions
250 It is common ground between the parties that a contract was formed on BHP-IT's acceptance of GEC Marconi's offer to undertake CR3049. What is in issue is the content of the contractual commitments then made. To anticipate what follows, my own view is that what was agreed was no less than the Emulation Variation Agreement propounded by BHP-IT. The terms of that contract were not to be found in a simple documentary exchange of an offer and an acceptance. Rather they were to be discerned from communications made and actions taken, leading to BHP-IT's acceptance of the CR3049 offer. I do not consider that, in their setting, those communications and actions admit of any other conclusion than what was agreed was the Emulation Variation Agreement.
251 In reaching my conclusion I have relied little on the evidence of witnesses called (save for Mr Wishart), unless that evidence is supported by contemporaneous documentary evidence. I regard the uncorroborated evidence of Mr Brent and Roger Cooke in particular as being generally unreliable though for different reasons. I have made little reference to it in these reasons. I later indicate my reasons for treating Mr Brent's evidence as I do. Here I would merely note that so imperfect is his recollection and so obvious is his reconstruction that it would be unsafe in most instances to accept his evidence unless supported by contemporary documentation. I do not rely upon Mr Cooke's evidence for a different reason. I am unable to resist the conclusion that, while there was much in the detail of his evidence that was helpful, he was clearly strategically partisan in the evidence he gave. This was most apparent in his embellishment of, or qualification of, contemporary documentation whether composed by himself or others.
252 Before turning to the documentary evidence, it is necessary to reiterate that this is one of those cases in which the ongoing working relationship of the parties is a factor of no little importance for the light it sheds upon the communications made and actions taken in the period of immediate concern: cf Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd, above, at 9255; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd, above, at 11,118. That relationship provides the context in which documentary exchanges are to be interpreted. They cannot properly be divorced from it.
253 By way of general background to what, somewhat inaccurately, I will call the "CR3049 contract", I would note three matters. First, not only did the Head Contract and Sub-Contract contemplate the possible need for test harnesses for CSCI and acceptance testing: see eg Schedule 7, WP4500; but also it was actually envisaged from early in the life of the ADCNET contracts that emulation of the STUBS devices could be necessary (inter alia) to minimise the effects of possible delays in the provision of STUBS related items. Secondly, notwithstanding the formal obligation under the contracts to supply STUBS, it was appreciated both by BHP-IT and by GEC Marconi from at least 20 February 1995 that there was some possibility that STUBS might never be available. Thirdly, by the time active consideration was being given to the emulation of STUBS for acceptance testing purposes, the Commonwealth (hence BHP-IT) had twice been in contractual default in relation to the delivery of STUBS items and, in relation to the provision of the STUBS untrusted software, remained in default.
254 The communications between BHP-IT and GEC Marconi that had direct bearing on the content of the CR3049 contract began, for practical purposes with Peter Wishart's response of 3 August to Mr Brent's letter of 20 July 1995, in which he confirmed GEC Marconi's capability to design and develop test harnesses to emulate STUBS. The premise of that communication was - and I so find - that the emulation envisaged was for the purposes of acceptance testing.
255 The Commonwealth's letter of 25 July foreshadowing what later became CR3049 was forwarded by BHP-IT to GEC Marconi on 4 August. It is common ground in this proceeding (a) that the letter contemplated acceptance testing with an emulator, but (b) the formal obligation to provide the STUBS devices remained. As to the latter, DFAT's letter of 10 August that was forwarded to GEC Marconi on 11 August, while reiterating that the emulation proposed would be for acceptance testing, referred directly to circumstances in which GEC Marconi could incur liability under the contractual warranty when "STUBS [was] implemented".
256 Pausing at this point, and disregarding Roger Cooke's evidence to the contrary which I reject, the only reasonable understanding the parties could then have entertained of what was being proposed was that emulation was to be used for acceptance testing under the Head Contract and Sub-Contract, notwithstanding the continuing obligation to provide STUBS. It is in consequence unsurprising that, in the context of the negotiations over contract extensions and delay claims, GEC Marconi incorporated in its own proposals to BHP-IT that it "implement a STUBS harness suitable for development and acceptance of R3".
257 The proper interpretation to be given Les Cook's letter of 24 August (which was incorporated by reference into CR3049) has been a significant issue in this proceeding. The stimulus to this letter is revealed in its heading and opening two sentences. These state:

" EFFECTS OF HAVING TO EMULATE STUBS DEVICES
There have been suggestions that the need to emulate the STUBS devices will result in significant delays to the development schedule. The Department does not accept that such delays are beyond the control of the PSI."

The letter went on to identify what in Mr Cook's view were the software modules the testing of which could have effects on the schedule (ie those modules which interfaced to the STUBS devices or other software which depended on those modules). The letter indicated that integration testing of such software was not scheduled to be performed before STUBS emulation could be made available and that effects on testing at CSC level of such software could be minimised by developing the emulation in two parts (which it then went on to outline).
258 GEC Marconi has submitted that this letter departed from what was envisaged by the 25 July letter in that it only contemplated the use of the emulator for CSU testing, CSC testing and integration testing. In its submissions the Commonwealth quite properly asked rhetorically: "What had changed in the intervening fortnight [from the 10 August letter]?"
259 I cannot accept GEC Marconi's submission. The purpose of the letter was not to canvass directly the emulation to be expected of the emulator as such (though it did contemplate, variously, "full emulation" and "emulation of all functions defined in the STUBS SIS"). Its concerns were with quite particular subject matter. These were (a) with delay to be occasioned by the need to produce the emulator; (b) with identifying where in the testing processes (ie CSC testing etc) actual delays might occur; and (c) with proposing how those delays might be minimised (ie by the two part development). I do not consider that the letter qualified, or could reasonably be taken to have qualified, the previously stated intent of the 25 July letter that the emulator was to be used for acceptance testing.
260 When CR3049 was raised by DFAT on 6 September it described the scope of work (inter alia) as "Develop STUBS emulation software in a way that will minimise the impact on the project schedule (refer to Mr Cook's letter dated 24/8/95)". I would make two comments of this. The first is that, given the explicit concern with minimising delay to the schedule, the reference to Mr Cook's letter is unsurprising. Secondly, the form used for the change request did not itself go on to describe further the purposes to be served by the STUBS emulation software. The only proper inference to draw from CR3049 as raised is that it carried forward the purposes stated in the 25 July and 10 August letters that emulation was to be used for acceptance testing. Mr Wishart's risk analysis report of 8 September 1995 clearly indicated that this was what he understood was being proposed. I would also note in passing that Roger Cooke's "contract negotiations" letter of 11 September to Mr Brent embodied a like proposal.
261 In light of subsequent events, I should indicate what, in my view, was at this time being proposed by the Commonwealth, hence BHP-IT, to GEC Marconi and was well understood by all three parties as being proposed. It was that (i) there be a full surface emulation of the STUBS devices; (ii) emulation be used for acceptance testing; and (iii) formally, the obligation to supply STUBS devices (albeit at a later date) remained. For its part, GEC Marconi was representing to BHP-IT that it had the capacity to design and develop an emulator that could be so used. I would also add that by the end of August, Peter Wishart was of the view that it was most unlikely that STUBS would be available at all.
262 The cancellation of STUBS had a number of effects on what so far had been proposed, the principal of which were encapsulated in Les Cook's 26 September letter. This letter is of some moment in this proceeding. First, it was obvious that with the cancellation there was no further need for a full surface emulation of STUBS. This was made plain by Les Cook at the time and was reiterated as I will note below in the 26 September letter. Secondly, with the demise of STUBS, a new strategy for ensuring boundary security needed to be adopted. Again Les Cook outlined at the cancellation meeting(s) the proposal that KIV -7 be considered for this purpose.
263 An apparent link was made between these two matters in the following part of the 26 September letter:

"It is now important that a strategy to replace [the STUBS] devices be agreed by all parties, including the Department's security authorities and DSD. In order to avoid further schedule delays, the Department has agreed that an emulation of the STUBS devices should proceed in the interim to the extent necessary to complete the development and testing of ADCNET software which depends on the functioning of the interfaces to STUBS devices. To the extent practical, this emulation should be reduced from a full emulation of the STUBS interface to the minimum functions which will allow ADCNET software to be tested."

I would note in passing that GEC Marconi has submitted that the reference in this passage to "an emulation ... [proceeding] in the interim" was no more than a delay avoidance device to permit development to proceed during the period that might be occupied by the parties in their negotiations for a replacement device. It was no longer emulation for acceptance testing.
264 Immediately following the above passage, the 26 September letter continued:

"DFAT is awaiting advice from the PSI as to the extent of such an emulation and whether this will be scoped in response to the original change request or whether that CR should be cancelled and replaced with another. The most recent development was that Mr Wishart and Mr Newton will examine the specification and advise.
Despite the lack of a formal response to the CR, the Department accepts that continued work on the emulator is a valid delay mitigation strategy."

265 The reference made here to CR3049 (which Mr Wishart was then costing for scoping the work) is of some significance. As I have indicated, CR3049 envisaged both a full surface emulation and the use of emulation for acceptance testing. The letter clearly enough recognised that there was now an asymmetry between the former of these and what was now being proposed (ie a cut-down emulation). This, of itself, would explain why Les Cook would ask whether CR3049 "should be cancelled and replaced with another". The critical question, to which I will return below, is whether the letter purported as well to address and modify the second requirement of CR3049 (ie emulation for acceptance testing).
266 GEC Marconi has submitted that the reference in the quoted paragraph to Mr Newton and Mr Wishart `examining and advising' left the question of the extent of the emulation to the future and in consequence robbed the letter of contractual significance. I should indicate immediately that I reject this submission. The letter indicated unequivocally the emulation that was proposed and sought. How that was to be achieved and the specifications for it were clearly seen to be matters for further discussion if not agreement. This was understandable given the "to the extent practical judgment" that the letter indicated need to be made. But that of itself would provide no impediment to the parties being able to agree to the proposal for emulation made even if there was the need for further agreement on the means to be employed to that end: cf the discussion of cases of this type in John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd, above, para 217ff.
267 In relation to the cost of work necessary to examine strategies to replace STUBS, DFAT indicated in the letter that this would be covered by one or more change requests. Les Cook in fact raised such a Change Request (CR3052) on the same day.
268 I have referred above to GEC Marconi's submission that the emulation contemplated by the letter was simply an interim measure to avoid delay and to allow development to proceed while replacement negotiations took place. It is further submitted that the references simply to "testing" with the emulator was significant. When coupled with the notions of emulating "in the interim" and of testing the ADCNET software "which depends on the functioning of interfaces to STUBS devices", it is said that there are clear indications that what the letter contemplated was not the use of the emulator for completion of the ADCNET software but merely for completion of those parts of it which interfaced to STUBS. What ultimately seems to have informed these submissions was an appeal to "commercial sense". It was proposed that acceptance testing with a STUBS emulator in anticipation of the eventual arrival of STUBS would make obvious commercial sense. Acceptance testing with a STUBS emulator in anticipation of the eventual arrival of a boundary security device other than STUBS would not make obvious commercial sense. Whether or not there was any commercial sense would depend upon knowing the outcome of negotiations for the agreed strategy to replace STUBS.
269 I am unable to accept these submissions. Despite the assertion to the contrary, they divorce the letter from the context and the relationship in which it was passed. The letter formally addressed what all parties recognised was a new state of affairs. After months of uncertainty as to whether STUBS would be available late or at all, that matter was now clarified. It was not coming. In consequence a new strategy needed to be agreed. The need for such a strategy inhered in the very nature of the ADCNET project itself. Boundary security was an integral element of it. The clear burden of the letter was a request now to move on, to treat STUBS as expunged from the project and the ADCNET contracts, and to agree a strategy for replacement devices. The CR3049 proposal, if accepted, had already envisaged acceptance testing of the ADCNET software without STUBS. That testing should go ahead, albeit with a "cut down" emulator, in order to avoid further schedule delays which would result from waiting until a replacement had been decided.
270 In relation to acceptance testing, the letter changed nothing - and I do not consider that the reference to testing software that interfaced with STUBS imposed a change or limitation on the emulation to be undertaken. That reference was linked to the explanation of the cut-down emulation now being sought. What change the letter did invite the parties (ie BHP-IT and then GEC Marconi) to accept was that (i) STUBS was being removed from the ADCNET project, hence the ADCNET contracts, and a replacement strategy in consequence needed to be agreed; and (ii) a full surface emulation was no longer necessary. It also envisaged further communications concerning the specifications for the emulator (involving Mr Wishart and Mr Newton). That matter is further considered below.
271 GEC Marconi's appeal to "commercial sense" is, in my view, misplaced. A rational commercial entity having regard to its own self-interest could have rejected what was being proposed for the "commercial sense" reasons proposed in GEC Marconi's submissions - though its so doing could well have imperilled the levels of trust and cooperation to be expected in a contractual relationship having the history and characteristics of the ADCNET contracts. I will return to this theme later in these conclusions. What those commercial sense reasons cannot permissibly do is contrive the meaning of the terms of the letter itself. Given the history of the matter, what Les Cook was proposing as the way forward was both reasonable and, I would venture, understood at the time - as witness Peter Wishart's oral evidence on the 23 October letter referred to below.
272 The use of the phrase "in the interim", if understandable, was perhaps unfortunate. What was being proposed could be said to be an interim measure pending a hoped for further agreement for a replacement. But it was nonetheless, a distinct and self-contained contractual arrangement for completing acceptance testing of the ADCNET Release 3 software. What was being proposed, in other words, was what was expected to be the first of successive contracts: cf South Sydney District Rugby League Football Club Ltd v News Ltd, above, at 700-701. And it does seem clear (as witness Les Cook's 12 October letter quoted in the "Additional Factual Material") that, for its part, DFAT did not consider that the ADCNET project could be completed until the second - the "replacement" - contract had been agreed. I would add that the sequential character of what was being proposed provided, perhaps, the basis of Peter Wishart's erroneous belief that the STUBS cut-down emulator agreement was in fact dependent upon reaching agreement on the alternative strategy.
273 GEC Marconi made no direct response to the 26 September letter though it commenced acting in ways consistent with what was proposed. Mr Newton was commissioned to design the cut-down emulator. Mr Harris made the requested comments on CR3052.
274 The next significant sequence of correspondence for present purposes was the 23 and 25 October letters to BHP-IT which accompanied GEC Marconi's quotation for CR3049. Because of their significance it is necessary to again set out their terms although I will not repeat here the evidence earlier narrated that bears on why the second letter was written.
275 The 23 October letter, which was approved in substance by Mr Breden stated:

"The price shown for the attached Change Request (CR3049) are to implement the emulator and cover our costs in rescheduling to remove any impact of the late delivery of the STUBS devices (or replacement).
The software for CR3049 will not be developed with the process defined in the ADCNET Software Development Plan. It will be developed using rapid prototyping type methods with minimal external reviews, targeted at producing non-production software. The software is only to be used for development, integration and acceptance of the system under the contract. Warranty after acceptance will not apply since the software will not be used after the system has been accepted.
In order to avoid an impact on the project of the delay to STUBS we will reschedule the work to put the STUBS related work later in the project. This involves examination of the CSC dependencies and a rescheduling of most of the CSC's. This allows the STUBS work to be done later and still maintain the project schedule. The cost for this work is shown under the Rework of Schedule item. This rescheduling removes the need for a delay claim associated with late delivery of the STUBS devices (or replacement)."

The 25 October letter simply stated:

"Attached is the cost to complete for CR3049. Please note that the late delivery of STUBS devices (or replacement) may be the subject of delay claims."

276 All three parties have put in extensive written submissions on the significance and interrelationship of these letters. Even though they communicated GEC Marconi's offer to undertake CR3049, I do not consider that they warrant quite the attention they have been given.
277 As to the 23 October letter, neither it nor the attached Change Request actually describe the emulator to be implemented, though the heading to the letter refers to "CR3049 (Cut-down Stubs Emulator)". However, it is clear that what was contemplated by all parties was the emulator proposed, not in the original CR3049, but in the 26 September letter which was now finding reflection in Mr Newton's paper and the API's that had been sent via Mr Brent to Les Cook by 16 October.
278 The second paragraph in its reference to use of the software for "acceptance of the system under the contract", did no more than describe the purpose of the emulator in terms that both BHP-IT and the Commonwealth would reasonably have expected in light of the 26 September letter and its predecessors back to the letter of 25 July. As I have indicated, the policy of using the emulator for acceptance testing had remained unchanged from 25 July (though the need for it had changed with the cancellation of STUBS) and CR3049 was the vehicle that was to give effect to that policy. Mr Wishart in oral evidence accepted that he thought his understanding at the time was that the emulator would be used for acceptance testing. And such clearly were the contemporary understandings of the Commonwealth and BHP-IT.
279 Even if this letter did not contain this description of the purpose of the emulator, that statement of purpose would necessarily still be taken to have been part of the CR3049 offer in any event. It was, and was known to be, what was expected of the emulator since July 1995.
280 The evidence on the relationship of the two letters is unsatisfactory. I am satisfied that Mr Brent, Roger Cooke and Mr Wishart were, or became, concerned about the observation in the third paragraph of the 23 October letter that what was there being proposed removed "the need for a delay claim associated with the late delivery of the STUBS devices (or replacement)". Mr Brent clearly raised the matter with Mr Wishart on 24 October, and the matter clearly was discussed by Roger Cooke and Peter Wishart. I am equally satisfied, despite Roger Cooke's evidence to the contrary, that this reference to delay claims alone was all that was of concern in the letter to either Roger Cooke or Mr Wishart.
281 It is unnecessary to express any concluded view on whether a copy of the 23 October letter was retrieved by Mr Wishart from Mr Brent. The evidence on this matter is unsatisfactory. I am satisfied, though, that Mr Wishart met with Mr Brent and discussed the 23 October letter. I am also satisfied on the balance of probabilities that they did not wish this letter to be operative between the two companies because of what was contained in the offending third paragraph concerning the absence of any need for a delay claim and that that provided the explanation for the sending of the 25 October letter (which expressly flagged a possible delay claim). I accept that Mr Wishart may well have intended to replace the 23 October letter with that of 25 October, even if such may not physically have occurred. But I do not accept that he intended to resile from, or to bring home to Mr Brent that he had resiled from, what was conveyed in the second paragraph concerning acceptance testing. Given the prior communications back to 25 July about the purpose of the emulation it would have required a very clear statement indeed on Mr Wishart's and GEC Marconi's part that the emulator was not to be used for acceptance testing if this was what was intended to be conveyed to BHP-IT by the 25 October letter.
282 The 25 October letter and the attached CR3049 did not describe at all either the emulator to be implemented (ie cut down or otherwise) or the purpose of the emulator. In consequence, as BHP-IT rightly submits, the CR3049 offer that was being made necessarily had to be understood in the light of the previous communications. Again, as BHP-IT submits, those communications going back to July 1995 proceeded on the basis that the emulator would allow acceptance testing. That never changed. And it was on this basis that the CR3049 offer was made. Equally, in light of the 26 September letter and its reflection in the Newton paper and APIs sent to Mr Brent prior to 25 October, the emulation that was being offered BHP-IT was a cut-down one. GEC Marconi has made particular submissions on which of Mr Newton's papers it says have possible contractual significance. I deal with those submissions below in the context of communications between Les Cook and Mr Wishart on 13 and 22 November. I merely note here that I have not accepted those submissions.
283 Finally, and I will return to this below, it ought be inferred that at or around the time of making the 25 October offer GEC Marconi was offering, and would properly and reasonably be taken as offering, to proceed on the basis proposed in the 26 September letter as to the way forward - there would no longer be an obligation to provide STUBS and the parties would seek to agree to a strategy to replace STUBS through Change Requests (one of which had already been raised by the Commonwealth and commented upon by GEC Marconi). CR3049 as now amended was an integral part of what had been proposed. If it was to be divorced from those proposals, GEC Marconi had to bring that home clearly to BHP-IT. It did not.
284 BHP-IT communicated its acceptance of the CR3049 offer to GEC Marconi on 1 November 1995. Unlike in the Head Contract, no consequential formal Contract Amendment was executed for the Sub-Contract. I do not consider this to be of any particular moment. The Contract Amendment (CA23) for the Head Contract in any event merely described the amendment as "Development of STUBS emulation software for the Department of Foreign Affairs". As a statement of the burden of the Emulation Variation Agreement and of its significance for the then terms of the Head Contract, that description was utterly uninformative. I likewise do not consider that the internal contradictions on the face of the Head Contract's CA23 illuminated in any way, or otherwise had bearing upon, the nature and terms of such contract as was entered into by BHP-IT and GEC Marconi at this time.
285 I am satisfied that the Emulation Variation Agreement was formed at least by 1 November. I will explain below the reasons for the uncertainty as to when all parts of that agreement were settled.
286 If I am incorrect in concluding that GEC Marconi's offer on 25 October encompassed, or could reasonably be interpreted as encompassing, eliminating the obligation to supply STUBS, I remain satisfied that its CR3049 offer was to develop STUBS emulation software to enable the ADCNET Release 3 software to be acceptance tested using emulation and that that offer was accepted. I will refer to this as the "emulation agreement". If that agreement alone was all that was entered into on 1 November 1995, it would nonetheless have considerable significance in this proceeding, particularly in relation to the defences of affirmation and estoppel raised by BHP-IT. I will refer to those defences later in these reasons.
287 It is necessary to indicate what I consider to be the terms of the Emulation Variation Agreement and whether or not these are capable in the circumstances of giving rise to an effective and enforceable contract. As I have already indicated, GEC Marconi's principal submission has been that the parties never intended to enter into such an agreement. I have rejected that submission. GEC Marconi's further submissions are that if there was such a purported agreement (a) it was ineffective because of the writing requirement of cl 45.1 of the Sub-Contract; (b) it contained inconsistent provisions concerning the obligation to provide STUBS; (c) it was inherently uncertain and unenforceable because no amendments had been made to a range of contract-mandated documents and particularly the FRS; and (d) any agreement that STUBS no longer had to be supplied by BHP-IT was conditional on the parties subsequently agreeing a replacement.
288 These submissions provide a convenient vehicle to deal with some number of the issues concerning the terms and the effectiveness of the Emulation Variation Agreement. Before turning to them it is appropriate that I indicate without further elaboration what I find to be the terms of the agreement. These are that:
(i) GEC Marconi would develop STUBS emulation software: (CR3049);
(ii) that software should emulate the STUBS devices to the extent necessary to complete the development and testing of ADCNET software that depended on the functioning of the interfaces to STUBS devices: (the 26 September letter - the cut-down emulation);
(iii) the emulator would be used in acceptance testing of the ADCNET Release 3 software: (the common understanding of the intended purpose of the emulation since 25 July 1995);
(iv) BHP-IT was no longer contractually obliged to provide STUBS devices under the Sub-Contract as CSI: (the 26 September letter proposal); and
(v) the parties would amend all subsidiary contractual documentation (including the FRS) so as to enable emulation to be used for acceptance testing: (an implied term).
I would add that this agreement was made in a setting in which the parties had available to them the machinery of the Sub-Contract for amending the terms of the contract and the contractual documentation so as to give formal expression and/or effect to what they had agreed.
(e) GEC Marconi's Attack on the Agreement
(i) Non-compliance with the cl 45.1 writing requirement
289 I have already indicated that such a provision in a written contract does not preclude parties from later entering into even an oral contract to vary that written contract. It is the case, though, that no single document exists that was signed by the parties which embodied all that, objectively, was agreed by them. Given the view I take of the ineffectiveness of cl 45.1, it is unnecessary to decide whether, having regard to the totality of the written communications between them, all of the terms actually agreed were agreed in writing signed by the parties. My own view is that such, probably, was not the case and that it is necessary to resort as well to what was manifest in conduct to ascertain the terms of the contract. I would, for example, note that for reasons given below it may well be said that GEC Marconi's agreement to the deletion of the obligation to provide STUBS was manifest initially in conduct.
290 I should also indicate that I accept that (a) the existence of cl 45.1 and the related procedural cl 11 in the Sub-Contract, and (b) the pattern of their prior use, are facts to be taken into account in determining whether the subsequent conduct of the parties was intended to be contractual in nature though not conforming to those clauses or to that prior usage: Bartlett v Stanchfield, above, at 395. Nonetheless I am satisfied that the course of communication and conduct in this instance was intended to, and did, have a contractual outcome in the agreement I have found.
291 There is one additional matter to which I need refer though I will not enlarge upon it. It proceeds on the assumption that I am incorrect in the view I take as to the legal effect of a provision such as cl 45. If cl 45 was binding and not complied with, I would nonetheless find that GEC Marconi was in the circumstances estopped from setting up the lack of writing to defeat the Emulation Variation Agreement: cf Principles of International Commercial Contracts, Art 2.18. That estoppel, I am satisfied, has been sufficiently pleaded and in issue to allow this matter to be raised. I refer to it briefly below in "Estoppel".
(ii) The contract contains inconsistent provisions
(iii) The contract was inherently uncertain
292 These two matters can be dealt with together. As I understand them, GEC Marconi's submissions are premised on my having found an agreement both to emulation for acceptance testing and to remove the obligation to provide STUBS. It is contended that by agreeing this much without also agreeing to make corresponding amendments to requirements in those subsidiary contractual documents (the FRS, the ADD, etc) that are premised upon STUBS being available for acceptance testing and which would preclude the use of the emulator for that purpose, the parties have created a state of affairs in which the Emulation Variation Agreement and the Sub-Contract contain inconsistent provisions.
293 Alternatively, it is said, even if a consequence of the Emulation Variation Agreement was that the subsidiary contractual documents were to be amended, there was no agreed mechanism for identifying the provisions that required change or for determining what were the changes that were needed. In consequence the contract was inherently uncertain and unenforceable.
294 These submissions, in substance, challenge the implied term I have said was part of the Emulation Variation Agreement. Before discussing that term - which I consider to be a complete answer to GEC Marconi's submissions - I should comment first on the general issue raised by GEC Marconi and on the responses made to it by BHP-IT and the Commonwealth.
295 I have already indicated that GEC Marconi concedes that the STUBS emulator was capable of being used for acceptance testing but that the impediments to its being so used were provisions in the subsidiary contractual documentation and in particular the FRS which contained "testable shalls" which could not be demonstrated using the emulator. As BHP-IT indicated in its written submissions, the experts called - Dr Lewis and Professor Offen - both expressed like views to the above concession. Later in these reasons I will refer to events in 1996 where it is claimed the Commonwealth and BHP-IT offered to waive those FRS and other requirements that stood in the way of completing acceptance testing using the emulator. My concern here, in contrast, is with whether the emulation variation contract itself actually eliminated the alleged impediments to completing acceptance testing on which GEC Marconi has focussed.
296 BHP-IT's response on this matter seems to be twofold. First, it contends that the parties' agreement to remove the obligation to provide STUBS and to use emulation for acceptance testing, constituted agreed variations to the Sub-Contract. As such these variations attracted the operation of cl 11.2 of the Sub-Contract. It provided that where one party proposes contract variations to the other in writing, then -

"If the receiving Party accepts the variations, the Contract Specifications shall be deemed to incorporate the accepted variations from the date upon which the receiving Party notifies the proposing Party in writing that it accepts the variations."

The "Contract Specifications" referred to were defined in the Sub-Contract to include (inter alia) the FRS and the ADD. Accordingly, by force of this provision the subsidiary contractual documentation was deemed varied so as to permit the use of the emulator for acceptance testing. The actual documentation itself would later need amendment to accord with this new state of affairs. It was GEC Marconi's obligation under the contract to update the subsidiary documentation to incorporate approved contract amendments: Schedule 7, cl 2.2, WP 2100.
297 Distinctly, BHP-IT submitted that the agreement that STUBS was no longer CSI and that emulation would be used for acceptance testing carried with it necessarily an agreement to amend all subsidiary documents (including the FRS) so as to enable emulation to be effectively used for development, integration and acceptance testing. This, it is claimed, was part of the agreed scope of the variation agreement.
298 The Commonwealth, while adopting BHP-IT's submissions, added a further variant based on irrevocable waiver which led to the result that BHP-IT was precluded from taking advantage of GEC Marconi's inability to complete acceptance testing with the emulator to the extent that it could not demonstrate requirements that were premised on the provision of STUBS. This waiver involved a true abandonment of rights and was irrevocable in consequence of GEC Marconi's proceeding to build the emulator.
299 For its part GEC Marconi has submitted that cl 11.2 of the Sub-Contract only applied to variations that were sufficiently precise to admit of incorporation; it did not apply to consequential variations occasioned by an agreed variation; and the acceptance of the variation had to be in writing. These requirements were not satisfied in this instance.
300 Alternatively, it was contended that, given the actual inconsistency between the Emulation Variation Agreement and the subsidiary documentation, no term could be implied into the agreement obliging the parties to act jointly so as to remove any inconsistency. The reason for this was that the contract as it stood provided for inconsistent benefits and it was impossible for the parties to cooperate to give effect to those inconsistent provisions: cf Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104.
301 Before turning to my own conclusion on this matter, there are some evidentiary considerations to which I should refer. First it is not open to doubt that, with appropriate changes to the Sub-Contractual documentation, the emulator could be used for acceptance testing. The experts stated as much. GEC Marconi's contract negotiation proposal for emulation presupposed as much. Secondly, the identification of the needed changes was a technical matter on which opinions might differ. But there is no reason to believe that, if agreement as to the necessary changes was required for acceptance testing to be completed, that could not have been achieved. Thirdly, as Mr Varatharajan accepted in oral evidence, the requirements that prevented completion with the emulator would have become apparent in any event at the time of system integration.
302 In my view, it simply confronts common sense to suggest that, having agreed to use an emulator for acceptance testing, the parties would nonetheless have continued to agree that BHP-IT would remain able to insist upon provisions in subsidiary documents that would have the effect of preventing that testing being completed. It is for this reason both that BHP-IT and the Commonwealth had striven to find justifications for the contrary result, and that GEC Marconi's submissions in opposition are quite so unappetising.
303 For my own part I do not consider that the BHP-IT submission based on cl 11.2 of the Sub-Contract is available to it. The effect that sub-clause procures is, I consider, properly to be considered as dependent upon the parties following the procedure mandated by cl 11. That procedure required direct specification of proposed variations to the Sub-Contract and explicit agreement in writing by the other party to those proposed variations. Where agreement was procured in this formal way, it is understandable that the parties would agree in consequence to a provision such as cl 11.2 notwithstanding that later formal changes to the Contract Specifications were required to be made - the more so given that GEC Marconi was contractually obliged to update those Specifications to accord with agreed contract amendments. There is a document to which the parties could later turn that described what actually was proposed and for which agreement was given. However, where the parties' agreement is to be divined, as here, from a course of communications and of conduct, it seems to me that neither the letter nor the spirit of cl 11 applies to such an agreement. BHP-IT did not explicitly submit a copy of its proposed contract variations to GEC Marconi. It did not receive GEC Marconi's acceptance in writing of those variations. I have found that the parties did agree to contractual variation but this they did in what I consider to be an informal contract part of which, it is reasonably arguable, was to be inferred from GEC Marconi's agreement to undertake CR3049.
304 Rejecting the cl 11.2 submission is not the end of the matter. I, nonetheless, consider that there was an implied term of the Emulation Variation Agreement that related to the consequential amendment of the subsidiary contractual documentation. Before turning to that implied term, it is appropriate to question the very premise of GEC Marconi's submission that the inconsistencies between the Emulation Variation Agreement and the Sub-Contract's documentation render the emulation agreement ineffective. Accepting that there are such inconsistencies, two consequential questions need to be answered. The first relates to the legal effect of the Emulation Variation Agreement on the Sub-Contract. The second relates to how the Sub-Contract is to be interpreted (if it still remains on foot) after it has been varied.
305 As to the first of these questions, it is clear that when the parties contracted in the Emulation Variation Agreement to vary the Sub-Contract they did not intend to end the Sub-Contract and replace it with that variation agreement. Rather their intent was to leave the Sub-Contract on foot subject to the alteration: cf Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Pty Ltd, above, at 350-351; Tallerman and Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd, above, at 144. In consequence it was the Sub-Contract as altered that the parties were required to perform. But that contract now contained inconsistent provisions relating in particular to acceptance testing. And the resolution of that inconsistency?
306 There is a large body of case law dealing with how a contract should be construed when it contains inconsistent provisions, having regard to the nature and cause of the inconsistency: see generally Cheshire and Fifoot, Law of Contract, 213 (8th Aust ed); Chitty on Contracts, vol 1, para 12-076 (28th ed); Lewison, The Interpretation of Contracts, para 8 - 08ff (2nd ed); Farnsworth, Contracts, §7.11 (3rd ed). It is unnecessary here to outline in detail the various "rules" of construction that have evolved to resolve inconsistencies. These rules reflect the types and causes of inconsistencies: if specially tailored terms contradict standard terms, the specially tailored terms will prevail over the standard terms: cf Re Theodorou [1993] 1 Qd R 588; "[i]f a later clause cannot be reconciled with an earlier one creating an obligation, then if it altogether destroys the obligation it must be treated as void": Australian Guarantee Corporation Ltd v Balding [1930] HCA 10; (1930) 43 CLR 140 at 151; if the terms of a document incorporated into an agreement conflict with expressly agreed terms in that agreement, the expressly agreed terms prevail: Modern Building Wales Ltd v Lemmer and Trinidad Co Ltd [1975] 1 WLR 1281 at 1289; etc. The common thread in the cases is that effect is given to that part of an agreement "which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected": Chitty on Contracts, para 12-076.
307 In the present case the real intention of the parties in relation to acceptance testing must be regarded as having been reformed by the Emulation Variation Agreement. Accordingly, the agreement to complete using emulation must prevail over those provisions in the subsidiary documentation that would prevent this outcome occurring. The alleged inconsistency in other words would be resolved as a matter of construction though, it might be said, a hiatus in the subsidiary documentation necessary for acceptance testing would ensue.
308 It is unnecessary to consider whether the obligations imposed by the Sub-Contract would themselves require the parties to amend the subsidiary documentation to permit acceptance testing with the emulator. No submissions have been made either on this point or, for that matter, on how the rules of construction to which I have referred provide an answer to GEC Marconi's submission.
309 BHP-IT, quite properly, was content to deal with resolution of the alleged inconsistencies by resort to the terms of the Emulation Variation Agreement itself. It was an implied term of that agreement that, having agreed emulation would be used for acceptance testing, the parties would amend all subsidiary documentation (including the FRS) to permit this to occur.
310 For my own part, necessary corollaries of BHP-IT and GEC Marconi agreeing that BHP-IT was no longer obliged to provide STUBS and that the STUBS emulator would be used for acceptance testing were that:
(1) BHP-IT could no longer insist upon, and GEC Marconi could no longer be required to demonstrate, those requirements of the subsidiary documentation that would defeat the very thing agreed - ie acceptance testing using the emulator; and
(2) given the known contractual role of the FRS and other subsidiary documentation in acceptance testing, that documentation would be amended to permit acceptance testing using the emulator.
It may well be that these corollaries were so much part and parcel of what actually was agreed by the parties as to be able properly to be treated as representing their inferred intent. However, I consider that it is both open and sufficient to imply a term ad hoc to the same effect.
311 The present case is clearly one in which "the parties themselves did not reduce their agreement to a complete written form ... [they] have left some [of the terms] ... to be inferred or implied": Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 442. In determining what, if any, terms should be implied in such circumstances, it is now well accepted that caution is required against a rigid or automatic application of the criteria specified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266 at 283, which govern the implication of terms into formal written contracts: see the discussion in Yau's Entertainment Pty Ltd v Asia Television Ltd [2002] FCA 338 (Full Court) at [27]ff.
312 For present purposes, and in light of Yau's case, it is sufficient to say that a term based on the parties' imputed intention should be implied into the Emulation Variation Agreement if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case, and that that term so would have been accepted by the parties as a matter so obvious that it would go without saying: see Yau's case at [33]-[36].
313 The term that I have indicated should be implied satisfies the Yau requirements. It is, indeed, integral to what actually was agreed. While it may be said that it would be sufficient simply to imply a term precluding BHP-IT from relying on those provisions that would prevent the emulation being used to complete acceptance testing, the role the Sub-Contract contemplates for the subsidiary documentation in acceptance testing makes necessary the implication that the parties will amend that documentation to permit acceptance testing with the emulator.
314 There are two additional comments I would make for the sake of completeness. The first is that it remained open to the parties to later reach a different agreement both about emulation and about documentary changes. And such might, though need not necessarily, have happened if a replacement for STUBS was earlier agreed and was available. Secondly, the implied term I have found does require further matters later to be agreed by the parties, albeit to achieve a known end. The Emulation Variation Agreement was, nonetheless, a complete contract. What was left over were "matters of detail" which it was open to the parties to leave "for future decision" and inclusion in the formal contractual documentation: Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601 at 619; and see Graham Evans Pty Ltd v Stencraft Pty Ltd [1999] FCA 1670; John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd, above.
315 One matter I have not considered in dealing with GEC Marconi's submissions is whether the inconsistency issue raised may be able to be resolved by resort to the order of precedence of documents prescribed by cl 2.1 of the Sub-Contract. I express no view on that matter.
(iv) A contingent agreement
316 The submission made here by GEC Marconi is that, if there was an agreement that BHP-IT was no longer obliged to provide STUBS, that agreement was contingent upon a replacement for STUBS being agreed.
317 There is no doubt that from the time of the 26 September letter, the parties became engaged in the processes that it was hoped would lead to the agreement of a replacement strategy for STUBS. CA3052 was raised on the very day of the letter. Nonetheless, as I indicated when considering that letter, what was proposed were two discrete activities each of which, if agreed to, would give rise to separate contracts. The first was to remove STUBS from the ADCNET contracts and to proceed to acceptance testing with an emulator. The second was to use change requests to examine replacement strategies.
318 It was, perhaps, the expectation of all parties at the time that a replacement would be agreed - this was Les Cook's preferred outcome. Yet there was nothing in the 26 September letter or in any subsequent correspondence before 1 November to justify the conclusion that the Commonwealth, hence BHP-IT, was making the deletion of STUBS contingent upon such later agreement. On the contrary. The Commonwealth was concerned to complete the ADCNET project and agreement on a replacement strategy was essential to that. The Commonwealth indicated in its 12 October letter, for example, that it wished to tie agreement on that strategy to the ongoing contract negotiations for extension to the contract schedule and that it trusted that work on CR3052 would be completed quickly "so that the overall negotiation on contract variations to allow the project to move to completion may be concluded": emphasis added.
319 What the Commonwealth did not do as well was to tie the deletion of the STUBS obligation to the contract extension negotiations or to the agreement on a replacement strategy. It is unsurprising it did not. STUBS no longer had any place in the ADCNET project. This was irrespective of whether the parties were later able to agree a replacement strategy. The 26 September letter was proposing a moving on from the old STUBS status quo.
320 I am unable to agree that the emulation agreement was contingent in the manner suggested by GEC Marconi.
321 The additional comment that should be made on the agreement to delete the STUBS obligation is that, while it was not assented to in express terms, that assent can properly be inferred from GEC Marconi's binding itself to undertake CR3049, if not from actions taken some time before then. Objectively considered, its assumption of that task in the context both of what was proposed in the 26 September letter and of the steps already taken by way of participation in what was proposed (ie the comment on CR3052 and the exchanges over the Newton paper), manifested to BHP-IT not merely an assent to develop the cut-down STUBS emulator for acceptance testing, but also agreement as to how to proceed for the future - there would be no STUBS and no obligation to provide it and resort would be had to the change request procedure to explore replacement strategies.
322 It is unnecessary for me to express a concluded view on whether GEC Marconi so conducted itself prior to 1 November as to be taken as having earlier bound itself to at least the abandonment of STUBS. It had prior to that date begun to act in ways consistent with what was proposed on 26 September. Given the view I have taken of the 1 November contract, I need not determine whether, there had already been a sufficient "manifestation of mutual assent" to delete the STUBS obligation and to seek to agree a new strategy through Change Requests: Vroon BV v Foster's Brewing Group Ltd, above, at 81; see also Integrated Computer Services Pty Ltd, above, at 11,118.
323 In the end, I am satisfied that by 1 November 1995 the parties entered into the Emulation Variation Agreement. That agreement provided a complete defence to the claim brought by GEC Marconi insofar as it is founded on a continuing failure to supply STUBS.
324 I will comment below more generally on my conclusion that the parties entered into this agreement, but before so doing I should refer (more briefly) to the post-1 November matters on which BHP-IT relies in confirmation, or in furtherance of, that agreement. The evidence here is, in a sense, multi-dimensional in its significance in that it is of relevance, variously, to BHP-IT's defences of election to affirm, estoppel and contractual variation.
(f) Post-November 1995
(i) The November correspondence concerning the emulator
325 The evidence dealing with this matter has been outlined above in "Additional Factual Material". It will not be repeated here. GEC Marconi has submitted that this correspondence concerning the emulator, being post-contractual, cannot be relied upon to demonstrate the terms of the 1 November contract. In any event, it is said that correspondence merely confirms that CR3049 related only to development testing of the ADCNET software and not to acceptance testing of the ADCNET system.
326 As to the latter point I am satisfied that, objectively considered, Mr Wishart's 22 November response to Les Cook's comments in his 13 November letter, conveyed in clear terms that CR3049 would be adequate for its agreed purpose and that, as I have indicated, was to enable the parties to complete acceptance testing of the ADCNET software without STUBS devices. Unsurprisingly, Mr Wishart in oral evidence indicated that he understood Les Cook's letter as being premised on that purpose and that his own technical description in his 22 November response of what the "cutdown STUBS emulator was intended to provide" conveyed that the emulator was to allow the ADCNET Release 3 software to be acceptance tested.
327 I do not accept, though, that these communications are inadmissible on the basis of the principle that "post-contractual conduct is not admissible on the question of what a contract means": Brambles Holdings Ltd v Bathurst City Council, above, at 164. The purpose of the emulator was agreed on 1 November 1995 at the time CR3049 was agreed. Agreement on that purpose did not, in my view, carry with it the consequence that further comment on, and revision (if necessary) of, the specifications for the emulator were foreclosed as from that date. Given that the function to be performed by the emulator was specified by the ultimate Customer, the Commonwealth, its continuing comments on the sufficiency of the specifications for their purpose was properly to be expected.
328 What is to be inferred, then, from this exchange of correspondence is that it confirmed for the time being that the specifications proposed were sufficient to effectuate the agreed purpose of the emulator. It constituted, in other words, a review of the sufficiency of the documentation supporting CR3049. As such I regard it as part of the matrix of facts of later actions of the parties which were, or were intended to be, contractual in character and which in differing ways gave, or were intended to give, effect to the Emulation Variation Agreement as I have described it.
(ii) Sub-Contract Amendment 30
329 This Contract Amendment incorporated changes to Schedule 8 of the Sub-Contract to reflect an extension of time to complete the work approved in twenty-eight change requests one of which was CR3049. I do not regard CA30 as illuminating in any relevant way the Emulation Variation Agreement. For present purposes, it merely acknowledges the fact of CR3049, but not its burden.
(iii) GEC Marconi's 14 December risk report
330 Item 13 of this risk report stated that "STUBS devices is (sic) not being used on ADCNET". It regarded the risk associated with STUBS availability as "Closed". This report was sent to Mr Brent on the same day, Mr Wishart indicating in the accompanying letter that he would like the report used "as the basis of the project risk management meeting with BHP and DFAT".
331 While assisting in establishing the common understanding of the parties at the time as to the status of STUBS in the ADCNET project, this evidence probably is not admissible to prove either the earlier 1 November Emulation Variation Agreement: cf Brambles Holdings Ltd v Bathurst City Council, above; or the terms of the later Contract Amendment (CA31), there being no relevant ambiguity etc that, as objective background circumstances, this evidence could assist in resolving: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 348ff.
(iv) Change Request 3060/Contract Amendment 31
332 The evidence relating to this Change Request and Contract Amendment (signed by Mr Brent and Mr Wishart on 18 and 19 December) has been narrated above. Briefly described, on 1 November 1995 Mr Harris of GEC Marconi made a number of updating amendments to the ADD, removing references to STUBS devices etc (though not all such references) and replacing these with references to STUBS emulation. These amendments to the ADD were part of the subject matter of CR3060. The letter sending CR3060 to Mr Brent on 28 November 1995 described the updating as removing or replacing references to STUBS. The changes made were approved by the Commonwealth and BHP-IT. The resultant Contract Amendment authorised the replacement of the pages of the ADD on which amendments had been made. Further it required that the "Contract should be amended to refer to the Architecture Design Document as Version 2.1. (Schedule 1 in the Contract)".
333 The Commonwealth and BHP-IT have attributed large significance to this Contract Amendment. The ADD for the time being was one of the two documents that constituted the Customer's Functional Specifications under Schedule 1 of the Sub-Contract. Their submission is that the Sub-Contract, Schedule 6 paras 1.2, 1.3 and 1.4 envisaged that CSI equipment and Non-Developed Software could be subject to change as a result of revising the Preliminary ADD for the purpose of preparing the Final ADD. This change to the specified CSI by the Customer's substitution of a different item of CSI for the originally specified CSI as part of the System requiring integration with the Developed Software, need not have been a breach of the Customer's obligations under the Contract, nor even a variation of its terms. Instead it was a variation of the content of existing obligations under the Contract taking effect no later than upon the agreement to, and the making by the Contractor of, appropriate changes to the Final ADD.
334 To understand this submission it is necessary to set out at some length provisions of the Sub-Contract and of its Schedules. The CSI to be supplied by GEC Marconi pursuant to cl 7 of the Sub-Contract was that specified in Schedule 6. Paragraph 1.2 of that Schedule stated:

"CSI shall include the equipment and non-Developed Software as defined in subclause 1.4 below. While such equipment and non-Developed Software may be subject to change as a result of revising the Preliminary Architecture Design Document for the purposes of preparing the Final Architecture Design Document, any increase ...": emphasis added.

Paragraph 1.3 provided, insofar as presently relevant:

"The following principles will apply to the evolution of the equipment configuration required for the development, integration, testing and commissioning of the Canberra and post and regional office systems:
...


(ii) the configuration defined under Item 1.4(b) shall be known as the Test and Integration/Acceptance Test System;
...


The Software Development System and the Test and Acceptance System shall be defined in the Software Development System Design Document and the Test and Acceptance System Design Document respectively."

Paragraph 1.4(b) provided in part:

"Test and Integration/Acceptance Test System
The physical configurations for the following systems shall be described in the Final Architecture Design Document.
The Test and Integration/Acceptance Test System shall consist of the following systems:
Secret Canberra System:
...


(xi) STUBS devices and related equipment and software."

335 Finally, cl 9 of the Sub-Contract required GEC Marconi to prepare the Final ADD, and to submit it for review and subsequent acceptance in accordance with the Implementation Plan. That plan indicated that review of the Final ADD was to occur at Milestone 2000. By cl 9.6 the Final ADD was one of the documents in accordance with which GEC Marconi was to "integrate the System".
336 Put shortly the submission is that, by replacing STUBS with STUBS emulation in the ADD, the contracted for CSI was changed. That some STUBS references in fact remained was to be explained as oversight, no one intending by their continuing presence in the ADD that STUBS was ever going to be used in ADCNET.
337 For its part GEC Marconi has submitted that the actual updating of the ADD engaged in by GEC Marconi suggested no more than that, as a transitional matter, the system would include STUBS emulation but that it did not vary in any way GEC Marconi's contractual obligation in relation to testing. Importantly no changes were made to the "testable shalls" in the FRS.
338 Additionally it was submitted that the ADD which was amended was not the Final ADD envisaged by the Sub-Contract. The ADD would only become the Final ADD when it was accepted at Milestone 5000. It would be that document which would depict at the end of the process what the actual architecture of the system was.
339 I should indicate immediately that I do not accept this last submission. The document reviewed at Milestone 2000, which was an earlier version of the ADD amended by CA31, was itself described in the Schedule 8 "Implementation Plan" as the "Final Architecture Design Document". When para 1.2 of Schedule 6 referred to changes to CSI "as a result of revising the Preliminary [ADD] for the purposes of preparing the Final [ADD]", I consider that the obvious contemplation of the provision in the setting of a contract that envisaged change, was that agreed changes to the ADD reviewed at Milestone 2000 were "changes for the purposes of preparing" the Final ADD and that they had contractual effect once so agreed unless and until they were later changed by a further amendment to the ADD. In this sense the Final ADD could be said to be and remain an evolving document until it had served all of its purposes and was contractually spent. But throughout that process it was at all times the Final ADD.
340 Of GEC Marconi's general submission that CA31 was transitional, unrelated to testing, and inconsistent with the FRS, I again cannot agree. The actual terms are not, in my view, uncertain or ambiguous such as would permit resort to the factual matrix of this contract to assist in their interpretation: cf Codelfa Construction Pty Ltd v State Rail Authority of NSW, above, at 348ff. What is important, for present purposes, is to ascertain the purpose and legal effect of the Contract Amendment. To discover these does, in the end, require resort to the Sub-Contract as altered by the Emulation Variation Agreement, given the relationship of CA31 to the Sub-Contract it amended. The ADD identified the hardware and software components of the system to be delivered. Under the Sub-Contract (Schedule 7, cl 2.2, WP2100) GEC Marconi was required to update the ADD to incorporate approved Contract Amendments. As Mr Harris said in evidence, it was important that the ADD reflected the architecture of the hardware that would be part of the final delivered system. That system was required by cl 9 of the Sub-Contract to be integrated in accordance with (inter alia) the ADD.
341 Considered in this setting, there is nothing in my view in the terms of the amendments (so far as they went) or in the background matters to which I have adverted, to suggest that the amendments were, and were intended to be, transitional. Those amendments, having been accepted by the parties, had contractual significance. By virtue of the terms of the Sub-Contract, their premise was that performance of the Sub-Contract involved integrating the software with the components of the System described in the ADD including the emulation and that acceptance testing would be of the Developed Software so integrated. The purpose of CA31, as far as it went, was to give effect to that premise.
342 The alleged inconsistency with the FRS - a document of coordinate precedence in the matrix of contractual documents - was of itself, in my view, of no significance at the time; irrespective of the matter of construction of inconsistent provisions to which I earlier referred. The agreement to acceptance test using STUBS emulation required significant updating of contractual documentation if that testing was to be conducted in accordance with the documentation and not by resort to so-called waivers and ad hoc variations. The parties having agreed to this updating in the Emulation Variation Agreement, it clearly was open to them to update that documentation piecemeal, and to the extent that the updating was inconsistent with as yet unvaried documentation, the former not the latter gave effect to the real intention of the parties as now expressed in the Emulation Variation Agreement.
343 There is one additional matter to which I should refer in relation to CR3060/CA31. Mr Harris gave evidence of what at the time was his understanding about the emulator and its use for acceptance testing. That evidence has no relevance to any contractual issue with which I am concerned. If it had, I would have rejected it. It is, moreover, inconsistent in significant respects with contemporary documentation.
(v) Change Request 3015: Acceptance Test Plan
344 Schedule 9 of the Sub-Contract prescribed the criteria to be used to develop the ATP. The ATP was to be used to show that the Developed Software complied with the "testable shalls" of the FRS. Again, it was Mr Harris who was responsible for the ATP.
345 In the "Additional Factual Material" above I have referred to the raising of CR3015 to amend the ATP in consequence of the cancellation of STUBS, to the amendments proposed by GEC Marconi, to their acceptance by the Commonwealth and BHP-IT and, importantly, to GEC Marconi's subsequent refusal ultimately to sign CR3015 in March of 1996. By that time, GEC Marconi had indicated its view that the non-provision of STUBS might constitute a default by BHP-IT.
346 Though the significance of CR3015 has been the subject of lengthy submissions by all three parties, I do not consider it necessary to rehearse their various contentions in any detail. GEC Marconi's submissions, in addition to claiming that CR3015 had in the end no contractual consequence, simply reiterate by now familiar objections: the amendments were intended to be transitional; and the contractual obligation of GEC Marconi remained that of demonstrating the "testable shalls" of the FRS.
347 In these circumstances I will state my own conclusions shortly. The Change Request originally signed by Mr Harris stated its "Issue/Concern" to be: "Changes to ATP to show agree HW config[uration], software and External Devices required for FQT [ie acceptance testing]". The relevant amendments proposed in the ATP sent to Mr Brent on 7 February 1996 by Mr Goldsmith (now GEC Marconi's project manager) were described as:

"Removed STUBS Sealers, Stubs Devices, KDC workstations, STUBS Audit workstations and STUBS conversion. STUBS Gateway workstations remain. STUBS conversion software changed to STUBS emulation software."

The STUBS workstations referred to are of no significance for present purposes. Illustrative of the changes made are those to para 3.3.2.3.1 which were as follows:

"3.3.2.3.1 Stubs {DELETE Devices DELETE} Emulation
3.3.2.3.1.1 {DELETE The availability of Stub devices during the Acceptance testing is likely to be limited and will not be sufficient to support the Acceptance Tests. The use of simulators and/or interface stubs and any test waivers related to the Stub device will be resolved by agreement between the Customer and the Contractor.DELETE} Stubs Sealer and Stubs Gateway emulation software shall be used for FQT testing."

At the time GEC Marconi received CR3015 and the related proposed CA39 on 8 March from BHP-IT for signing, it was aware that the Commonwealth had approved the Change Request (subject to presently inconsequential amendments). I equally infer that at that time GEC Marconi was aware that BHP-IT likewise approved of the amendments. It is the case, though, that no contract amendment actually was signed by GEC Marconi. I will comment later on the wellsprings of GEC Marconi's decision to so act.
348 In the circumstances I am unable to find that the ATP amendments (a) had contractual effect and (b) were another piecemeal step in giving effect to the Emulation Variation Agreement (which provided the rationale for the proposed ATP amendments). At best the events leading up to GEC Marconi's refusal to sign evidence the clear common understanding of the parties that the Emulation Variation Agreement both had been entered into and was being put into effect. It do not consider that the proposed amendments were intended to be other than operative when agreed. The only sense in which they may have been transitional was if, before completion of acceptance testing, a later contract was entered into for a STUBS replacement which was required to be integrated with the ADCNET software. I equally consider that the failure to propose parallel amendments to the FRS at the same time would not have robbed the ATP amendments of any efficacy, if agreed in a Contract Amendment. I have indicated sufficiently earlier in these reasons why I object to this "inconsistency" submission.
349 The events relating to CR3015 cannot, in the end, be relied upon make out, or to establish a contractual confirmation of, an Emulation Variation Agreement. This said, the significance of those events to BHP-IT's alternative claims based on affirmation by election and on estoppel is self-evident.
350 The final observation I would make on the pre- and post- 1 November communications and conduct of the parties is that, objectively considered, they clearly demonstrate that the parties agreed to the composite of proposals making up the Emulation Variation Agreement and that they then proceeded to put into effect what had been agreed. If there is any element of doubt in this at all, it relates to the precise identification of the point or points in time at which each of the component parts of those proposals were agreed. I have found, in any event, that this was no later than 1 November.
(g) Additional Observations
351 Having found that BHP-IT and GEC Marconi entered into an Emulation Variation Agreement, I should make the following comment about that finding. While I am satisfied as to the making of that agreement and, for that matter, that its making reflected the level of cooperation and fair dealing that the parties exhibited at that time, the agreement itself was an evolutionary one. There is no little artificiality, in my view, in having to subject the communications and conduct of the parties over time to a traditional offer and acceptance analysis. Equally, in my view, the dynamic character of the parties' relationship rather suggests that the temporal differentiation between when an agreement was reached and when it was being performed for the purpose of determining the terms of the contract can be likewise artificial. As the law now stands, I am not permitted to use post-contractual conduct for the purposes of determining the scope of the contract: cf Brambles Holdings Ltd v Bathurst City Council. In relational contract settings at least, I would suggest there is much to be said for the view that such conduct (insofar as it reflects the parties' common interpretation of their contract: cf Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 309ff) should be admissible in the interpretation of their agreement: cf Restatement of Contracts, Second, §202(4); see also Lord Steyn, "The Intractable Problem of Interpretation of Legal Texts", 10. In saying this I acknowledge that "[i]t is not easy to explain why subsequent conduct should be relevant to what the parties intended when the contract was made": Farnsworth, Contracts, 490 (3rd ed).
2. AFFIRMATION BY ELECTION
352 A distinct defence of BHP-IT is that, if it was in breach of the Sub-Contract by its failure to supply STUBS and if that breach entitled GEC Marconi to terminate the contract either under cl 40 of the Sub-Contract or at common law, GEC Marconi clearly and unequivocally elected to affirm the contract and in consequence lost its right to terminate.
353 This defence, I should note, would come into play if my conclusion as to the entry into the Emulation Variation Agreement was incorrect and if, in the circumstances, a right to terminate existed either under cl 40 of the Sub-Contract or at common law.
(a) Additional Factual Material
354 I have outlined already much of the dealings between the parties covering the period from the cancellation of STUBS in mid-September 1995 until the service of the first Notice of Breach on 3 April 1996. When later in these reasons I deal with the alleged breach arising from the non-payment of Milestone 4000 I will refer to the evidence relating to the Test Readiness Review ("the TRR") which is relevant to the question of affirmation notwithstanding the non-provision of STUBS. There is nothing additional that needs be narrated here.
(b) Relevant Sub-Contract Provisions
355 Though I will defer consideration of the proper construction of cl 40 of the Sub-Contract until later in these reasons, it is necessary because of GEC Marconi's election submissions to refer to the provisions of cl 40.8 and cl 40.9. These provide:

"40.8 Where the Customer is in breach of an obligation under this Contract so that there is a failure by the Customer to perform this Contract, the Contractor may, by notice in writing to the Customer, specify that breach and where that breach is capable of being remedied require the Customer within 32 days of receiving such notice to remedy that breach or commence appropriate action to remedy that breach.
40.9 Where the Customer has not:
(a) remedied the breach referred to in subclause 40.8 within 32 days of receiving a notice (including because the breach was incapable of being remedied); or
(b) commenced appropriate action to remedy that breach within 32 days of receiving a notice and remedied the breach within a reasonable time after that period has elapsed;
the Contractor may, by notice in writing to the Customer, terminate this Contract without prejudice to any right of action or remedy which has accrued or which may accrue in favour of either Party."

(c) Applicable Principles
356 (1) A right of election arises when a state of affairs comes into existence which enables a person to exercise alternative and inconsistent rights against another, for example, the right to terminate a contract for breach or repudiation and the right to insist on performance of the contract: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 655. When "confronted" with such a choice that person is required to elect which of the mutually exclusive courses of action he or she wishes to take: Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 41; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyds L Rep 391 at 398.
357 (2) Before a person can be said to be confronted with such a choice, that person must at least be aware of the circumstances giving rise to the choice: Sargent's case, at 656-658; Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622 at 635. While there is still some degree of controversy as to whether that person must as well have knowledge of his or her rights in cases involving common law rights: see Carter and Harland, Contract Law in Australia, [1971] (4th ed): cf Chitty on Contracts, vol 1, para 25-002 (28th ed); no issue has been taken in this proceeding as to GEC Marconi's relevant state of knowledge.
358 (3) An election is not required to be made as soon as the choice arises. "[The elector] is entitled to a reasonable time to consider his position and the merits of each course": Champtaloup v Thomas [1976] 2 NSWLR 264 at 273; Majik Markets Pty Ltd v S & M Motor Repairs Pty Ltd (No 1) (1987) 10 NSWLR 49 at 54. As Mason J indicated in Sargent's case, at 656: "He may keep the question open, so long as he does not affirm the contract ... and so long as delay does not cause prejudice to the other side". I would note in passing that there is considerable United States authority in favour of the view that a right to terminate "must be exercised with reasonable promptness after discovery of the breach": Cities Service Helix Inc v The United States 543 F 2d 1306 at 1315; and see Farnsworth, Changing Your Mind, 184. I will refer below to the significance of delay and prejudice in this matter.
359 (4) Whether an election has been made is to be judged, not by the subjective intention of the person having the choice, but by that person's words or conduct: Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41 at 55. What is required is an "unequivocal act": United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30; an election taking place "when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other": Sargent's case, at 656; that is, "it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other": ibid, at 646. Additionally, as the party making an election is "communicating his choice whether or not to exercise a right": Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India, at 399; that choice will, as a rule: cf Halsbury's Laws of Australia, vol 6 "Contract", 110-9465; be required to be communicated to the party affected by the choice: Sargent's case, at 655-656.
360 (5) While subsequent conduct in exercise of a right under the contract will ordinarily manifest an election to affirm - unless the right exercised is one which allows the making of a choice to be deferred eg as in invoking an arbitration clause: Larratt v Bankers and Traders' Insurance Co Ltd (1941) 41 SR(NSW) 215 at 229 - words or conduct that merely recognise the contract may not amount to an election to affirm. As Glass JA commented in Champtaloup's case, at 269:

"It is always necessary to examine the conduct relied upon as an affirmation in its particular evidentiary setting. The question must then be answered whether the party able to rescind has communicated to the other party an unequivocal election to affirm, ie to renounce its right to rescind. The materials upon which the decision is to be made will include any reservations which have also been communicated. The answer to be given is a decision of fact based upon all the evidentiary data. There is no overriding principle of law that an act done under the contract will always communicate the decision to affirm, regardless of the surrounding circumstances."

So, for example, conduct subsequent to a breach may result in the right to terminate being made conditional on a further breach, as for example in a case where, time being of the essence, an extension of time is given consequent on a failure to complete on time: Tropical Traders Ltd v Goonan, above. Distinctly, the parties' entry into negotiations after a breach or repudiation might, depending on the context and the subject matter of the negotiations, "warrant the inference that there had been ... an election", or, in contrast, that the parties were negotiating on the assumption that the innocent party was no longer bound by the contract: Petrie v Dwyer [1954] HCA 75; (1954) 91 CLR 99 at 105.
361 (6) There is a considerable body of authority for the proposition that a party cannot avoid the legal consequences of conduct amounting to an election by stating that it is acting "without prejudice": see eg Davenport v R (1877) 3 App Cas 115 at 132; Haynes v Hirst (1927) 27 SR(NSW) 480; Central Estates (Belgravia) Ltd v Woolgar (No 2) [1972] 1 WLR 1048 at 1054. Nonetheless where the conduct said to give rise to an election is "consistent with the reservation of a right to terminate": cf Immer (No 145) Pty Ltd, above, at 30; an election may not be found notwithstanding that acts may have been done that are consistent with the continuance of the contract. Equally, consideration of whether a decision to affirm has been made must take account of "any reservations which have ... been communicated": Champtaloup's case, at 269. I would note in passing that in the US the Uniform Commercial Code §1-207 takes a more generous view of the effectiveness of an explicit reservation of rights.
362 (7) The effect of an election to affirm is that, once communicated to the other party, the choice made becomes irrevocable and the right to terminate is lost in respect of the breaches of contract or repudiation that required the election to be made: Sargent's case, at 656; Tropical Traders Ltd v Goonan, above, at 55; and see generally Cheshire and Fifoot, Law of Contract, para 21.31 (8th Aust ed); Chitty on Contracts, vol 1, para 25-003 (28th ed); Farnsworth, Changing Your Mind, 183. The irrevocability of the choice made does not depend on proof of reliance by, or of detriment to, the party in breach. "An election, unlike estoppel, is concerned with what a party does and not what he causes the other party to do": Khoury v Government Insurance Office (NSW), above, at 633.
363 (8) An election to affirm in respect of a breach of contract or of a repudiation does not prevent the elector from relying upon an available later breach: cf Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 441-442; or repudiation: Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444 at 458-459; Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327; to terminate the contract provided that there is a later breach or repudiation that is distinguishable from the earlier breach: cf Larking v Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221, at 236ff on the distinction between a "once and for all" and "continuing" breach.
364 (9) Distinct rationales have been advanced to support various of the principles that make up the law of election. Because of their relevance to the present matter, I would note the following two matters. First, the requirements that the election be made within a reasonable time (or, in the US, promptly), and that it be irreversible have been said to prevent the elector speculating on the future progress of the contract at the other party's risk: see Farnsworth, Changing Your Mind, at 184ff; that other party, having no control over the choice finally made, being vulnerable necessarily to the party having the power of election: ibid 182. In consequence, these requirements have been seen as having the capacity to help keep together ongoing transactions, for example, construction contracts, in which a breach has occurred sufficient to give rise to the right to terminate: Farnsworth, Contracts, §8.19 (3rd ed). Secondly, and correspondingly, the requirement that the election be communicated to the party affected by the choice made has been said to have no doubt been adopted:

"in the interests of certainty and because it has been thought to be fair as between the parties that the person affected is entitled to know where he stands and that the person electing should not have the opportunity of changing his election and subjecting his adversary to different obligations": Sargent's case, at 656.

(d) Submissions and Conclusions
365 BHP-IT has contended that GEC Marconi's election to affirm is clearly evidenced in its continuing to perform the Sub-Contract on the basis that it would be completed without STUBS using emulation software; by GEC Marconi's participation in the various change requests and contract amendments between mid-September 1995 and 3 April 1996; by undertaking the review work for the Test Readiness Review and then issuing an invoice to BHP-IT for Milestone 4000 on 12 March 1996; and by not notifying BHP-IT at any relevant time that it would or might rely on the non-provision of STUBS to trigger cl 40 of the Sub-Contract.
366 Though contesting the construction BHP-IT sought to place on some of the correspondence passing between it and BHP-IT, the Commonwealth substantially supported BHP-IT's submissions and contended, further, that GEC Marconi's election to affirm the Sub-Contract was mirrored in BHP-IT's like election to affirm the Head Contract.
367 For its part, GEC Marconi denies it elected to affirm the Sub-Contract. It contends, first, that cl 40 of the Sub-Contract did not, on the cancellation of STUBS, give rise to an inconsistent right. Rather it clearly contemplated the continued performance of the Sub-Contract, the giving of Notices and of termination thereafter. By continuing to perform - and it was bound to do so pending the issue of Notices - GEC Marconi could not be said to have elected to waive its right to terminate. Secondly, the various contract amendments and change requests are said by GEC Marconi not to evidence an election. In particular, CR3049 was a separate contract and the pending of CR3057 made GEC Marconi's conduct equivocal. Thirdly, it is said that BHP-IT's refusal to supply STUBS was repudiatory and continuing. Even if there was an earlier election this did not preclude a later termination. Fourthly, if the failure to supply STUBS was a "once and for all" breach, GEC Marconi did not elect to affirm and for this it relies upon (a) its inability to complete the ADCNET contract without STUBS in the absence of an agreed variation to the contractual documentation; and (b) its entitlement to await the outcome of negotiations for a variation before it needed to elect whether to affirm or to terminate.
368 My own conclusion is that, despite GEC Marconi's ingenious argument as to the operation of cl 40 of the Sub-Contract, this is a clear case of affirmation and that GEC Marconi's purported termination was an attempt, opportunistically and too late, to avoid a "regretted decision" it had long since made. The non-provision of STUBS was not a "sleeper" that GEC Marconi could awaken for its own advantage five months after the cancellation of STUBS was announced: cf Cities Service Helix Inc v The United States, above, at 1315. Given the nature of the contractual relationship and what transpired in the intervening five months, GEC Marconi had lost its right to resort to cl 40 of the Sub-Contract to precipitate a termination.
369 I should deal first with GEC Marconi's submission that, in the case of a breach that could attract cl 40 of the Sub-Contract, that clause did not occasion the need to make a choice between inconsistent rights as it clearly contemplated a continued performance of the Sub-Contract pending non-compliance with the Notice of Default and the consequent decision to terminate.
370 For my own part I do not consider that the effect of cl 40 can be dispensed with so easily. Assuming the cancellation of STUBS was a failure to perform the Sub-Contract such as to attract the provisions of cl 40, GEC Marconi was then confronted with a clear and obvious choice. It could then and there affirm the contract and claim damages (if it was so minded) flowing from the non-provision of STUBS, but by so doing it could no longer seek to terminate the contract because of that failure to perform. Alternatively it could invoke cl 40 thereby creating the conditions that would permit it to terminate the contract. Such a state of affairs clearly required a choice to be made. It is not sufficient to say that both affirmation and invoking cl 40 required GEC Marconi to continue to act in performance of the contract. That action in performance would be to quite different ends in each case: in one, it was premised upon the contract being kept on foot shorn of the right to terminate; in the other, it was for the purpose of creating the conditions for its demise.
371 GEC Marconi's submission in effect invites me to conclude that, having cl 40 available to it, GEC Marconi could keep BHP-IT at its mercy indefinitely, BHP-IT never knowing whether the continuing performance of the Sub-Contract resulted from GEC Marconi's affirmation or from its intent to keep open the possibility of activating cl 40. This, clearly enough, offends the policies informing the law of election to which I have referred as well as "simple considerations of common sense and equity": Johnson v Agnew [1980] AC 367 at 398. More importantly though, it highlights why a state of affairs existed in which GEC Marconi was able to exercise alternative and inconsistent rights against BHP-IT and why, being confronted with such a choice, it had to elect either to affirm the contract or to activate cl 40.
372 I do not consider that the facts (i) that cl 40 required the giving of a notice to remedy before termination could be effected; and (ii) that termination under cl 40 was not automatic but gave a discretion to the contractor, affected the conclusion at which I have arrived. These provisions provided a graduated procedure involving in the first instance the taking of "a less drastic course of action": cf Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India, above, at 398; before termination could be effected. Affirmation and cl 40 gave rise to two quite different and inconsistent regimes of contractual rights and obligations. GEC Marconi was obliged within a reasonable time to elect of which of the two it wished to avail.
373 I should add the following for the sake of completeness. First, I do not consider that cl 40 was intended to be a provision that would enable deferral for an indefinite period of a decision to terminate. It simply allowed for a period of grace before such a decision could be taken. Secondly, GEC Marconi has submitted that the cl 40 procedure is additional to the common law rights to terminate. If such was the case, and I express no view on the matter, it would be anomalous if the common law right was able to be lost by affirmation while that self-same affirmation did not as well preclude resort to cl 40. Finally, though it does not bear on the question of characterisation of cl 40.8 and cl 40.9, it went without saying when GEC Marconi served the first notice, that it was beyond BHP-IT's power to remedy the breach or to commence appropriate action to remedy it (as envisaged by cl 40.9(a) or (b)). These were matters within the control of the Commonwealth.
374 To the extent that GEC Marconi relies upon the fact of negotiations for a possible replacement to STUBS as relieving it of the need to make an election until the outcome of CR3057 was known, I simply reiterate what I earlier stated (see "Applicable Principles"): negotiations after breach, depending on their context and subject matter, may warrant or preclude the inference that the contract has been affirmed. The fact of CR3052 and CR3057 and the associated dealings between the parties are simply part of the material to be considered in determining whether a choice was made. Even if, contrary to my view, it was the case that GEC Marconi could have delayed making its choice until the outcome of CR3057 was known, it did not do so as I will indicate below.
375 Distinctly, GEC Marconi contends that the refusal to provide STUBS was a repudiatory and continuing breach such that the issue of affirmation did not arise as the repudiation continued to operate until it had been either withdrawn or remedied by performance. Thus, an election to affirm did not preclude a subsequent termination.
376 This, in my view, mischaracterizes the cancellation of STUBS in the setting in which it occurred. It is the case that (i) the loss by affirmation of the right to terminate for breach will not preclude termination for a later repudiation of the contract: Ogle v Comboyuro Investments Pty Ltd, above, at 458-459; (ii) the loss by affirmation of the right to terminate for repudiation will not preclude termination for a subsequent breach of contract that gives rise to the right to terminate: cf Foran v Wight, above at 441-442; and (iii) the loss by affirmation of the right to terminate for breach will not prevent termination for a further breach that gives rise to the right to terminate: Larking v Great Western (Nepean) Gravel Ltd, above, at 236.
377 The present matter, though, does not fall within any of the above three classes of case. I will indicate later in these reasons (the "Construction of Clause 40") that I do not consider that the non-provision of STUBS was, for the purposes of cl 40.8, a "failure ... to perform [the] Contract". Accepting for present purposes that it was, it amounted to no more than a failure to perform by reason of a breach of a "once and for all" provision of the Sub-Contract. The obligation to provide STUBS was an obligation to do a definite act and not to create and maintain a state of affairs: cf Larking v Great Western (Nepean) Gravel Ltd. BHP-IT, in fact, persisted in failing to provide STUBS, though there is nothing in the evidence to suggest that that failure during the period relevant for present purposes was other than expected and acquiesced in by the parties. From mid-September 1995 until the first intimations in late February 1996 that GEC Marconi might treat the non-provision of STUBS as a default, the parties were directing themselves, not to the future provision of STUBS, but to agreeing a replacement strategy, with KIV-7 being the initial subject of examination.
378 In the same way that BHP-IT's continuing failure to provide STUBS did not constitute any further breach of contract but was merely a failure to remedy a past breach, the "failure to perform" for cl 40.8 purposes was of a like character. BHP-IT's conduct was not repudiatory in the sense of amounting additionally to a refusal to be bound by the Sub-Contract: cf Carr v J A Berriman Pty Ltd, above at 349. Its failure amounted to "the breach of a specific provision", not "the renunciation of the contract as a whole": cf Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214 at 227. I would merely add that, considered in its factual setting, it is far from the reality of the matter to suggest other than that the Commonwealth (hence BHP-IT) were committed to the completion of the ADCNET project so that, once STUBS was cancelled, ways forward were being proposed.
379 I do not consider that BHP-IT was guilty of a further breach of contract or of a subsequent repudiation beyond its breach of contract (and for cl 40 purposes, its "failure to perform") because of the continuing non-provision of STUBS. Likewise I do not consider either (i) that that breach was other than a once and for all breach, or (ii) that the parties at the time considered the breach in any different light.
380 I do not intend again to analyse either the communications and agreements reached or negotiated (if not reached: eg CR3015) between the cancellation of STUBS announcement on 13 or 14 September and the serving of the first Notice in April 1996, or the known conduct of the parties in that period. I would simply make the following observations about it.
381 First, those communications, etc manifested in a variety of ways that GEC Marconi was electing to affirm the contract. The change request and contract amendment mechanisms were used on a number of occasions during that period. That usage was consistent only with a choice on GEC Marconi's part to keep the contract on foot despite the breach. Contrary to GEC Marconi's submission, it is not to the point that some of those requests and amendments involved separate contractual agreements (as for example CR3049). Those agreements were predicated upon, and had no justification without, the continuation of the Sub-Contract.
382 Secondly, the emulation agreement resulting from CR3049, represents the clearest early act of affirmation. Its later culmination in the building of the emulator, its demonstration, and the receipt of payment for it, merely confirmed what had previously been affirmed.
383 Thirdly, GEC Marconi not only did acts which recognised the Sub-Contract, it proceeded to perform its own obligations, not merely in the continued development of the ADCNET software, but also in relation to the TRR contractual Milestone. In relation to the latter it went so far as to call on BHP-IT to perform its Milestone 4000 obligation and to pay GEC Marconi. What makes this latter action the more significant is that it occurred after GEC Marconi had raised the prospect of the non-provision of STUBS being a default under the Sub-Contract. The claim to be paid for Milestone 4000, made over four months after the notice of STUBS cancellation, presupposed that GEC Marconi was relying on the continued operation of the Sub-Contract to make good that claim and that it was insisting upon BHP-IT's continuing performance of its obligations.
384 BHP-IT has not relied upon the passage of time as such to preclude GEC Marconi from asserting its right to terminate, because of prejudice to BHP-IT. Rather it properly points to the communications made and conduct engaged in during that period as confirmatory of the inference that the choice to affirm was made. It likewise points to the absence of any communicated reservation of rights across the period until the default issue was raised in late February 1996. Given both the way forward proposals put by Les Cook in the 26 September letter and the immediate moves made then to investigate a replacement for STUBS, if there was to be any prospect of the inference of affirmation not being drawn from what transpired from and after the CR3049 agreement an explicit reservation of rights needed to be made within a reasonable time and to be communicated to BHP-IT clearly and unmistakably.
385 This was a relational contract and the second in a sequence that dated back to 1990. The parties' actions necessarily need to be considered in the context of a long standing business relationship - a relationship, moreover, through which GEC Marconi sought to derive other advantages from its association with BHP-IT beyond the completion of the ADCNET contract. I merely note in passing that on 6 February 1995 GEC Marconi entered into a standing offer agreement with BHP-IT in the expectation of being asked to provide IT systems integration services to BHP-IT which would in turn be supplied to the Department of Defence: see below "BHP-IT's Termination of the Standing Offer Agreement".
386 The evidence suggests that, notwithstanding uncertainty about the availability of STUBS (in time or at all), from at least July 1995 (if not considerably earlier) the parties were prepared to consider cooperating and to propose compromises (often admittedly self-interested) to have the ADCNET contracts completed. So, for example, GEC Marconi had itself proposed in the context of schedule renegotiation prior to the cancellation of STUBS, that emulation be used to conduct acceptance testing. I consider that through 1995 the parties, though not acting disinterestedly, were regulating their relationship more by reference both to what was fair and reasonable having regard to the objectives of the ADCNET project and to what could be mutually accommodated in changing circumstances, "than by reference to a priori rights and duties arising under [the] contract": cf Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd, above, at 11, 117.
387 That GEC Marconi might activate cl 40 of the Sub-Contract to terminate the contract within a reasonable time after the formal 26 September notice that STUBS would not be provided, was not an expectation that any of the parties including GEC Marconi would reasonably have entertained at that time. Not surprisingly, from 26 September until at least the first default Notice, GEC Marconi continued to perform and to participate in the exercise of rights under the Sub-Contract - as did BHP-IT. In relation to the Head Contract, BHP-IT and the Commonwealth acted similarly. The prospect of termination for breach was simply not on the horizon and the parties acted accordingly. Their negotiations for a replacement strategy were not to be conducted under the shadow of a retained right to terminate. On the contrary.
388 So it was that Mr Sharp could not disagree with the proposition put to him in cross-examination that all of the communications that he had been making with BHP-IT until 19 February 1996 had been aimed at reassuring BHP-IT that GEC Marconi intended to continue with the fixed price contract and that it intended to cooperate with changes to the contractual arrangements that might be necessary to enable that to occur.
389 Mr Sharp went on to admit that he had read the Sub-Contract carefully and that in or shortly prior to March 1996 he had fastened upon the failure to provide STUBS as an opportunity for GEC Marconi to escape from its obligations under the contract.
390 As Mr Hilton SC happily put the matter, GEC Marconi was "content to proceed [with the contract notwithstanding the non-provision of STUBS]. Mr Wishart gave evidence to that effect. That's what the documents say. It's only when the businessmen took over the management of the contract that a commercial decision was made to escape from the obligations ... [B]y then it is just too late".
3. ESTOPPEL
391 There are two quite distinct defences founded on estoppel. The first is premised upon the Emulation Variation Agreement having been entered into but being ineffective to vary the Sub-Contract (contrary to my conclusion) because it failed to satisfy the requirements of cl 45.1 of the Sub-Contract. The defence raised is that the circumstances both leading up to, and consequent upon, the entry into that agreement on 1 November were such as to estop GEC Marconi from later insisting upon the cl 45 writing requirement.
392 The second estoppel defence related to the non-provision of STUBS. Put shortly and somewhat inaccurately, it is that in consequence of BHP-IT's detrimental reliance both on representations by GEC Marconi and on the common understanding of the parties that BHP-IT was no longer required to provide STUBS and that GEC Marconi would no longer assert any right to require it, GEC Marconi was estopped from departing from the position so represented and so conventionally understood.
(1) Estoppel and Clause 45
393 I have already found that the Emulation Variation Agreement was entered into on 1 November 1995 and that the parties proceeded to carry it into effect. Emblematic of the latter were (i) the producing of the specifications for the emulator and the communications between all three parties concerning them; (ii) GEC Marconi's building and demonstration of the emulator; and (iii) GEC Marconi's invoicing BHP-IT and BHP-IT's payment for the performance of CR3049.
394 I likewise have indicated that I consider that it was open to BHP-IT to raise this defence. There was no express pleading of estoppel directed at cl 45.1 as such, but there was such a pleading directed at the obligation to provide STUBS. In the circumstances of this trail and of the issues raised in it, I am satisfied that it was open to BHP-IT to raise the cl 45 estoppel notwithstanding GEC Marconi's protests to the contrary. It arises so directly out of the matters that have been in contention in both the Emulation Variation Agreement and the second estoppel defences that I am unable to accept that it cannot now be relied upon or that GEC Marconi would be prejudiced in any way by BHP-IT so doing.
395 As to the estoppel itself, I consider it unnecessary either to reiterate here the evidence I have already analysed when considering the Emulation Variation Agreement or to anticipate the additional matters to which I will refer when dealing with the second estoppel claim. Having found that the parties entered into the Emulation Variation Agreement, that evidence clearly demonstrates the reliance of both parties on their common understanding that there was such an agreement and that it would be, and then was being, carried into effect. I have illustrated this above. Such reliance in the circumstances makes it unjust to allow GEC Marconi to raise the cl 45 writing requirement and to depart from the understanding it both shared with, and reinforced in, BHP-IT: Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547; Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251 at 276-277; see also Unidroit, Principles of International Commercial Contracts, Art 2.18.
(2) Estoppel and the Obligation to Provide STUBS
396 The two species of estoppel pleaded are estoppel by representation and estoppel by convention. The former is advanced in both its common law and equitable guises. The evidence relied upon to make out both the representation alleged and the conventional understanding of the parties, is essentially the same as is the subject matter of the representation and understanding respectively.
397 Insofar as presently relevant, the representation and understanding as pleaded were said to be:

"(b) the Sub-Contract Variation Agreement had been entered; or
(c) the Respondent was no longer obliged to deliver STUBS equipment or associated software to the Applicant; or
(d) the Applicant would no longer assert or rely upon any right to require delivery of STUBS equipment or associated software under the Sub-Contract."

The "Sub-Contract Variation Agreement", as pleaded, made up only part of the Emulation Variation Agreement I have found. It removed BHP-IT's obligation to provide STUBS and GEC's obligations in respect of STUBS, and it varied the Sub-Contract's contract specifications to that effect. A separate CR3049 STUBS Emulation Agreement has, though, been pleaded. For practical purposes, that Agreement replicated the first three clauses (relating to emulation) of the Emulation Variation Agreement I have found. The Emulation Agreement, I would add, is one of the evidentiary matters relied upon in making out the estoppel advanced.
398 The detriment that has been pleaded as having resulted from BHP-IT's reliance upon the representation or conventional understanding is also common to both claims. It is said to be:

"(a) The Respondent did not require the Commonwealth to provide the STUBS hardware and software as CSI under the Head Contract.
(b) The Respondent did not serve notices of breach on the Commonwealth under the Head Contract until 11 April 1996 ... and did not negotiate a full time and materials variation to the Head Contract."

399 As was perfectly plain from the evidence of a hearing that occupied over seventy days, if the representation and understanding were made or entertained as alleged and were relied upon by BHP-IT, the above two specified matters of detriment (both in the nature of omissions to act) would clearly not exhaust the matters to which BHP-IT might be able to point as possibly constituting detriment if GEC Marconi were to be permitted to depart from what was represented or commonly understood. I will later refer in particular to evidence given by Mr Brent on this.
400 Predictably, BHP-IT in submissions has sought to cast its net more widely than those two specified matters. This, also predictably, has generated a pleading dispute, GEC Marconi alleging it would be prejudiced if this was to be allowed. The prejudice apprehended is the possible effect of not knowing at the time various BHP-IT witnesses were cross-examined of what is now sought to be relied upon. For reasons I enlarge upon in "Findings and Conclusions", I have allowed BHP-IT to raise these "new" instances of detriment. I would have to say that I regard the objection in any event as being more technical than substantial in the circumstances. Given the nature of the representation and understanding pleaded, and the character and extent of the conduct engaged in by the parties subsequent to the alleged representation and understanding, I consider that the apprehended prejudice can in the circumstances be safeguarded against in the findings I am prepared to make. I would note that GEC Marconi has experienced no apparent difficulty in making lengthy submissions on the newly relied upon matters.
(a) Additional Factual Material
401 All of the material referred to earlier in relation to the Emulation Variation Agreement has been recycled for this defence. There are several additional pieces of evidence to which I should refer. It is also necessary to refer in a little detail to Mr Brent's evidence of his state of mind and reasons for action in late 1995 and early 1996.
402 (i) After being appointed General Manager of GEC Marconi, Mr Sharp met with Mr Brent on 27 November 1995. On 5 December Mr Brent wrote a letter to Mr Sharp which contained a resumé of the matters discussed. It included the following:

". EASAMS schedule - you indicated that EASAMS was moving it's ADCNET project control mechanisms to a more rigorous project control regime. We agreed that EASAMS will provide a month-end schedule of the ADCNET project each month to BHP IT beginning with the month of November, 1995;
. EASAMS estimate to complete - you indicated that EASAMS propose to have an independent estimator conduct a full re-estimate of the work remaining. These estimates will be calibrated against work completed to determine the accuracy of the estimate;
...


. STUBS - you indicated that EASAMS would produce a formal priced proposal for the replacement of STUBS by 22 January, 1996. In this context we discussed options for ensuring smooth passage to the proposal."

403 (ii) On or about 9 February 1996 representatives of the Commonwealth, BHP-IT and GEC Marconi including Les Cook, Mr Brent and Mr Wishart attended a demonstration of the emulator at DFAT's premises. I accept that the view was there expressed that the emulation software was considered satisfactory. After the demonstration Les Cook wrote to Mr Brent in the following terms:

"The STUBS emulation software was demonstrated by Mr Peter Newton and additional information was provided by Mr Scott Preston.
I confirm that, to the degree of detail presented, the emulation will be adequate to enable formal qualification testing of the release 3 software to be performed."

There is no documentary evidence indicating that this letter was sent to Mr Wishart. Mr Wishart could not recall if he had read the letter.
404 (iii) GEC Marconi raised an invoice for the emulation software on 6 February 1996. Payment of $31,507.06 was authorised by Mr Brent and was made on 19 February 1996.
405 (iv) On 1 March 1996, Mr Goldsmith sent a facsimile to Mr Sharp which was copied to Roger Cooke. It opened with the following:

"Regarding the letter about the Partial Emulation of STUBS:
1. After much searching through the documents, we discovered a letter from Peter to Kyrill dated 21 November (File Ref 081/PJW-95-11-21-1 copy attached) which at the second para states "The cutdown STUBS emulator was intended to provide a mechanism to exercise all paths through the IPD code which could be affected by the STUBS device".
2. In a memo to Howard Breden dated Oct 16 1995, Peter states that the STUBS Emulator `software will only be used for development, integration and acceptance of the system under contract'. He states that we wont warranty the emulator s/w ... I attach this memo.
3. Basically I don't think you have a viable case to say that the system wont work if it is tested against the emulator. I also don't think that you can make much of a case that DFAT can't use the system without STUBS. It is their risk."

The 21 November letter referred to in the first paragraph is (from its File Ref number) Mr Wishart's 22 November letter.
406 (v) On 28 March GEC Marconi wrote both to Mr Brent and to Mike Haddad (the Senior Commercial Manager of BHP-IT) outlining its response to CR3057. This was "$8 million letter". It precipitated internal written communications in BHP-IT to which I will refer below.
407 (vi) On 28 May 1996, Mr Brent wrote to Les Cook seeking his advice on (inter alia) the following matters:

"3. given that the purpose of STUBS emulation is to allow the development and testing only of ADCNET Release 3 how does the Department intend to commission ADCNET Release 3?;
...


6. implementation of CR3049 STUBS emulation notwithstanding, what does the Department intend to do about obligations defined in the contract and subsidiary documentation which still depend on the delivery of STUBS?"

408 (vii) It was Roger Cooke's evidence in cross-examination (a) that from July 1995 until March 1996 he never wrote to BHP-IT objecting that GEC Marconi could not proceed to complete the contract in the absence of STUBS; and (b) that he did not record any objection he had to the statement that the emulation software was to be used for acceptance of the system under the Sub-Contract.
409 (viii) It was Mr Sharp's evidence (a) that from 1 November until 26 February, there was not a GEC Marconi document that conveyed that its view was that the non-supply of STUBS might constitute a default under the contract; (b) that until 19 February the communications he had been making with BHP-IT had been aimed at reassuring BHP-IT that GEC Marconi intended to continue with the fixed price contract and would cooperate to make changes to the contractual arrangements that might be necessary to make that occur.
410 The evidence of Mr Brent to which I need refer derives from his witness statements, communications he made within BHP-IT in early 1996 and his oral evidence. Mr Brent's state of mind - hence the reason he acted as he did - in that period is in issue in the estoppel claim.
411 The position taken by GEC Marconi is that so much of Mr Brent's evidence was shown, by cross-examination, to be the product of reconstruction that it would be entirely unsafe to act merely upon Mr Brent's assertions about the beliefs that he held. It is said, in particular, that Mr Brent's evidence about his state of mind prior to February 1996 concerning the use of the STUBS emulator for acceptance testing was nothing more than reconstruction.
412 The cross-examination of Mr Brent took place over seven days. I have earlier foreshadowed my view of the unreliability of Mr Brent's evidence. I should indicate my reasons for that view given the nature of the attack GEC Marconi has mounted upon his evidence. Mr Brent had a marked tendency to reconstruct from documents, his own recollection of events being quite imperfect; he was susceptible to suggestion to the point where what could have occurred, or would have been in accordance with best practice, did occur; and he had quite understandable difficulties in giving precise temporal locations to matters of which he had recollection. In consequence I have not, in the main, accepted his evidence unless it has documentary support.
413 In his fourth witness statement Mr Brent stated that he believed that the following matters were agreed or understood by each of BHP-IT, GEC Marconi and the Commonwealth:

"(a) Agreement upon emulation removed the obligation upon the Commonwealth and BHP-IT to supply STUBS as CSI.
(b) The purpose of the STUBS emulator was to allow acceptance testing and completion of the ADCNET software under the Release 3 contract in the absence of actual STUBS hardware and software.
(c) References to STUBS in the acceptance test plan and the architecture design document would be removed and replaced with references to STUBS emulation."

He further stated that he acted on that belief in (1) signing CA23 and accepting GEC Marconi's CR3049 offer and in participating in correspondence passing between the Commonwealth and GEC Marconi concerning the purpose of the emulator and in particular Les Cook's 13 November 1995 letter and Mr Wishart's 22 November response; (2) participating in the correspondence leading to, and then the approval of, CA45 and CA30 (its Sub-Contract equivalent); (3) participating in the CR3015 ATP amendment proposals; and (4) amending the ADD under CR3060.
414 In evidence that has bearing on the issue of possible detriment, Mr Brent went on in his witness statement that, if GEC Marconi were permitted to resile from what he understood to be the common understanding of the parties (including the Commonwealth) then BHP-IT might be prejudiced in two respects. The first was that it continued to perform its obligations under each of the Head Contract and the Sub-Contract and took no action in relation to the non-supply of STUBS where, but for its belief as to the common understanding, it would not have done so. Secondly, BHP-IT may be exposed to liability if any change or variation of its obligations under the Head Contract was not mirrored by a corresponding change or variation in the Sub-Contract.
415 Mr Brent further indicated that he first heard of the suggestion that the non-supply of STUBS might constitute a default at the 23 February 1996 meeting with GEC Marconi. Of that meeting, he commented in his witness statement:

"I said that I rejected any suggestion of default. I said that there is correspondence from EASAMS on the file that directly contradicts it as it states that the emulator would allow acceptance testing to be completed. I asked the EASAMS representatives to reconsider their position."

416 Mr Brent provided his National Manager, Mr Dart, on 26 February 1996 with a resumé of the 23 February meeting with GEC Marconi. The resumé included the following:

". EASAMS will not put forward a firm price proposal for STUBS replacement because they perceive the risk to be too high;
. EASAMS perceive that the inability of DFAT to supply STUBS as per the contract may constitute a default on the part of DFAT and BHP-IT;
. EASAMS would like to explore the possibility of doing some or all of the work on a T&M basis and resetting/re negotiating the basis of the existing contract;
. EASAMS would like all outstanding commercial issues resolved, these were held in abeyance by DFAT pending the submission of the STUBS proposal;
...


. EASAMS have requested a conference between BHP IT, DFAT and EASAMS."

He went on to state:

"In my view we should arrange a conference between BHP IT and DFAT and BHP IT, DFAT and EASAMS in order to table outstanding issues and determine the way ahead for the project which is acceptable to all parties."

417 After receiving GEC Marconi's CR3057 proposal Mr Brent provided Mr Haddad with his review of it by letter on 1 April. In putting his view as to the position BHP-IT should take, he wrote:

"we must not allow the contract to be terminated. The STUBS breach has been remedied by the STUBS emulation change request and processed as a formal variation to the contract. Therefore there is no contractual problem."

418 The following day he had meetings, first, with representatives from GEC Marconi and, then, with GEC Marconi and the Commonwealth. Mr Brent, by letter of 3 April, provided Mr Haddad with a resumé of those meetings. He gave the following as part of his analysis of "the present position":

"STUBS unavailability - EASAMS were formally advised that STUBS would not be available and were requested to quote on the development of a STUBS emulator as a mitigation against delay in development, integration and formal acceptance of the system. EASAMS proposed the quotation, accepted the change request and the associated formal contract amendments citing schedule impact of 0.5 days and confirming by letter (Attachment D [Wishart's letter of 23 October 1995]) that the emulation would be sufficient for purposes of development, integration and formal acceptance of the system. Thus I believe EASAMS do not have a case on this issue."

419 I do not propose to summarise at all the several hundred pages of cross-examination of Mr Brent that bears upon his state of mind in the relevant period. It would be unsafe to accept (a) his accounts of meetings in the relevant period (save to the extent that contemporary documentation supports such accounts) and (b) his assertions that he had particular documents in mind when making both oral and written communications. In consequence I agree with a deal of the criticism levelled by GEC Marconi at both his oral and written evidence. I equally do not consider that any significance should be attributed to the manner in which he suggested, both in contemporary correspondence and in oral evidence, that legal effect was given to his belief that STUBS emulation was to be used for acceptance testing.
420 There are, though, two parts of his evidence to which I must refer as in each instance I accept the substance of what he said. The first of these relates to his formation of the understanding he claims he had that there had been a change to the contract which meant it was to be completed with the emulator rather than with STUBS.
421 The particular evidence on this matter I wish to note was given in response to questions whether that was his understanding in February 1996. Over ten pages of the transcript Mr Brent narrated in a somewhat disconnected way the various matters that informed his understanding. His narrative, for understandable reasons, worked backwards from February 1996, and focussed upon what he described on several occasions as "streams of activity" relating both to "STUBS not being there" and to STUBS emulation, that were going on during the period from late 1994 to early 1996. These were, variously (i) the recent demonstration of the emulator, and the payment for it; (ii) the contract variations that had been made, particular reference being made to the variation to effect changes to the ADD; (iii) Mr Wishart's 23 October 1995 letter making the CR3049 offer and his 22 November 1995 letter responding to Les Cook's comments on the emulator; (iv) DFAT's advice on 15 September 1995 that STUBS was cancelled and the raising of CR3052 and later CR3057; (v) correspondence in December 1994 and June or July 1995 that was concerned with STUBS emulation and, in the case of the latter, with acceptance testing; and (vi) the change request to develop the emulator.
422 Having indicated the above, Mr Brent concluded:

"So that's my understanding and my recollection of those sorts of issues surrounding STUBS and emulation. My view was always, as I recall, that emulation was for the purposes of acceptance testing. It wasn't for some interim progression. My recollection is that that concept arose at some later stage, I think, once the dispute was extant."

He was then asked by Mr Simpkins SC:

"Q. When was it, do you say, after 15 September 1995 that you first reached an understanding that the obligation to provide STUBS had gone and been replaced by an obligation to finish with an emulator?
A. I think my recollection of that was the letter that said - the letter from EASAMS that said emulation was for integration and acceptance of the system, the quotation and my acceptance of that quotation and subsequently confirmed in those contract variations that I talked about."

423 To anticipate my findings below I accept that Mr Brent's understanding was as he described it. However, for the general reasons, I gave above I do not accept that any of the particular matters upon which he based his understanding were actually present to his mind at the 23 February 1996 meeting.
424 The second body of evidence relates to the state of the contractual documentation in light of the variation that Mr Brent considered had occurred. The following two passages are set out in full - as they are in GEC Marconi's written submissions - because of submissions made on them. The cross-examiner in each instance was Mr Simpkins SC and a day of hearing separated the two.

"THE WITNESS: ... My recollection of events surrounding the STUBS emulation were that the emulation would allow the acceptance of the system and, therefore, we were not dependent on the availability of STUBS any more. Subsequent to advice by the Department that STUBS would not be available, the fact that the emulator was there and would allow the system to be taken to acceptance was further confirmation to me that we could complete the job and that we were no longer dependent on the availability of STUBS to complete the job. That is my understanding and that is why I believe that the obligation to provide STUBS was removed.
Now, the changes that were necessary on that - there are still schedules in the Contract that still talk about STUBS and there are still references to STUBS in the Functional Requirement Specification, but the intent was to remove those. But the dispute came and from the moment of that dispute everything effectively stopped and the Acceptance Test plan was one example of that.
MR SIMPKINS: Q. Can I ask the question again. The question:
When you say it is your understanding are you reconstructing or are you telling His Honour that this is what you can actually remember thinking throughout the last few months in 1995 and the early part of 1996?
A. Certainly I think my thinking was consistent with that, your Honour.
Q. So no element of reconstruction at all?
A. Well, I'm just wondering. I don't know. I don't know whether there is an element of reconstruction but -
Q. You see - I don't mean to cut you off. Please finish.
A. Because this is the end of '95 beginning of '96?
Q. I'm asking you about the last few months in 1995 and early 1996.
A. Certainly the last few months of 1995 - my - sorry, your Honour, it's been a long week. The last few months of 1995 my - and February 1996, my state of mind was that an emulation was in fact being constructed and by February has been constructed to allow the system to be accepted. Also, by the end of 1995 I knew that STUBS was not available and I knew that the emulation was designed to take the place of STUBS for the purposes of acceptance only.
I knew that we processed contract variations in which the emulator was included. The contract variation I interpreted as a contract variation and amendment of the contract for replacement of STUBS with STUBS emulation. I was also conscious at the time that there were schedules in the contract that still were not amended and still reflected that STUBS in fact was the item of CSI to be delivered. My recollection is that those changes - that the intention, in my mind, was that those changes to the contract would occur once a replacement for STUBS was known. And, therefore, one could substitute the references in the contract schedules from STUBS to whatever the replacement was and action was in train to do that.
Similarly, as part of that changes to the FRS, we would have expected the replacement exercise, which was significant, to identify the necessary changes to the FRS. That is my state of mind, yes.
...


(2) Q. ... Mr Brent, you knew, didn't you, in the last quarter of 1995 and, indeed, in early 1996, that there were obligations relating to STUBS in the contract that remained unchanged?
A. Yes, there were CSI schedules in the contract that still included STUBS.
Q. You knew at the same time, didn't you, that there were requirements in relation to STUBS in the FRS that remained unchanged?
A. Because of my lack of detailed knowledge of the FRS and the understandings of the information, the amending information that was passing through me, I guess what I am saying is that I couldn't say one way or the other with all probability there would be requirements left within the FRS that related to STUBS, yes.
Q. Can I suggest to you that your belief at that time - that is, in the last quarter of 1995 and early 1996 - was that those obligations would be the subject of change?
A. Yes. Sorry, what was the time period of that?
Q. The last quarter of 1995 and early 1996.
A. After the announcement, yes, my belief was that they would be subject of change.
Q. You thought it most likely that that change would take place once the outcome of change request 3057 was known?
A. That - as I recall, that was my understanding at the time, yes. There would be no point in doing otherwise.
Q. It is a more accurate statement, is it not, of your state of mind in the last quarter of 1995 and early 1996 that you thought the obligations relating to STUBS would be removed rather than they had been removed?
A. I think I in fact - I think I in fact made that clarifying point in my statement."

(b) Applicable Principles
There has been no disagreement between the parties as to the principles to be applied in resolving this matter, nor has any attempt been made by GEC Marconi to exploit such uncertainties as may still exist either in relation to the permissible subject matter of estoppel by convention: see the authorities discussed in Government Employees Superannuation Board v Martin (1997) 19 WAR 224 at 242ff; or in the principles governing the award of remedy in cases of equitable estoppel: see Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101. The disagreement between the parties is limited to whether the evidence is sufficient to support a finding of estoppel that would preclude GEC Marconi from asserting that at no time was BHP-IT relieved of its obligation under the Sub-Contract to supply STUBS.
425 For present purposes it is sufficient for me to refer to separate formulations of the principles governing equitable estoppel and estoppel by convention. They conveniently encapsulate the elements of each in brief propositional form. I do recognise, though, that there are differences to be found in judicial statements relating to both species of estoppel, these being occasioned in some measure by whether it should now be accepted that there is "a single overarching doctrine" of estoppel: cf Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394 at 411.
426 In relation to equitable estoppel, Brennan J described its requirements in the following way in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 428-429:

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise."

Of estoppel by convention, the New Zealand Court of Appeal said the following in National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548n at 550:

"The authorities show that for an estoppel by convention to arise the following points must be established by the party claiming the benefit of the estoppel (the proponent):
(1) The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).
(2) Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.
(3) Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.
(4) The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.
(5) The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.
(6) In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption."

I should add that I consider that this statement of the law sufficiently identifies the law of this country as well, save that in Australia the assumption of law may well be limited to one relating to "private legal rights": Elsea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 188ff; Riseda Nominees Pty Ltd v St Vincent's Hospital (Melbourne) Ltd [1998] 2 VR 70 at 77; Government Employees Superannuation Board v Martin, above. This qualification is not of present moment in that, insofar as the conventional understanding in question was one of law, it related to private legal rights.
427 In light of GEC Marconi's factual submissions it is appropriate to comment, additionally, on the concept of "detriment" itself.
428 Whether one is speaking of estoppel at common law: see Thompson v Palmer, above, at 547; in equity: see Legione v Hateley [1983] HCA 11; 152 CLR 406 at 437; or under a unified doctrine: see Walton Stores (Interstate) Ltd v Maher, above, at 451ff; "detriment" or "material disadvantage" is an indispensable requirement. The place and purpose of the requirement in the law of estoppel were identified by Dixon J in Thompson v Palmer, above, in relation to estoppel in pais and were further elaborated by the same judge in Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641 at 674-675. What His Honour there said, subject to one qualification I will notice, remains "instructive as an indication that the detriment against which the law protects is that which flows from reliance upon the deserted assumption": Commonwealth of Australia v Verwayen, above, at 415.
429 In Thompson v Palmer, his Honour said (at 547):

"The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party."

Having illustrated the various ways in which a party might `take a part' in occasioning the adoption of an assumption, Dixon J continued:

"in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted."

430 In Grundt's case Dixon J enlarged on this. Speaking of the rules governing estoppel he said (at 674-675):

"One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice."

431 The qualification I foreshadowed is this. While detriment of the character to which Dixon J referred is necessary to establish an estoppel - "it would be strange to grant relief if such detriment were absent": Verwayen's case, at 415-416 - it is not the case, at least in relation to equitable estoppel, that if such detriment is there, the only way in which it will be averted by way of relief is by holding the party estopped to the assumption he or she induced: ibid, 415-416; Giumelli v Giumelli, above.
(c) Submissions and Conclusions: Representation/Understanding and Reliance
432 To reflect GEC Marconi's submissions I have separated the submissions and findings on representation/understanding and reliance, and those on detriment.
433 Put shortly BHP-IT's submissions are that if the conduct of the parties leading up to the 1 November agreement did not result in a binding Emulation Variation Agreement, it was sufficient to found an estoppel. Insofar as the estoppel is based on representations made by GEC Marconi, reliance is placed on the conduct and communications commencing with the early emulation discussions in December 1994, through the 25 July 1995 and 10 August letters, the original CR3049 and GEC Marconi's own schedule extension proposals, to the 26 September letter and then the 23 and 25 October letters. This evolving state of affairs led GEC Marconi to make in October what are described in BHP-IT's written submissions as the October 1995 representations. These were:

"In October 1995, in the course of exchanges leading to the execution of CR3049, EASAMS represented to BHP-IT that, as BHP-IT was unable to supply STUBS (due to circumstances beyond its control), EASAMS would:
(1) build emulation software and use it in lieu of STUBS so as to complete development, integration and acceptance testing of the ADCNET software without STUBS;
(2) build the emulation software as part of an agreed change request, CR3049;
(3) no longer assert or rely upon a contractual right to the supply of STUBS as CSI under the Sub-Contract."

The common understanding, it is claimed, emerged from the same material but with the additional element of an already agreed CR3049. The common understanding was described in submissions in following fashion:

"In BHP-IT's submission, the Court ought to find that by early November 1995, each of EASAMS, BHP-IT and DFAT believed that through their correspondence and by CR3049 they had reached an understanding that the cut-down emulator would be used to achieve acceptance testing in the absence of STUBS. So too, they believed that by this understanding they had resolved the difficulties associated with the non-supply of STUBS as CSI and had thereby agreed a means of completing the contracts. This understanding also carried with it a broader appreciation by all the parties that, in these circumstances, BHP-IT and EASAMS would forgo existing rights to demand the supply of STUBS as CSI under the Head and Sub-Contracts. Indeed, from 13/14 September onwards, all communications between the parties proceeded on the basis that STUBS would not be supplied.
This common understanding was not in any way dependent on the parties identifying and agreeing upon, an alternative security gateway to replace STUBS. ... All parties signed CR3049 without conditions."

434 The subsequent conduct of the parties from Mr Wishart's 22 November letter, through the change requests and contract amendments, to the demonstration and payment for the emulator, evidenced repetition of the representations, confirmation of the common understanding and the carrying into effect (reliance upon) the assumption induced by the representation/common assumption.
435 On the issue of reliance, BHP-IT contends I should find (i) that Mr Brent's understanding of the use of the STUBS emulator was as he stated it in evidence and (ii) that the actions he subsequently took, were taken in reliance on that understanding.
436 The Commonwealth's submission is that a like estoppel arose between BHP-IT and itself, that estoppel properly being characterised as an estoppel by convention. Parallel material is relied upon by the Commonwealth to establish both the understanding and its reliance upon it.
437 For its part GEC Marconi contends, optimistically, that the representation and conventional understanding were not sufficiently clear and unambiguous: cf Legione v Hately, above, at 436; Low v Bouverie [1891] 3 Ch 82, at 106. Focussing particularly on the 23 October 1995 letter, the submission goes on to indicate that the mere fact that Mr Brent received this or other communications does not prove that it had any relevant operative effect in his mind. From this GEC Marconi seeks to dismiss his oral and written evidence as reconstruction, again focussing in particular on the effects the 23 October letter were said to have on his mind in February 1996 and April 1996. I am invited to hold that prior to 23 February 1996 Mr Brent had no occasion to reflect upon whether the parties' obligations had been changed (informally or otherwise) so as to require acceptance testing with the emulator.
438 It is said, further, that insofar as the contractual documentation was concerned, Mr Brent's state of mind was not that the obligations in relation to STUBS had been removed. His evidence was only of an expectation that the obligations would be removed and that such removal would take place once agreement had been reached on a replacement for STUBS. Such a belief, if accepted, does not support the pleaded estoppel and is incapable of supporting any estoppel. It does not remotely approach an understanding on Mr Brent's part that the Contract with GEC Marconi was `as good as amended'. He was responsible for drafting or approving Contract Amendments which specifically discounted any intention to vary any contractual obligations: eg CA23. He was aware at all times of the formal regime for contract variation established not only by the Contract, but by project documentation - in particular, the ADCNET Project Configuration Management Procedures. In short, if Mr Brent's evidence is treated as acceptable evidence of his state of mind rather than reconstruction, the state of mind is insufficient.
439 Little point would be served by my re-analysing the communications and conduct of the parties up to the time when the non-provision of STUBS was seriously raised as a default, for the purposes of indicating both the representations they would reasonably convey in the circumstances in which they were made or occurred, and the common understandings they engendered or reflected. I am entirely satisfied that the representations and common understanding alleged by BHP-IT have been made out on the evidence. I do not consider it necessary to add significantly to what I have already said in the preceding sections on the "Emulation Variation Agreement" and "Affirmation by Election". The one general comment I would wish to make is that there was an evolutionary process concerning STUBS and emulation from early in the ADCNET project. In consequence, more often than not the parties' communications and conduct require to be interpreted in light of what preceded them. This is particularly so of the 23 October CR3049 offer letter.
440 GEC Marconi state the obvious in proposing that a person's receipt of a letter does not necessarily prove it had operative effect on that person's mind. Nonetheless, as I have already indicated, I accept Mr Brent's evidence of his state of mind concerning the use of emulation for acceptance testing and that his understanding was formed at the time GEC Marconi's CR3049 offer was made and accepted and that it was confirmed by later events and correspondence. I do not consider his rambling account of the "streams of activity" that informed his understanding either as being contrived and artful or as being mere reconstruction. The process he described of the evolution, and then the consolidation, of his understanding reflected a process that made what was understood memorable even if the particular component elements of that process did not remain well remembered. Mr Brent did not have an invincible memory. Few people do.
441 As I have indicated, I consider it would be unsafe to accept his assertions that, when making both oral and written communications, he had particular documents in mind which confirmed his understanding at those times. I except from this, necessarily, his letter to Mr Haddad of 3 April which annexed Mr Wishart's 23 October 1995 letter. It may well be, as GEC Marconi submitted, that Mr Brent only reacquainted himself with this letter specifically and in detail prior to writing the 3 April letter. But that submission detracts in no way from the significance of the understanding he earlier arrived at and continued to entertain. It merely reflects a fallible memory as to its composite of sources. His understanding up until the 23 February meeting did not misrepresent either what previously had been represented to him by GEC Marconi, or what previously had been the parties common understanding.
442 I should add that the matter-of-fact character of the 26 February letter Mr Brent wrote to Mr Dart - it purported to be nothing other than a resumé of a meeting with a consequential proposal for an all party conference - is not of itself of any particular assistance in revealing what at the time was Mr Brent's understanding about STUBS emulation. I similarly do not consider that such contrast as there may be between Mr Brent's 1 April and 3 April letters to Mr Haddad throws useful light on the matter other than that both indicate that Mr Brent considered there was no substance to GEC Marconi's complaint.
443 However, I do accept that Mr Goldsmith's memorandum to Mr Sharp of 1 March cannot safely be treated as reflecting in some way a response to a view expressed by Mr Brent at the 23 February 1996 meeting on acceptance testing or at some further meeting after that date. It is more likely to relate to the then emerging dispute about what the emulator was to be used for.
444 I am unable to accept at all GEC Marconi's submissions that related to Mr Brent's view of the state of the contractual documentation and to the removal from it of STUBS-related obligations. My understanding when that evidence was given was, and remains, that in responding to Mr Simpkins SC's questions about "obligations relating to STUBS in the contract that remained unchanged", Mr Brent was referring to obligations other than the obligation to supply STUBS. It was those other obligations in the Schedules, the FRS, etc that were later to be varied - as some in fact were. I likewise do not consider that his evidence in either of the extracts quoted earlier were reconstructions. Mr Brent did reconstruct on a significant number of occasions. These were not instances of them, even though the first of the passages reveals an understandable glimmer of self-doubt about the matter.
445 I should add that I do not regard Mr Brent's awareness both of the formal regime for contract variation established by the Sub-Contract and by the project documentation as having any real bearing on what his state of mind was in relation to the obligation to supply STUBS and the use of emulation for acceptance testing. After the original CR3049 had been altered in its scope by the 26 September 1995 letter and Les Cook had indicated the basis for the proposed way forward, there ensued a disorder in the contractual documentation for which all parties bear responsibility. I merely instance the metamorphosis of one of the purposes of the original CR3049 from a full surface emulation to a "cut down" emulation without the issue of a new change request. I should add, that whatever the precise reason for Mr Brent's letter to Les Cook of 28 May 1996, his query concerning the subsistence of STUBS related obligations in the contract and subsidiary documentation reflects the disorder to which I have referred.
446 I have already indicated that I am satisfied that GEC Marconi made the representation to BHP-IT that was in substantially the terms referred to by BHP-IT in its written submissions (see above). Likewise I am satisfied that the conventional understanding of the parties from 1 November onwards into early 1996 was in substance such as was described in BHP-IT's written submissions.
447 I should make two further observations about these findings. First, I earlier concluded that I would find the emulation agreement to have been entered into in any event even if I were incorrect in my finding as to the Emulation Variation Agreement. A consequential matter arises from this concerning the representation and common understanding I have found. It is this. Insofar as the representation/common understanding related to STUBS emulation and its purpose, it would be contractual in any event. BHP-IT would then need only to rely upon its estoppel defence insofar as it related to the representation/common understanding concerning the abandonment of the requirement that STUBS be provided. The only reason I mention this is that the nature of the common understanding as to that matter was probably sufficient to found an estoppel by convention at common law (assuming the satisfaction of all other necessary requirements), in that it related to the parties then understanding of what were, and were to be, their private rights inter se in relation to the provision, etc, of STUBS: the authorities are conveniently collected in the judgment of Ipp J in Government Employees Superannuation Board v Martin, above at 242ff; see also National Westminster Finance NZ Ltd v National Bank of NZ Ltd, above. However, I will in what follows, treat the estoppel defence as if no part of the representation or common understanding had independent contractual effect.
448 The second observation relates to the nature of the representation and common understanding respectively: ie was the representation etc one of fact, of law, of intention, etc. This has not been a matter of contention, the parties seemingly sharing the view that if a sufficiently clear and unambiguous representation or conventional assumption is established that representation or assumption will be sufficient to found an estoppel, if not at common law, then in equity provided the other elements sufficient to found an estoppel in equity can be made out. There is nothing in GEC Marconi's submissions to suggest to the contrary, its principal attack on BHP-IT's defence being that it suffered no detriment in relying upon the representation or common understanding.
449 In this state of affairs I do not consider it necessary to analyse the precise nature of either the representation or the conventional understanding. I will treat the matter as if it was founded entirely upon estoppel in equity. Howsoever one characterises the component elements of the representation or common understanding as embodying assumptions of fact, of law, of intention, etc, the actual and/or assumed "state of affairs": cf Waltons Stores (Interstate) Ltd v Maher, above, at 415-416; the representation made and the common understanding held was a sufficient platform to found an estoppel in equity: Legione v Hateley (1983), above, at 435-437; Waltons Stores (Interstate) Ltd v Maher, above at 406; 428-429; 458-459; Commonwealth of Australia v Verwayen, above, at 413; Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 at 472; Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 610; and see generally Dal Pont and Chalmers, Equity and Trusts in Australia and New Zealand, 298-300 (2nd ed).
450 Turning briefly to reliance, it is in my view too clear for contest that the understanding entertained by Mr Brent did in fact provide the basis for actions subsequently taken by BHP-IT in relation to its continuing performance both of the Sub-Contract and of the Head Contract. That understanding was a consequence both of what was represented by GEC Marconi and of what was commonly understood at the time by the Commonwealth, BHP-IT and GEC Marconi as providing the explanation for what was being, and was to be done. It is unnecessary to recount again the steps taken by BHP-IT from its making of its own parallel CR3049 offer to the Commonwealth in consequence of GEC Marconi's CR3049 offer to it, down to the ultimately abortive CR3015.
451 The remaining question is whether, by so acting, BHP-IT placed itself in a position of material disadvantage should GEC Marconi be permitted to depart from the understanding relied upon.
(d) Findings and Conclusions: Detriment
452 I have already referred to the two matters of detriment pleaded by BHP-IT ie that (i) it did not require the Commonwealth to provide STUBS under the Head Contract; and (ii) it did not serve notices of breach on the Commonwealth under the Head Contract until 11 April 1996 and did not negotiate a full-time and materials variation to the Head Contract. I have also referred to the two matters of "prejudice" raised by Mr Brent in his witness statement ie that (a) BHP-IT continued to perform both contracts and did not take action in relation to the non-supply of STUBS; and (b) it may be exposed to liability to the Commonwealth if the contract changes made in the Head Contract were not mirrored in the Sub-Contract.
453 GEC Marconi's original written submissions dealt with all four of these matters, contending in each instance that, when regard is had to the facts, they reveal no relevant detriment. The essence of GEC Marconi's contention is that (i) there is not the slightest basis for inferring that DFAT would have provided STUBS if BHP-IT had sought it; (ii) Mr Brent did not identify specific actions BHP-IT would have taken instead of continuing to perform the two contracts so that, at best, the alleged "lost opportunities" were no more than a matter of speculation; and (iii) notwithstanding the contract variations, there were no material differences between the two contracts so that BHP-IT's position vis-à-vis the Commonwealth continued to mirror that of GEC Marconi vis-à-vis BHP-IT.
454 The additional matters of detriment raised by BHP-IT in its written submissions (to which I earlier referred) were:

"(1) BHP-IT remains unpaid for the work it performed under the Release 3 contract in 1994, 1995 and 1996;
(2) BHP-IT incurred costs in labour and resources in resuming the project following EASAMS' departure on 10 December 1996;
(3) BHP-IT had to recommence the ADCNET project in December 1997 for the same price it had agreed in 1994 under the Head Contract, thereby being denied the opportunity to price this project at commercial prices appropriate for that time;
(4) EASAMS refused to pay BHP-IT's invoices for the labour BHP-IT provided to EASAMS under the Sub Contract;
(5) BHP-IT is exposed to damages claims from the Commonwealth."


As to the last of these, it is claimed that, even if the Commonwealth is unsuccessful for the same reason that BHP-IT is unsuccessful in its defences to GEC Marconi's claim, BHP-IT will nonetheless incur costs in defending the claim (as is now the case) so that detriment has already been suffered.
455 In its reply submissions, GEC Marconi has contended that, properly analysed, none of these matters constitutes relevant detriment for estoppel purposes. The objection that is common to the first four matters is that the alleged detriment has not been shown to be the consequence of any reliance by BHP-IT on the representation or common understanding. As to the fifth matter, it is said that in deciding to defend the Commonwealth's claim, BHP-IT has not altered its position to its detriment.
456 Before indicating my own view on the issue of detriment, I should indicate that it has not been suggested by either party that, if the grounds for an estoppel have been established, the proper remedy should be other than that GEC Marconi be prevented from acting inconsistently with what it represented or with the common understanding.
457 It is unquestionable that, had BHP-IT been informed of what GEC Marconi now contends was the true state of affairs - ie the obligation to supply STUBS remained and that the emulator would not be used for acceptance testing - BHP-IT would not have acted as it did. As I will suggest below, such a disclosure by GEC Marconi would have produced a state of affairs requiring a quite different response from that in fact made by BHP-IT and then the Commonwealth on, and from, November 1995. The matter I would emphasise, though, is that BHP-IT's detriment case is not founded simply on inaction (hence the loss of an opportunity) resulting from its relying on GEC Marconi's representation and the common understanding: on "lost opportunity" see Mortgage Acceptance Nominees Ltd v Australian Thoroughbred Finance Pty Ltd (1996) 69 SASR 302 at 308-309; Austral Standard Cables Pty Ltd v Walker Nominees Pty Ltd (1992) 26 NSWLR 524 at 540; Dal Pont and Chambers, above, 309-310. Rather the matter is one in which, though action in reliance was taken by BHP-IT, different action would of necessity have been taken had the true state of affairs been known.
458 It equally is not open to question on my findings that BHP-IT took significant steps in the performance both of the Head Contract and of the Sub-Contract in reliance upon GEC Marconi's representation and on the common understanding it shared with GEC Marconi and the Commonwealth. That reliance continued for around four months before BHP-IT became aware there was a serious issue of default being raised by GEC Marconi on account of the non-provision of STUBS. The question is whether, because of such action, BHP-IT would suffer real detriment if the assumption it relied upon could later be falsified by GEC Marconi? To anticipate matters, the answer to this must be yes.
459 To appreciate the significance of BHP-IT's action in reliance, it is important to understand what would have been the state of affairs in late October/early November 1995 had GEC Marconi then revealed that the obligation to provide STUBS remained, that BHP-IT remained in breach, and that the emulation would not be used for acceptance testing. Its so doing would have signalled a rejection both of Les Cook's 26 September 1995 "way forward" proposals and of the known purpose of CR3049. In this state of affairs negotiations to vary or to renegotiate the ADCNET contracts would have been inevitable. One can only speculate as to what the probable or possible outcomes of those negotiations might have been, although it is likely that they would have been influenced somewhat by the cooperative and long-standing character of the relationship of the three parties and by GEC Marconi's deteriorating financial position in relation to the contract. What properly can be inferred is that that state of affairs would have required action by BHP-IT given its exposure to GEC Marconi, and that BHP-IT would at that time have made commercial judgments as to how best to conserve its interests given the Commonwealth's failure to supply STUBS. This may have involved the negotiation of a time and materials variation to the Head Contract (as pleaded in BHP-IT's defence). It may not.
460 What it would not have involved was BHP-IT committing itself to a course of action founded upon the premise that STUBS was not required to be provided and that the emulation would be used for acceptance testing. I accept, in consequence, the burden of Mr Brent's statement in his fourth witness statement that BHP-IT continued to perform its obligations under each of the Head Contract and the Sub-Contract and took no action in relation to the non-supply of STUBS in circumstances where, but for the assumption on which it relied, it would not have done so.
461 Turning to actions that were taken in reliance upon the representation and the common understanding, BHP-IT in fact did commit itself to courses of action that were predicated upon the continuing correctness of that representation and common understanding. It made representations and shared an understanding with the Commonwealth that replicated the representations made by, and the understanding shared with, GEC Marconi. GEC Marconi was aware of this. The Commonwealth now founds its estoppel defence against BHP-IT on the representation so made etc. Equally it agreed with either the Commonwealth or GEC Marconi a number of similarly premised change requests the most significant of which being CR3049 (but also CR3060 and, until aborted, CR3015). More generally, it continued to perform its functions and obligations under both the Head Contract and the Sub-Contract.
462 If GEC Marconi was able to falsify the assumption on which BHP-IT relied, several consequences would follow. First, it would place BHP-IT in the position of having made a representation to, and having shared an understanding with, the Commonwealth for the purposes of the Head Contract which on its own evidence it believed represented the true state of affairs (it relied on their accuracy for the purposes of the Sub-Contract) and from which it could only resile if the Commonwealth, for some reason, was unable to establish or rely upon its estoppel defence. Secondly, the agreed change requests and actions taken in relation to them would be stripped of their rationale and purpose if they were to be severed from the assumption that informed them. Thirdly, these actions as also the continuing performance of the two contracts, occurred across a four month period and were taken in relation to a contract with GEC Marconi under which BHP-IT could not reasonably have expected there to be any continuing risk to it in consequence of the non-provision of STUBS.
463 These various consequences are sufficient to make out the detriment required to found BHP-IT's estoppel claim. It is, in my view, unsurprising that BHP-IT has not made lengthy submissions on the issue of detriment. The essence of its case was put by Mr Young QC as being that, from October/November 1995, BHP-IT suffered positive detriment in taking courses in that period in reliance on the assumption it entertained and negative detriment in failing to take actions it might otherwise then have taken. The detriment suffered, moreover, was ongoing because BHP-IT adhered to its contract with the Commonwealth and sustained losses in so doing. It is unnecessary to consider whether the actual losses relied upon in the submissions and with which GEC Marconi takes objection can individually be said to constitute detriment for present purposes. What I would emphasise, though, is that GEC Marconi's resiling from its representations and the common understanding did not - and could not - result in BHP-IT having in turn to resile from the representation it made to, and the common understanding it shared with, the Commonwealth, or otherwise to take action adverse to the Commonwealth. It had its own commercial interests to consider. It changed its position by committing itself to a course of action under the Head Contract in November 1995. It was entitled to adhere to that course notwithstanding GEC Marconi's resiling. In this sense, as Mr Young QC submitted, it properly can be said to have suffered ongoing detriment.
464 I should acknowledge that not all of the matters to which I earlier referred as constituting the detriment suffered by BHP-IT were the subject of explicit submission by it. GEC Marconi alone has addressed on the alleged insufficiency of the "lost opportunity" to take action referred by Mr Brent. The Commonwealth alone has referred to its own estoppel defence and its effect on BHP-IT. Nonetheless I do not consider there is anything unfair or impermissible in dealing with BHP-IT's detriment in the manner in which I have. I have done no more than enlarge upon what BHP-IT has submitted in general terms.
465 The final question is whether it would be unfair and unconscionable for GEC Marconi either to resile from what it represented and from the common understanding or to rely on the non-supply of STUBS as a breach of the Sub-Contract. Having regard (a) to the unambiguous and continuing representations GEC Marconi made; (b) to its knowledge of BHP-IT's actions in reliance both in relation to it and to the Commonwealth; (c) to the length of time in which it permitted those actions to occur before signalling the "default issue", and (d) to the character of the detriment suffered by BHP-IT, the question admits of only one answer. It would be unconscionable for GEC Marconi so to resile. In consequence it is unable to rely on the non-provision of STUBS as a breach of the Sub-Contract.
466 Assuming my conclusions both on variation and affirmation were incorrect, BHP-IT would nonetheless be able to make out an estoppel defence insofar as it related to an alleged breach of contract occasioned by the non-provision of STUBS.
4. WAIVER
467 The terminology of waiver has been used for a number of purposes and to a number of different ends in this proceeding. Given the conclusions I have reached on "The Emulation Variation Agreement", "Election to Affirm" and "Estoppel" I do not intend to deal with the "waiver defences" in any detail or, in some instances, at all.
468 I preface what I have to say with the following observation. There is no need in this proceeding to analyse the independent province occupied by the doctrine of waiver that is distinct from the respective provinces of estoppel and election: but see Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394; H K Lücke, "Non Contractual Arrangements for the Modification of Performance: Forbearance, Waiver and Equitable Estoppel" (1991) 21 WALR 149; Chitty on Contracts, vol 1, para 23-045 (28th ed); The Law of Contract, §2.99 (1999); Farnsworth, Changing Your Mind, Ch 16; Farnsworth, Contracts, §8.5 (3rd ed); Wilken and Villiers, Waiver, Variation and Estoppel, Ch 4; cf Uniform Commercial Code, §2-209(5). Sufficient has been said in these reasons on estoppel and election so as to indicate that waiver has a very minor possible role in the defence raised by BHP-IT.
469 BHP-IT has raised waiver in two ways. First, it is said that in the circumstances, GEC Marconi waived its right to insist upon the cl 45.1 writing requirement for the Emulation Variation Agreement. Given what I have said on the efficacy of that agreement, and on GEC Marconi being estopped in any event from setting up the lack of writing, I do not consider it necessary to deal with this waiver claim.
470 Secondly, relying upon the same matters particularised to make out the defences so far considered, BHP-IT has pleaded that GEC Marconi waived or dispensed with BHP-IT's obligation to deliver STUBS equipment and associated software as CSI and substituted STUBS emulation software therefore as an alternative mode or manner of performance. This submission attempts to build upon the observation of Williams J in Phillips v Ellinson Brothers Pty Ltd [1941] HCA 35; (1941) 65 CLR 221 at 244 that confirm the efficacy of an arrangement relating to the mode of performance of an existing obligation which is not intended to substitute a new obligation for that obligation. Given my earlier conclusions, I refrain from expressing a view on this submission other than to observe that it appears to be a particularly optimistic one.
471 In oral submissions DFAT propounded a quite distinct "waiver" defence that presupposed there was no Emulation Variation Agreement. It relates in an important way to GEC Marconi's alleged inability to complete the contract because it could not demonstrate all of the "testable shalls" in the FRS in the absence either of an agreed variation to the FRS or of waivers of the particular requirements that could not be demonstrated. And it has an attractive simplicity.
472 Put shortly, the primary submission is that by refusing to supply STUBS, the Commonwealth (hence BHP-IT) renounced its right to insist upon GEC Marconi's demonstration of the STUBS-dependent testable shalls of the FRS, those requirements embodying specifications made by the Commonwealth to suit its own needs. Cast in relatively conventional waiver language, the submission is that by its own unilateral act (ie in refusing to supply STUBS) the Commonwealth (and BHP-IT) renounced irrevocably the right to have the STUBS-dependent FRS requirements demonstrated.
473 As a variant on this, the Commonwealth has gone on to submit that, by agreeing to build the emulator, GEC Marconi acted upon the waiver because the emulator could not demonstrate the STUBS dependent requirements.
474 As I earlier indicated, there is an obvious attraction in the primary submission. In the usual case, it would prevent a contract breaker from exploiting to its own advantage and to the other party's prejudice the state of affairs created by its breach. I say in the usual case, because the curiosity in this matter is that it is the party not in breach that is seeking to insist on that state of affairs.
475 While I cannot accept in its entirety the submission put, I agree with its general thrust. I accept as a matter of principle that, unless and until the Commonwealth (and BHP-IT) have acted so as to cure the breach of contract arising from the non-provision of STUBS, then, questions of estoppel and election apart, neither could insist upon GEC Marconi having to demonstrate the STUBS dependent requirements of the FRS.
476 I do not think it necessary to fit this conclusion within the doctrine of unilateral waiver. For my own part I regard the preclusion from so insisting upon the FRS requirements as consequential contractual effects of the breach of contract occasioned by the non-provision of STUBS. Neither the Commonwealth nor BHP-IT could reprobate, then approbate, the STUBS requirement.
477 A different route to the same result may well be found in the Mackay v Dick (1881) 6 App Cas 251 duty to cooperate. It was well understood by the parties to the ADCNET contracts that, in the absence of STUBS, emulation could be used for acceptance testing. In the state of affairs created by the breach of contract, emulation could have been so used. I merely indicate without deciding that it well may have been the Commonwealth's and BHP-IT's obligation in the circumstances to perform the co-operative acts necessary to enable acceptance testing (eg by modifying the FRS to remove STUBS dependent requirements): cf Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288 at 298.
5. THE PROPER CONSTRUCTION AND THE APPLICABILITY OF SUB-CLAUSES 40.8 AND 40.9
478 If the failure to provide STUBS was a breach of contract, it was not, so BHP-IT submits, such a breach as would have entitled GEC Marconi to resort to its right to terminate under cl 40.8 and 40.9. This submission raises two issues. The first relates to the proper construction of cl 40.8 and cl 40.9. The second is whether, in light of that construction, the non-provision of STUBS was a breach of such character as enlivened GEC Marconi's right to resort to those sub-clauses.
(a) The Issue of Interpretation
479 Both the Sub-Contract and the Head Contract made separate provision for termination by the "Customer" and the "Contractor" respectively. Because submissions have been advanced in light of the alleged differences between the separate regimes, it is necessary to set out each in full.
480 In the Sub-Contract, termination by the Contractor (ie GEC Marconi) could be effected under the following provisions:

"40.8 Where the Customer is in breach of an obligation under this Contract so that there is a failure by the Customer to perform this Contract, the Contractor may, by notice in writing to the Customer, specify that breach and where that breach is capable of being remedied require the Customer within 32 days of receiving such notice to remedy that breach or commence appropriate action to remedy that breach. Emphasis added
40.9 Where the Customer has not:
(a) remedied the breach referred to in subclause 40.8 within 32 days of receiving a notice (including because the breach was incapable of being remedied); or
(b) commenced appropriate action to remedy that breach within 32 days of receiving a notice and remedied the breach within a reasonable time after that period has elapsed;
the Contractor may, by notice in writing to the Customer, terminate this Contract without prejudice to any right of action or remedy which has accrued or which may accrue in favour of either Party."

481 The regime that applied to termination by the Customer (BHP-IT) was as follows:

"40.1 If the Contractor is in default under this Contract, the Customer may, without prejudice to any right of action or remedy which has accrued or may accrue in favour of either Party, by notice in writing to the Contractor, specify the relevant default and, where such default is capable of being remedied, require the Contractor within 28 days of such notice to remedy or commence appropriate action to remedy the default promptly.
40.2 For the purposes of this clause, the Contractor will be in default under this Contract where the Contractor fails to perform or observe any obligation or undertaking to be performed or observed on its part under this Contract. Emphasis added.
40.3 Where:
(a) the Contractor has received a notice under subclause 40.1 and fails to take appropriate action in response to that notice, or, having commenced appropriate action within 28 days, fails to continue and complete such action in a satisfactory manner and with all reasonable speed; or
(b) in circumstances where the default is not capable of being remedied, the Contractor has either not claimed an extension of time or other waiver or, if it has, the Customer has determined that an extension of time or waiver cannot be justified;
the Customer may by notice in writing require the Contractor to show cause, to the satisfaction of the Customer, why the whole of this Contract, or any part of it that is specified in the notice, should not be terminated by the Customer pursuant to this clause.
40.4 A notice to show cause under subclause 40.3 shall:
(a) set out the circumstances which entitle the Customer to issue the notice; and
(b) specify the time and date by which the Contractor must show cause, which time shall not be less than 6 clear days after the notice is given to the Contractor.
40.5 The Customer shall be entitled, by notice in writing to the Contractor, to immediately terminate this Contract in whole or in part, without prejudice to any right of action or remedy which has accrued or which may accrue in favour of either Party, where the Contractor:
(a) fails, within the time allowed, to show cause to the satisfaction of the Customer in accordance with a notice under subclause 40.3;
..."

482 Put in short form the controversy between the parties is whether, as BHP-IT contends, the type of breach envisaged by cl 40.8 was one of a repudiatory character, or, as GEC Marconi submits, it was simply any breach of an obligation under the Sub-Contract. The language of cl 40.8 that fuels this controversy is to be found in the words "so that there is a failure by the Customer to perform this Contract". BHP-IT submits these words qualified the earlier terms "[w]here the Customer is in breach of an obligation under this Contract" - and qualified them by requiring the breach to be of a particular character, ie repudiatory. GEC Marconi submits that the words were tautologous in that they said no more than that a breach of any obligation under the Sub-Contract would constitute a "failure to perform this Contract".
483 Such support as each party seeks to derive from the separate regime applying to termination by the Customer turns upon whether the apparent differences between the two were differences of substance (BHP-IT) or merely of form and expression without self-evident purpose (GEC Marconi). In particular GEC Marconi submits that "the failure to perform" the contract in cl 40.8 expressed the same concept as the failure "to perform any obligation or undertaking" in cl 40.2.
484 The construction for which GEC Marconi contends is not one, it says, which is unreasonable notwithstanding that any breach could trigger cl 40.8 no matter how insignificant or technical. The terms of the Sub-Contract were such, in all cases of breach, as to give BHP-IT the opportunity and time either to remedy the breach or to propose a contract variation to vary or eliminate the obligation in question.
485 It is unnecessary here to refer in any detail to the canons of construction to be applied in construing commercial contracts other than to note the following statements of principle which, for convenience, I respectfully reproduce verbatim.

(1) "The language of a term is generally assigned its natural and ordinary meaning, read in the light of the contract as a whole but where it is ambiguous surrounding circumstances may be taken into account in assigning the presumed meaning. The surrounding circumstances include the matrix of mutually known facts, and the background, object, context and commercial purpose of the transaction, in the objective sense of what reasonable persons in the position of the parties would have had in mind: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (at 347-352); Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd ([1990] VR 834 at 844-850); Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Insurance Cases 60-853 at 75,343."

Spunwill Pty Ltd v BAB Pty Ltd, above, at 299, Santow J.


(2) "It is well established that the task of construction of a written instrument requires the whole of the instrument to be considered (Re Media Entertainment and Arts Alliance; Ex parte Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379 at 386-7). A corollary is that there is a presumption against surplusage, although it is not a strong presumption in the light of modern drafting techniques involving standard form commercial documents (cf Lewison, The Interpretation of Contracts 2nd ed, 1997 §6.03)."

Big River Timbers Pty Ltd v Stewart (1999) 9 BPR 16,605 at 16,607, Mason P; see also Chitty on Contracts, vol 1, para 12-075 (28th ed).

(3) "[I]f detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201; see also Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314; Minchillo v Ford Motor Company of Australia Ltd [1995] 2 VR 594 at 609.
486 It is obvious that cl 40 of the Sub-Contract is not in some respects a happily drafted clause. While contending that the language of cl 40.8 is clear and unambiguous, Mr Simpkins SC for GEC Marconi, nonetheless, has had to concede that there are differences in expression between the various sub-clauses of cl 40 which I am invited to accept are without any self-evident purpose.
487 If one were to disregard the fact that one was dealing with a clause in a termination provision, and if one read cl 40.8 in isolation both from the rest of cl 40 and of the Sub-Contract more generally, the meaning proposed by GEC Marconi might be arguable - though I rather doubt that the "so that" descriptive clause could be so easily disposed of even then. However, when read in its contractual setting, the language of cl 40.8 reveals an intention which does not require disregard of the descriptive clause and which reflects what would be expected of reasonable persons in the position of the parties.
488 In both cl 40.2 and cl 40.8 the contract purports to describe the type or quality of "default" or "breach" to which each respectively applies. The differences in descriptive formulae used, and in particular the use of the formula "fails to perform ... any obligation" in cl 40.2, necessitates the conclusion that the cl 40.8 formula , in having abjured this language, envisaged a distinct and different state of affairs. I am satisfied for textual reasons that the parties did not intend in the descriptive clause simply to reiterate in different words that a breach of an obligation was a "failure to perform an obligation". It is not surprising that they did not.
489 Clause 5 of the Sub-Contract (which is entitled "Customer's Obligations") contains provisions such as the following:

"5.1 The Customer shall take all reasonable measures to maintain the processing environment as constituted by the elements of the CSI.
...


5.3 The Customer shall supply the CSI in accordance with clause 7 and shall perform its obligations specified in the Project Plan and the Implementation Plan pursuant to subclause 10.1.
5.4 The Customer shall manage the project risks which are identified as the Customer's responsibility under this Contract."

490 Even if one were to accept, as GEC Marconi submits, the practical unlikelihood that the contract would be terminated for breach of such generally stated obligations as those in cl 5.1 and cl 5.4, cl 5.3 is of a different order entirely. The obligations imposed on the "Customer" that were encompassed by cl 7 and cl 10 were enumerated in quite specific and detailed terms in Schedules 6, 7 and 8 of the Sub-Contract. It is, in my view, inconceivable that the parties would have intended that any breach of any one of this multitude of obligations would permit resort to cl 40.8.
491 The language used in cl 40.8 does not require me "to attribute to the parties an improbable and unbusinesslike intention": Mitsui Construction Co Ltd v Attorney-General of Hong Kong (1986) 33 BLR 1 at 14. It is reasonably capable of an interpretation which attributes to the parties an intention to provide for termination for breach by the Customer, on a sensible and businesslike basis: ibid.
492 I am satisfied, having regard to the type and terms of contract in question, that a reasonable interpretation which is open on the words of the Sub-Contract: J Kitchen & Sons Pty Ltd v Stewart's Cash and Carry Stores [1942] HCA 18; (1942) 66 CLR 116 at 124; and see Carter, "Termination Clauses" (1990) 3 JCL 90 at 99-100; and which accords with "business commonsense": Antaios Compania Naviera SA, above, at 201; is one that broadly equates a breach that amounts to a failure to perform the contract with a breach (other than an anticipatory breach) that would justify termination at common law. I except anticipatory breaches as the language of cl 40.8 and cl 40.9 seems to envisage breach of an obligation the time for performance of which has arrived: cf Moschi v Lep Air Services Ltd [1973] AC 331 at 356. Qualifiedly then, I agree with BHP-IT's submissions.
493 I would add in support of the view I take that one historically important, and judicially sanctioned, category of circumstances which would permit discharge of a contract for breach was that formulated by Sir William Anson. It was for "failure of performance": see eg Anson, Law of Contract, 289 (8th ed); Heyman v Darwins, Ltd [1942] AC 356, at 397; Anson's Law of Contract, 539ff (27th ed); and see generally Chitty on Contracts, vol 1, paras 25,016 and 25,033ff (28th ed). Modern understanding of this category encompasses principally breaches of essential terms and of terms going to the root of the contract: see generally, Chitty, above, at para 25,033ff. For present purposes, I am prepared to accept that the parties would as well have intended that cl 40.8 extends to an actual breach of an obligation in circumstances evincing an intention not to be bound by the terms of the contract: for the difference at common law between repudiation and failure of performance, see Byrnes v Jokona Pty Ltd [2002] FCA 41 at para [70]- [80].
(b) The Applicability of Cl 40.8 and Cl 40.9
494 On the assumption that there was a subsisting breach arising from the failure to provide STUBS, the short question is whether there was, in consequence, a failure to perform the contract for cl 40.8 purposes. Though this, formally, is the central issue in GEC Marconi's case, it has not been the subject of particularly detailed submissions by the parties (the Commonwealth apart). GEC Marconi's submissions on this matter - as distinct from the interpretation of cl 40.8 - are notably sparse and are baldly assertive.
495 Much of the evidence that has some possible bearing on the question has been, or will be narrated, in other parts of these reasons. I do not intend to collect and repeat here that material. I have already described the purpose and evolution of the ADCNET project; the objective of replacing the IBM message switch; the role of boundary security in the project based on the use of sealers and gateways; DFAT's adoption of STUBS in 1993 as the preferred choice for boundary security; the execution of the ADCNET contracts in 1994, these having been prepared on the known basis that the Commonwealth would supply and be responsible for the functionality of STUBS; and that BHP-IT's (hence GEC Marconi's) responsibility would be to integrate the STUBS devices with the Release 3 software.
496 I will later deal with the knowledge BHP-IT and GEC Marconi had of the Commonwealth having no contract with AWADI for the supply of STUBS and their respective appreciations of the likelihood or otherwise of STUBS being provided: see "BHP-IT's Second Cross-claim".
497 Reference has been made to other breaches relating to the provision of STUBS (ie specifications and software) and to the stances taken in relation thereto; to the various proposals made for emulation including for acceptance testing; to GEC Marconi's proposals made prior to the cancellation of STUBS being announced to complete the contract without STUBS; and to the passage of time from that announcement until the first Notice of Breach was served.
498 There are only two additional factual matters to which I should refer. The first is that the integration of STUBS into the ADCNET software constituted only a very small part of the work to be performed by GEC Marconi under the Sub-Contract. Most of the Developed Software could be built and tested quite independently of the development of the STUBS interfaces. It is GEC Marconi's own evidence that of the over 2000 CSU's that made up the source code, only 4 CSU's could not be developed because of the absence of STUBS.
499 Secondly, there is documentary evidence which I accept that GEC Marconi was aware that the ADCNET system could be used by DFAT without STUBS. As Mr Goldsmith commented to Mr Sharp in a memo of 1 March 1996: "It is their risk".
500 In Part I of these reasons I have set out relevant provisions of the Sub-Contract, the Schedules, and contractual documentation which related to the provision of STUBS, GEC Marconi's obligations and to acceptance testing. I will not repeat these here.
501 Having referred to the state of GEC Marconi's submissions on this matter, I intend merely to express my own conclusions without detailed reference to the evidence or to the helpful submissions of BHP-IT and the Commonwealth.
502 First, I am not satisfied that the obligation to provide STUBS as CSI under the contract was an essential term (or condition) of the Sub-Contract. I accept (a) that a continuing objective of the ADCNET project was to replace the IBM message switch; (b) that, from early in the project, the boundary security adopted for the system was to be based on trusted sealers and gateways; and (c) that in 1993 STUBS was selected for that boundary security purpose and it was to be supplied by the Commonwealth. Nonetheless it was well-understood by all parties at the time the ADCNET contracts were entered into that GEC Marconi's contractual responsibility in relation to boundary security was to deliver software that would interface with STUBS and would be compliant with the STUBS SIS. The risk relating to the functionality of boundary security lay with the Commonwealth: it selected and supplied the device to be used. GEC Marconi's risk stopped at the interface.
503 The Head Contract and the Sub-Contract both reflected this understanding. GEC Marconi's central obligation was to build and deliver the Developed Software. That software had to be integrated with STUBS and with other CSI. The integration with STUBS was known to be, and was, only a minor part of the software development work (EASAMS had developed the FRS). The Sub-Contract itself contemplated the possibility that there could be changes to the CSI (a matter earlier discussed in relation to CR3060). It also contemplated that, if operational equipment was not available, a test harness would be used in acceptance testing. Although the method for interface acceptance testing had to be agreed, the contract thus contemplated that the "testable shalls" of the FRS could be demonstrated using a test harness even though that harness did not provide the substantive functionality of operating equipment.
504 I accept both that changes to the CSI and the methods of use of an emulator in acceptance testing needed to be the subject of agreement. My reason for emphasising these matters is that they assist in confirming what is otherwise apparent both from the contractual risk allocation concerning boundary security and from the minor dimensions of the work to be undertaken by GEC Marconi in relation to STUBS. This is that the STUBS related obligations were not essential to the Sub-Contract. As both BHP-IT and the Commonwealth submit, the Sub-Contract envisaged acceptance testing and delivery of the Developed Software with or without STUBS. I will refer below to GEC Marconi's submission that the Sub-Contract was unable to be completed without STUBS because of requirements in the FRS.
505 In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 at 556-557, it was stated that:

"In deciding whether a promise has the status and effect of a condition, courts are not too ready to construe a term as a condition and, at least where other considerations are finely balanced, will hold that a term is of such a kind that breach of it does not give rise to an automatic right to rescind. This approach is explained by a preference for a construction that will encourage performance rather than avoidance of contractual obligations."

This is not a case where, in my view, the considerations are "finely balanced". But if it were, it would warrant the application of the constructional preference referred to. With an obligation having the relative size and significance to the ADCNET contract that the STUBS obligation had, this is a clear case in which preference should be given for "a construction that will encourage performance".
506 The STUBS obligation was not an essential term of the Sub-Contract. Neither did the failure to supply STUBS go to the root of the contract. It did not impose burdens on GEC Marconi, or deprive it of benefits of such seriousness or significance as to so change the character of the Sub-Contract that it can be said to be a commercially different bargain: see Byrnes v Jokona Pty Ltd, above, [75]-[80]. As I will indicate later in these reasons, GEC Marconi attempted to use the non-provision of STUBS so as to procure for its own benefit a commercially different bargain.
507 I need not enlarge upon this conclusion, other than to say that, apart from the delays to be endured prior to the announcement of STUBS cancellation (and these were to be the subject of delay claims) the non-provision of STUBS did not have a particularly significant adverse effect upon GEC Marconi. As GEC Marconi's Systems Architect wrote in a report of 15 July 1996:

"Non-delivery of the STUBS device and use of the STUBS emulator does have an impact on the project. It will cause us to rework a number of documents and make a number of code changes. Compared to the other problems on the project however, it is fairly minor."

508 The failure to provide STUBS was, as I indicated earlier in these reasons, a "once-and-for-all" breach. BHP-IT's conduct in the matter could not warrant a finding of repudiation. It did not evince an intention that it was no longer to be bound by the contract or that it would only fulfil the contract in a manner substantially inconsistent with its obligations and not in any other way: Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at 33, 40; Honner v Ashton (1979) 1 BPR 9478. The Commonwealth, hence BHP-IT, made plain that it would not supply STUBS. But otherwise it sought and promoted the completion of the contract. There was nothing repudiatory in its, or BHP-IT's, actions. If repudiation of a contract is "a serious matter, not to be lightly found or inferred": Ross T Smyth & Co Ltd v TD Bailey & Son [1940] 3 All ER 60 at 71; no basis at all exists here for even contemplating such a finding.
509 As I earlier indicated, GEC Marconi has submitted that the ADCNET contract could not be completed because there were "testable shalls" in the FRS that could not be demonstrated in the absence of STUBS and no amendments to, or waivers of, these requirements were made. I have dealt with this matter in a number of contexts already. I do not intend to repeat what I have said other than to note yet again that I reject the submission.
510 BHP-IT has separately submitted by way of defence that it had in any event remedied its breach before February 1996. It is unnecessary to consider this submission.
6. NON-PAYMENT FOR MILESTONE 4000
511 The second ground upon which GEC Marconi relied to terminate the Sub-Contract was BHP-IT's failure to pay the invoice for Milestone 4000. That milestone related to the Test Readiness Review. By way of defence, BHP-IT claims that its refusal to pay was justified in the circumstances and that in any event it did not evince any intention to no longer be bound by the provisions of the Sub-Contract.
512 The issues raised here are of two types. The first are ones of construction. To set the scene for them it will be necessary to make reasonably extensive reference both to the Sub-Contract and to a deal of subordinate documentation. The second type of issue is essentially factual in character. Again it will be necessary to make lengthy reference to the evidence and particularly to technical evidence. I will deal with the two separately.
513 I should say that, for reasons I later give: see Part III: The Repudiation Claim; there is a distinct air of unreality that envelops the claims made in this section. I would merely note here what is clear beyond contention. When GEC Marconi rendered its invoice for Milestone 4000 it was, as its senior representatives recognised, engaged in a ploy to increase commercial pressure on BHP-IT and DFAT. Mr Sharp, who participated in the decision to render the invoice, had no belief that all of the money for Milestone 4000 was due.
(1) The Construction Issues
(a) Relevant Sub-Contract Provisions
514 Clause 10 of the Sub-Contract obliged the parties to perform their obligations in accordance (inter alia) with the Implementation Plan of Schedule 8. Clause 1 of that Plan, insofar as presently relevant, was in the following form:

Deliverable
Reference
Ident.

Deliverable
Description

Customer's
Responsibility

Date
Submitted
To Customer

Contract
Acceptance
Date

Payment
Amount
(AUD)

1000

Project Mobilisation

Nil

Not
Applicable

Contract
Signature

1 250 000

2000

Preliminary Design
Review
. Final Architecture
Design Document
. Acceptance Test Plan
. Preliminary Software
Design Document
- HCI relevant
material
- Non HCI material
. Database Design
Document (Logical
Design


Review
Approval
Approval
Review
Review

08/11/94

subject to
acceptance
on
achievement
of milestone
5000

1 250 000

3000

Critical Design Review
. Detailed Software
Design Document
- HCI relevant
material
- non HCI relevant
material
. Test Descriptions
(Test Cases)
. Database Design
Document (Physical
Design)


Approval
Review
Approval
Review

31/03/95

subject to
acceptance
on
achievement
of milestone
5000

1 375 000

4000

Test Readiness Review
. Test Descriptions
(Procedures)
. Acceptance Test
Data
. Software
Development System
Design Document
. Test and Acceptance
System Design
Document


Approval
Approval
Review
Review

06/09/95

subject to
acceptance
0n
achievement
of milestone
5000

1 250 000

5000

Canberra system
Developed Software
...

Acceptance
...

15/01/96

15/01/96

500 000


...

1.2 Those deliverable's identified in Table 8.1 within the column titled "Customer's Responsibility", as subject to review shall be reviewed by the Customer in conjunction with the Contractor during the formal review process conducted by the Contractor.
1.3 Those deliverable's identified in Table 8.1 within the column titled "Customer's Responsibility" as subject to approval shall be subject to the conditions as set out in subclause 9F.2": Emphasis added.
515 There are two comments to be made in passing about the above. The first is to note that there is a dispute between the parties relating to the proper construction of the words "approval" and "review" in the above Table. The second is to draw attention to the reference in cl 1.2 to "the formal review process". As will be seen below, a quite distinct issue exists as to the significance of this reference.
516 Clause 9.F of the Sub-Contract dealt with matters of administration and procedure in the "Conduct of Documentation Review". It provided:

"9F.1 ADMINISTRATION
9F.1.1 Where the Customer is required to review Documentation prepared by the Contractor for the purposes of commenting (reviewing), approving or accepting that Documentation, the Contractor shall deliver the Documentation in hard copy to the Customer's nominated Lodgement Officer. The Customer's Lodgement Officer shall be responsible to formally receive the Documentation and, for its distribution to the appropriate officers of the Customer.
9F.1.2 The Customer shall return the Documentation including any associated comments to the Contractor's Lodgement Officer who shall be responsible for formally receiving the Documentation and providing the Customer's comments to the Contractor's appropriate officer(s).
9F.2 PROCEDURE
9F.2.1 During the period of preparation of deliverable Documentation, the Contractor shall keep the Customer and the Commonwealth informed at all stages while the Documentation is being prepared so that the Customer's and Commonwealth's personnel who will be assessing the Documentation for the purposes of subclause 9F.2.2 will have a reasonable knowledge of the content of the Documentation by the time the Documentation is delivered to the Customer for approval, acceptance or otherwise.
9F.2.2 If the Customer has any objection to the Documentation provided by the Contractor it shall notify the Contractor promptly of any alterations it reasonably requires to be made to the same. The Contractor shall not unreasonably refuse to amend the Documentation to take account of the Customer's reasonable requirements. Where the Documentation complies with the Customer's Functional Specifications, amendments requested by the Customer may constitute a variation to the Contract."

517 There is a dispute between the parties as to when TRR was to occur, this dispute bearing as well on the proper meaning to be ascribed to the term "review" in the Table above. The provision of the Sub-Contract that is said to bear directly on this matter was cl 55. It provided:

"The Contractor shall supply to the Customer Services and the Developed Software which comply with the standards specified in Schedule 3."

Schedule 3 in turn stated that:

"The Contractor will comply with the standards as set out in the Software Development Plan (reference number 1401.01 Version 1) and any subsidiary documents to that plan."

A subsidiary document of the SDP is said by BHP-IT to have been the IPD Standard for Inspections, Reviews and Audits. It is necessary to refer both to that document and to the SDP, each of which was prepared by GEC Marconi.
518 First, the SDP. The "Document Overview" clause (cl 1.3) described the purpose of the SDP as being to define the development process to be applied to Phase II of the ADCNET project by the IPD team. That process was to be known as "Best Commercial Practice", a description which was elaborated upon in Appendix C to the SDP. In relation to "Formal Reviews in the Development Process", the Appendix described TRR as being mandatory and to be conducted at the end of the "Integration Testing Phase". A table in the SDP, which is reproduced as Schedule 3 to these reasons, identified when that phase would end. Clause 3.8 of the SDP provided:

"Formal external reviews will be conducted during the development process in accordance with IPD Standard for Reviews and Audits ... . The planned formal external reviews are:
...


iii. Test Readiness Review (TRR) - The TRR shall be held at the end of the Integration Testing phase, and shall be used to ensure that the system is ready for Acceptance Test."

519 The IPD Standard document described the purposes and processes of reviews (External and Internal) in some detail. It stated that the objective of the external review process was "to allow the customer to formally evaluate products created during a development phase that have been deemed as deliverable". In commenting generally on the review process itself, the document indicated that reviews should not be considered as a single point in time "as preparation starts weeks before and the review is not finished until all action items are satisfactorily completed": cl 3.5. The External Review process accommodated two stages, the first relating to the review meeting, the second, the follow-up. The former stage involved a "page-by-page walk-through" of the documents to be reviewed with "agreed actions" arising there from being noted on the "Review Action Sheet". At the end of this process (cl 7.6.2):

". The Reviewers then determine the review result and the Review Chairperson records this result on the Review Result Record. The review result can be either a `Passed and Complete' (no follow-up action required), a `Passed with follow-up action required' (as specified in the Review Action Sheet), or a `Re-submit' (the product requires sufficient further work to merit another review process). For the last two a date should be recorded indicating when it is estimated follow-up action should be complete by, or the date for a rescheduled review respectively.
...


. On completion of the review meeting the Review Chairperson is to brief the Customer on the review outcome through a formal letter. The Review Chairperson is then to organise the review follow-up, if the review was not assessed as `Passed and Complete'."

520 The purpose of the follow-up process was to complete satisfactorily all agreed review action items that had been marked in the Review Action Sheet. A series of steps was ordained, the last of which being described as follows (cl 7.6.3):

". When all action items are complete the Review Chairperson signs the Review Action Sheet and Product Issue Report as complete and files this on the products Development File. He then informs the Customer that the review process has been successfully completed."

Clause 7.7 went on to provide "Exit Criteria" for the completion of an External Review which culminated in a Review Report being issued to the customer. Annexed to the IPD Standard document were the standard forms of the various documents (Review Action Sheet, etc) used in the review process.
521 The Sub-Contract made express provision for the making of payment for milestones. Clause 16, insofar as presently relevant, provided:

"16.1 The Customer shall make progress payments in accordance with the milestone payment schedule in Schedule 8 upon the Delegate being satisfied on reasonable grounds that the supply of the Documentation, Developed Software or integration of that part of the System referable to that milestone payment meets the requirements of this Contract.
...


16.3 When a payment is due under Schedule 8 the Contractor shall provide a correctly rendered invoice to the Delegate.
16.4 The Customer shall make payment within 21 Normal Working Days after receipt of a correctly rendered invoice.
16.5 An invoice is correctly rendered if:
(a) the amount claimed in the invoice is due for payment."

522 Two issues arose out of this provision. The first was whether the amount claimed by GEC Marconi for Milestone 4000 was due; the second, assuming it was, was whether Mr Brent was justified in not making the payment for discretionary reasons envisaged in cl 16.1.
523 The final contractual matter to be referred to relates to the character of GEC Marconi's obligations relating to the SDP. In addition to cl 55 referred to above, cl 10.1 of the Sub-Contract required the parties to perform their obligations "in accordance with the Project Plan ... [Schedule 7] and the Implementation Plan [Schedule 8]". Clause 2.2 of Schedule 7 obliged GEC Marconi, in performing its Project Management function, to "[ensure] that the provisions described in the Software Development Plan are implemented".
(b) Additional Factual Material
524 I refer to the following matters as they have been relied upon in BHP-IT's and the Commonwealth's submissions.
525 (1) Some number of versions of the SDP were prepared by GEC Marconi during the period 1994-1996. The operative version for present purposes was Version 3.3 and the SDP references in the preceding section were to that version. An earlier version of the SDP (Version 3.1) provided for TRR to be held just prior to integration testing (ie at the end of CSC Integration testing) and not after it as was the case with Version 3.3.
526 (2) In cross-examination Roger Cooke accepted that the purpose of TRR was to check that everything was in place for the system to be acceptance tested, and that the practice in his 30 year experience was that TRR occurred immediately prior to (Version 3.1) or immediately after (Version 3.3) integration testing. It is Mr Harris' evidence (he was responsible for updating the SDP) that he derived the Version 3.3 requirements for the TRR from a "Government Standards" document for software development (DOD-STD-2167A) that was a referenced document in both Version 3.1 and 3.3.
527 (3) On 5 December 1995 Les Cook wrote a letter to Mr Brent concerning TRR. It stated in part:

"The relevant description from the SDP is that the `Test Readiness Review shall be held at the end of the integration testing phase and shall be used to ensure that the system is ready for Acceptance Testing'. The Department considers that this means that completion of integration testing is a prerequisite for TRR. With the current development plan, this means that TRR should follow successful integration of build 5."

528 (4) The positions taken by GEC Marconi and BHP-IT in relation to TRR was evidenced in the following two letters. The first, from GEC Marconi, reflected the fact that not even Build 2 had by then completed the integration test phase. It proposed replacing Milestone 4000 with three separate milestones and apportioning the contracted for payment between these. It prefaced this proposal with the following:

"There is a conflict in the contract baseline documentation regarding the conduct of the Test Readiness Review. The contractual deliverable's (sic) in the document which takes precedence, namely the contract, does not provide deliverable's (sic) to enable the TRR as the SDP requires until the final milestone."

This proposal was rejected by Les Cook. BHP-IT's position on TRR was reflected in the response made by letter of 21 March 1996 to the invoice sent to it by GEC Marconi of 12 March 1996. Though of some length, this letter will be quoted in full to avoid the need for later repetition.


"I have reviewed the contractual position on the issue of the Test Readiness Review (TRR) with the following results:
* the contract (Agreement No ADC/001) between BHP-IT and EASAMS is comprised of the document itself, the schedules and documents which include the Functional Requirements Specification (FRS), the Architecture Description document (ADD) and the Software Development Plan (SDP);
* Clause 2.1 of the contract defines the order of precedence;
* Clause 55 of the contract states "The contractor shall supply to the customer services and the Developed Software which comply with the standards specified in Schedule 3 of the contract;
* Schedule 3 of the contract states that the Contractor will comply with the standards set out in the Software Development Plan;
* Schedule 7 of the contract is the project plan. Under the "Contractors scope of work" it states "WP1000 Project Management (ii) ensuring that the provisions describes in the Software Development Plan are implemented";
* Section 4.2.3 of the Software Development Plan states that DOD-STD-2167A Defence System Software Development shall be the basic design standard used;
* Section 4.2 Software process of the Software Development Plan refers to Figure 4.1;
* Figure 4.1 of the Software Development Plan Best Commercial Software Development Process defines the position of the TRR in the Software Development process after completion of coding and integration testing of all CSU's and all CSC's and is predicated on the availability of a favourable integration test report. This is the purpose of TRR, to ensure that the system is ready for final acceptance;
* This is confirmed by Section 3.8 Formal External Reviews item (iv) which states inter alia that "the TRR ... shall be held at the end of the appropriate Integration Testing phase, and shall be used to ensure that the system is ready for Acceptance Test;
* Schedule 8 of the contract defines the payment milestones of which TRR is one;
* Schedule 9 of the contract paragraph 2.2.1 states inter alia that "The qualification of the Developed Software shall be based on the adherence of the software development to the testing and quality provisions as defined in the Software Development Plan". The TRR is a testing and quality provision of the SDP.
Thus there is no conflict between the contract and the Software Development Plan. The TRR as defined by the contract and the Software Development Plan requires that:
* all test documentation be complete and approved;
* all software development complete;
* all integration testing be satisfactorily complete;
* appropriate integration test reports be provided to support the contention that the system is ready for acceptance testing.
As at the date of this letter none of the criteria defined above have been satisfied. The TRR is now more than six months late.
Accordingly, I cannot authorise the milestone payment of $1,250,000, billed under your invoice 14248, dated 12 March 1996, until the requirements of the contract and the Software Development Plan are met."

(c) Submissions and Conclusions
529 By way of prelude to what follows, I would reiterate that the Table in Schedule 8 required that two documents - the Test Descriptions (Procedures) and the Acceptance Test Data - be "approved" and that another two - the Software Developed System Design Documents ("the SDSDD") and the Test and Acceptance System Design Document ("the TASDD") - be the subject of review. I would also note that the first two documents were in fact combined into one document entitled the Acceptance Test Descriptions ("the ATD").
530 There are three issues of construction seemingly raised in the parties' submissions. I say "seemingly" as the first to which I refer seems only to have been put directly in GEC Marconi's reply to the Commonwealth's submissions. These issues are:
(i) Subject to the Delegate being satisfied on reasonable grounds that the document submitted for a milestone met the requirements of the Sub-Contract, was the cl 16.1 payment obligation triggered by the mere delivery of those documents for "approval" or "review"? Or was "approval" or "review" a precondition of payment?
(ii) What was required for there to be "approval" or "review"?
(iii) Was the TRR referred to in Schedule 8 for Payment Plan purposes, the same TRR as referred to in the SDP for software development purposes?
(i) The cl 16.1 payment obligation
531 GEC Marconi's submission is, essentially, that the "Customer Responsibility" column of Schedule 8 does not stipulate a precondition for payment. Clause 16.1 speaks for itself. These submissions imply (a) that cl 1.2 and cl 1.3 of Schedule 8, in their references to deliverables "subject to review" and deliverables "subject to approval", have no significance in relation to the Payment Plan ordained by Schedule 8; and (b) that the reference in cl 16.1 to the "supply of the Documentation ... [meeting] the requirements of this Contract" does not necessitate that the documents in question be "approved" or "reviewed" as the case may be.
532 Both BHP-IT and the Commonwealth submit that before payment is due under Schedule 8 all of the requirements for TRR must be met. And it is only then that an invoice for that milestone can be rendered under cl 16.3.
533 For my own part, I do not consider that the language of cl 16.1, read in light of cl 16 as a whole and of the Sub-Contract more generally, requires me to attribute to the parties an intention so improbable as GEC Marconi proposes. The documents that are to be supplied for TRR under the Schedule 8 "Delivery Schedule and Payment" plan are (i) contract deliverables and (ii) are required to be approved or reviewed by the Customer. Nonetheless the submission advanced is that the Customer is obliged to pay for what is to be a deliverable without being able to exercise its right of approval or review before it does so.
534 The clear contemplation of cl 16, when read in light of Schedule 8, was that a contracted milestone payment became due when the requirements of that milestone had been met. Clause 16.1 and cl 16.3 were not concerned with when a progress payment was due. They presupposed that. Rather their concern was with the manner in which (cl 16.3), and the conditions subject to which (cl 16.1), payment was to be made. There is nothing surprising in requiring the Delegate to be satisfied that the supply of the documentation referable to a milestone met the requirements of the contract. The Delegate may well not have been a participant in the review process - Mr Brent was not a participant on all of the TRR reviews - and in consequence may have needed to be satisfied that the documents supplied met the contract's requirements, (ie they were approved or reviewed by the Customer) before payment was made by BHP-IT.
(ii) The Meaning of "Approval" and "Review"
535 The need to attribute meanings to these terms in Schedule 8 arises because, at the very least, the TRR documents were required to be either approved or reviewed before it could be claimed that the requirements of TRR had been satisfied and the Milestone 4000 payment was due. I say "at the very least" as BHP-IT has submitted that there were other conditions to be satisfied before payment was due.
536 GEC Marconi's submission is that (i) all that the contractual process of "approval" required was the provision of an opportunity to BHP-IT to stipulate amendments to any of the documents identified in Schedule 8 as requiring approval; and (ii) the process of "review" required no more than that the documents to be reviewed be submitted to BHP-IT for comment. This submission is based in large measure on the construction GEC Marconi placed upon cl 9F1.1 and cl 9F2.2 of the Sub-Contract and the description given of "Documentation Acceptance" for the purposes of cl 3 of Schedule 9 of the Sub-Contract.
537 I do not intend to rehearse here the contentions of the parties in any detail. The key to the meaning of the two terms lies in Schedule 8 itself. Clause 1.2 of the Schedule specified that documents that were "subject to review" were to be "reviewed by the Customer in conjunction with the Contractor during the formal review process conducted by the Contractor": emphasis added. The formal review so envisaged was clearly the one the SDP required to be undertaken for TRR: cl 3.8. It was to be a formal external review and at least one representative from BHP-IT was required to be part of the review group for TRR. As I have indicated the IPD Standard document prescribed the manner of conduct of this type of review. Though cl 1.2 might seem to suggest that the "[review] by the Customer in conjunction with the Contractor" was to be a review within a review in that it was to take place "during the formal review process", the intention properly to be attributed to the parties was that there was to be only one review in which the Customer participated as a reviewing party. I would note as part of the objective framework of facts: Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 at 837; that early versions of the SDP which pre-dated the Sub-Contract envisaged a similar formal external review for TRR. Further, because the TRR external review was to be conducted in accordance with the IPD Standard, the review contemplated by cl 1.2 would only be completed in respect of a particular document when the TRR review of that document was completed in accordance with the requirements of the IPD Standard document. I will return to that Standard document below.
538 I should add I do not consider that cl 9F1.1 assists in the construction of Schedule 8. It opens with the words "[w]here the Customer is required to review Documentation ... for the purposes of commenting (reviewing), approving or accepting that Documentation" etc. It is from this that GEC Marconi derives its submission that "review" means "comment upon". Clause 9F.1 has no greater purpose than to describe the machinery to be employed governing distribution of documents to the Customer, their retrieval and the proper communication of any comments made by the Customer. The use in that general setting of "reviewing" as a synonym for "commenting" is readily understandable. The word "review" as used in the specific context of Schedule 8, and its elaboration in cl 1.2 of that Schedule, leaves no room for the suggestion that it simply means "comment upon" in that context.
539 Clause 1.3 of Schedule 8 required that a document subject to "approval" was to be subject to conditions set out in cl 9F.2. All I need say of this is that I agree with the Commonwealth's submission that that clause was purely procedural in character. For the purposes of cl 1.3 of Schedule 8, cl 9F.2 provided the means to enable the Customer to exercise its contractual responsibility to approve the documents concerned. It did not stipulate what was to constitute approval.
540 I again agree with the Commonwealth that the word "approval" was intended to have its ordinary natural meaning. It required a positive act on the customer's part that "assented to", "confirmed" or "approbated" the document in question - that "pronounced [it] to be good": see Shorter Oxford English Dictionary, "approval", "approve". I should add without elaborating on the matter that I do not consider that the provisions of Schedule 9 relating to document acceptance affect the conclusion at which I have arrived. I agree with the Commonwealth's submissions.
541 The sources of the requirements that both the Acceptance Test Data and the Test Descriptions (Procedures) be approved individually by the Customer were to be found in cl 9E.4.1 and cl 9E.5.1 of the Sub-Contract. As I have noted, these two documents were combined into the ATD. That document (because it involved Test Descriptions) had to be approved by the Customer "prior to the commencement of the Acceptance Tests": cl 9E.5.1. Given that the TRR specified in the SDP was to be conducted after integration testing in anticipation of acceptance testing: SDP cl 3.8iv; it is proper to infer that, for the purposes of the Schedule 8 Milestone, it was envisaged that that approval would be signified on and by successful completion of the TRR. In saying this, I am not necessarily implying the Customer may not have been able to require alterations to the ATD after TRR as a matter of contractual right.
(iii) The Schedule 8 TRR and the SDP TRR
542 I have already indicated my view above that documents required to be reviewed or approved for Schedule 8 purposes had to be reviewed as part of the formal external review for the TRR mandated by the SDP. The corollary of this is that the Schedule 8 Payment Plan was linked to the SDP TRR.
543 It has been GEC Marconi's contention that it was open to the parties to define TRR differently for different purposes. The SDP's TRR was for the purpose of software development. Schedule 8's TRR was designed to impose a payment obligation. Assuming GEC Marconi was obliged to implement the SDP (which is denied), both TRR's could operate quite independently of each other.
544 I have in effect rejected this conclusion already by making the link I have between the Schedule 8 "review" and the SDP formal external review for TRR. I should nonetheless indicate why I consider GEC Marconi was in any event obliged to implement the provisions of the SDP in relation to TRR.
545 The combined effect of cl 55 and Schedule 3 of the Sub-Contract was to oblige GEC Marconi to comply with the standards set out in the SDP (and any subsidiary documents to the SDP) in supplying services to the Customer. The SDP defined the software development process, that process being self-described as "Best Commercial Practice". An integral element of that process and "Practice" was the conduct of formal external reviews of which TRR was one. In my view, the requirement of formal external review was a "standard" mandated by the SDP to be applied in the development process. The manner of conduct of those reviews (ie "in accordance with IPD Standard for Reviews and Audits": SDP cl 3.8) in turn required compliance with detailed procedures the object of which was to enable the customer formally to "evaluate products created during a development phase". Those procedures, when considered in light of the purpose they served, properly can be described as standards for the conduct of a review, and were no less so for being concerned with process and procedure. The IPD Standard document was for the purposes of Schedule 3 of the Sub-Contract a subsidiary document of the SDP. In consequence GEC Marconi was obliged to comply with its standards.
546 Finally, and additionally, cl 10 of the Sub-Contract required the parties to perform their obligations in accordance with the Project Plan in Schedule 7. One of GEC Marconi's contract obligations was to "assume project management and control ..." in accordance with the Sub-Contract: cl 4(j). A project management function prescribed for GEC Marconi by Schedule 7 was to ensure that "the provisions described in the Software Development Plan are implemented". While cl 4 of the Sub-Contract did not directly oblige GEC Marconi to implement the SDP, the indirect route adopted of obliging GEC Marconi to perform its obligations in accordance with the Schedules, provided a prescription against which the adequacy and propriety of its performance was to be judged. The Sub-Contract, in other words, clearly contemplated that GEC Marconi would implement the SDP. I would add that the reference made to the "formal review" in cl 1.2 of Schedule 8 reflects that contemplation.
547 My conclusions then on the construction issues can be put as follows. Payment became due for Milestone 4000 when GEC Marconi satisfied the requirement for TRR that was prescribed in cl 3.8 of the SDP. The "review" of documents envisaged by Schedule 8 was the TRR itself. The "approval" of documents envisaged by the Schedule required assent to those documents by the Customer, though those documents had as well to pass TRR.
(2) The Factual Issues
548 There are two discrete issues here. The first is whether in fact the review of the test documentation was completed. The second is whether, if that review was completed, were the requirements that needed to be satisfied for TRR in fact satisfied. This second issue is premised upon the SDP stipulation that the TRR was to be held at the end of integration testing so that requirements for that testing and reports from it were part of the TRR requirements. Both of these matters can be dealt with together.
549 Preconditions required to be satisfied for the Milestone 4000 payment to be due were at least that the ATD be approved and that the SDSDD and the TASDD be reviewed. BHP-IT and the Commonwealth both submit that (i) the ATD was not approved; (ii) the SDSDD review was "Passed with follow-up action to occur"; and (iii) the review of the TASDD was never completed. As I understand the position taken by BHP-IT, it accepts that for Milestone 4000 purposes the review of the SDSDD was passed, the follow-up action being taken on the day after the review was passed "with follow-up action" and the Review Action Sheets were signed off by the Review Chairman as required by the IPD Standard document.
550 There is a considerable controversy between the parties as to whether or not the ATD was approved. It is common ground that the ATD review was split into three reviews and that these were held on 26 February 1996, on 11 March 1996 and on 9 and 12 April 1996. Each such review generated Review Action Sheets with action items running into many hundreds. No overall Review Result Record was signed for the ATD. The controversy between the parties relates to the reason why that did not happen.
551 As to the TASDD, it was the subject of a number of review meetings from 21 September 1995 to 6 June 1996 which generated significant comments and action items. The minutes of the Formal External Review of 6 June, while recording five action items, does not record that a review result was determined. While there was a Review Action Sheet created, there was no Review Result Record. BHP-IT and the Commonwealth submit that no result having been arrived at, the review was incomplete while GEC Marconi has submitted that no result was necessary in the circumstances and that the TASDD had been reviewed.
(a) Additional Factual Material
(i) The ATD
552 The Sub-Contract provided for TRR to take place on 6 September 1995. Such did not occur. In mid-November 1995 Mr Harris prepared a schedule for the delivery of the ATD. This led Mr Wishart to write to Mr Brent on 22 November 1995 proposing that the TRR for ATD occur on 15 January. That letter, as did some others in correspondence concerning the ATD, indicated that the TRR would be conducted in accordance with the sections on formal external reviews in the IPD Standard document.
553 A working draft of the ATD was forwarded to BHP-IT on 4 January. The version to be reviewed was forwarded to BHP-IT on 5 February, the TRR then being scheduled for 19, 20 and 21 February.
554 On 8 February 1996 Les Cook wrote to BHP-IT proposing that the ATD review be split into three reviews. That proposal was reiterated in a further letter of 12 February 1996 which, because of submissions made on it, is set out at length below. Between these two letters, Mr Brent put GEC Marconi's separate proposals to Mr Cook that Milestone 4000 be split into three reviews with separate payments being made for each. That separate proposal was rejected in the 12 February letter which was forwarded by Mr Brent to GEC Marconi on 13 February.
555 Omitting formal parts the 12 February letter stated:

"In response to your letter of 9 February, the department is unable to agree to any split of Milestone 4000 until the impact of CRs 3057 (Stubs replacement) and 3048 (Xerox interface) is known.
In the meantime, we are prepared to participate in the review of the ATD, SDSDD and TASDD documents as per the schedule shown below. We believe a progressive review of the ATD is necessary over a period of time given the size of the document.
26 February
DFAT will jointly review and approve (subject to any agreed follow up changes being made no later than 1 month prior to the commencement of FQT) the ATD chapters on Functional Test Packets 1 to 10 for the Secret Canberra operational scenario only.
DFAT will also jointly review the TASDD and SDSDD.
1 April
DFAT will jointly review and approve (subject to any agreed follow up changes being made no later than 1 month prior to the commencement of FQT) the ATD chapters on Interface, Performance, Recoverability, COTS Software Regression, Developed Software Regression, Security and Support Subsystems for the Secret Canberra operational scenario only.
2 May
DFAT will jointly review and approve (subject to agreed changes being made no later than 1 month prior to the commencement of FQT) the remaining operational scenarios in the ATD."

556 Three separate review meetings were agreed and these took place 26 February, 11 March and 9 and 12 April 1996. The Review Action Sheets of the first review contained two hundred and twenty-six action items; those of the second, one hundred and twenty-four items; and the Review Action Sheets of the third review, one hundred and forty-four items.
557 On 22 April 1996 Mr Goldsmith wrote to Mr Brent concerning the third review. His letter stated:

"Attached are the Review Action Sheets recorded at the Formal External Review for the ATD Part 3. Please have this document circulated and allow the following to review and confirm the accuracy of the comments by initialling at the bottom of each page. The reviewers are invited to record any inaccuracy beside, underneath or over the applicable comment.
Les Cook
Bob Nichols
David McGregor
Please have this document returned to IPD Systems Engineering by COB Friday 26 April 1996 to enable rework to begin."

558 On 24 April 1996 Les Cook wrote to Mr Brent concerning the Review Action Sheets of the third review. That letter stated in part:

"The IPD Review Action Sheets from the ATD review meeting held on 9 April 1996 are accepted subject to the following changes:
ATD Review Part 3 of 3
...


Items No 43, 45, 50 etc
The wording of the action sheet represents what was said in the review. The action is to consider a large scale rework of the recoverability tests rather than to define a specific set of changes which can be agreed to at this stage. Because of the possible magnitude of the changes necessary to meet the intent of the comments provided, DFAT reserves agreement until the redrafting is completed and has been examined: emphasis added
...


ATD Review Part 3 of 3 - Security
Item #6
The action item states that the issue will be `checked'. DFAT reserves comment until the outcome of this checking is known.
Item #18
Action is to supply the test when design is finalised. DFAT reserves comment until the outcome of this is known.
Item #26
The action item states that the issue will be `checked'. DFAT reserves comment until the outcome of this checking is known.
...


Item #48
The action item states that the issue will be `investigated'. DFAT reserves comment until the outcome of this checking is known.
Item #56
The action item states that the issue will be `investigated'. DFAT reserves comment until the outcome of this checking is known.
Item #68
The action item states a question. DFAT reserves comment until the answer to this question is known.
Not Present
See DFAT comments #62, #63, #65, #84 and #86 which seem to be absent from the action sheets."

For reasons given below I infer that Mr Brent forwarded these comments to GEC Marconi on 29 April 1996.
559 On 12 August 1996 Mr Goldsmith wrote to Mr Brent, his letter opening with the following:

"Issues Raised at the ATD Review (Phase 3) on 9 April 1996
Reference: A. BHP IT Letter KB-1184 dated 29 April 1996
At Reference A, Mr Les Cook (DFAT Project Director) raised a number of issues regarding the review comments made during the third review of the Acceptance Test Description (ATD) Document. Below are the issues which Les raised (in italics) followed by EASAMS responses. Would you please pass them on to Les and the Department."

The letter then proceeded to respond to three matters.
560 By separate letter of 12 August 1996 to Mr Brent, Mr Goldsmith indicated that the review action sheets had been updated as requested by the Department, and he asked Mr Brent to "ensure that the Department reviews and approves the amendments so that EASAMS can then update the ATD document as requested".
561 The Department's response was conveyed to Mr Brent in a letter of 26 August. It stated:

"The consolidated IPD Review Action Sheets from the ATD reviews have incorporated most of the amendments requested by DFAT. Security items 6, 18, 26, 48, 56 and 68 are, however, still to be addressed and the outcomes reviewed (see attached copy of DFAT review comments). Further, DFAT comments on Security items 62, 63, 65, 84 and 86 have not been included in the action sheets.
The ATD review has not yet been signed off as complete. The Department is not prepared to approve the document as complete, nor as complete subject to agreed reworking. The significance of the degree of reworking required by several of the comments made at the review require the document to be reviewed again when the reworking has been performed."

562 Mr Brent in turn wrote to GEC Marconi on 28 August forwarding DFAT's letter and requesting that its comments be incorporated in the document and that the necessary arrangements be made "for the final review of the document".
563 Unlike with the SDSDD and the TASDD reviews, no minutes of any of the three ATD reviews are in evidence. There is, though, what purports to be an unsigned Review Result Record which records no result for the ATD review, but to which was attached the following typed note:

"Notes: The review was held in 3 parts. At the completion of the part 3 (12 April 1996) the Customer "unofficially" informed IPD that the ATD would be passed with rework. Due to contractual issues at the time the Customer declined to sign-off on the review until the contractual issues had been resolved. N. Brazil."

Mr Brazil, though working with, and representing, GEC Marconi at the time, was a BHP-IT employee. Next to his typed name are initials. The typed Result Record lists one of Mr Brazil's roles in the review as "Review Recorder". He was not called by BHP-IT to give evidence.
564 Les Cook was cross-examined at length both about this note and about his 26 August letter. Because of the reliance placed upon parts of that cross-examination by GEC Marconi, it is necessary to set out some number of extracts of that cross-examination by Mr Simpkins SC.
565 Reference having been made to Mr Brazil's note, the following exchange occurred:

"Q. At the review meeting held on 12 April 1996, do you remember who it was that represented DFAT, or do you need to go back to the review sheet?
A. No. It was primarily myself.
Q. Did you tell Mr Brazil at the completion of the review meeting held on 12 April 1996 that the acceptance test description document would be passed with rework?
A. I certainly did not.
Q. Did you tell Mr Brazil that due to contractual issues at the time, you, however, were not prepared to sign-off on the review?
A. No, I don't believe that's true at all.
Q. Well, at the conclusion of the review held on 12 April 1996, did you speak to Mr Brazil?
A. I don't recall that.
Q. Did Mr Brazil ask you what the outcome of the review was?
A. I'm afraid I don't recall.
Q. Did he produce a review result record and ask you to sign it for the acceptance test descriptions document?
A. I don't recall doing so."

566 A later sequence of questions again addressed the Brazil note:

"Q. Can I suggest this you, Mr Cook: If the ATD had been passed with rework it would have been entirely consistent, wouldn't it, with the practice which was followed between the parties in relation to the milestone 2000 and milestone 3000 documents?
A. Depending on the state of completion of document, yes.
Q. As I understand what you wish to say, Mr Cook, you say, do you, that there were particular things about the acceptance test descriptions document which meant that it was much more incomplete than any earlier document you'd reviewed and that, therefore, the review couldn't be concluded on the basis of a pass with rework conclusion?
A. Yes."

567 He was then taken to his 26 August 1996 letter to BHP-IT:

"Q. Do you see in the first paragraph of this letter you say in relation to the IPD review action sheets from the ATD reviews that there are some identified security items which are still to be addressed and the outcomes reviewed, and that there are some comments that DFAT's made on some other identified security options that have not been included in the action sheets?
A. Yes.
Q. I just want to understand the sense of this letter. Does the letter mean the ATD has not been approved because of those identified security matters, or do you suggest that they are irrelevant to the question of completeness of the document presented for review at the ATD review? Perhaps I can withdraw that and put it more directly. I'm trying to understand, Mr Cook, what it is that you are referring to when, in the second paragraph in this letter, you are describing something as `the significance of the degree of the reworking required'. What is that a reference to?
A. At this distance and time, I'm not sure that I can remember what the significant items were.
Q. These items were the items in 1996 that you say meant that contrary to an assumption that you had adopted perhaps in earlier correspondence the ATD could not be approved by DFAT, correct?
A. Yes.
Q. And, indeed, I think in your evidence to this Court you have suggested that there were, in fact, significant aspects of the ATD which prevented documents from being approved; correct?
A. Yes.
Q. And is His Honour to understand that you now can't tell him what significant aspects required reworking?
A. I can't recall them in detail. If I went through the document and all the action sheets I could perhaps derive that information.
Q. That's not an exercise that you've carried out for the purposes of giving any evidence in this case?
A. No, I haven't.
Q. Well, if these were matters of serious difficulty with the ATD in 1996, may I take it your ordinary practice would have been to maintain some reasonable record of what those matters were and what was being done by way of drawing attention to them so far as BHP-IT and/or GEC Marconi were concerned?
A. I believe that record is in the review of the - in the documentation of the review.
Q. Mr Cook, no doubt there are matters in the record of review which are identified as matters requiring attention. What I'm asking you about are those matters which you believed in 1996 to be of such significance that it meant that the ATD just could not be approved. Do you follow?
A. I do."
...


Q. Mr Cook, I do want to be fair about it so I just need to understand whether the document that I've just taken you to, which is a letter you wrote to Mr Brent on 24 April 1996, sets out, as you presently recall it, what those matters of great significance were that you believed in 1996 precluded the acceptance test descriptions document from being approved by DFAT?
A. I think it sets out the concerns I had relating to what was reviewed in the third review. I suspect there are similar documents relating to the other two reviews. And even in this one, for example, the bottom of page 14583, the second last items, number 43, 44 and 50, et cetera, define the need to consider a large scale reworking of some tests. That is not a minor matter.
Some of these points are minor wording changes. Others relate to complete changes of large areas of testing. I believe if we look at the documents relating to the other two reviews there will be similar points made.
Q. Well, can I go back to the question that I was wishing to ask a moment ago, again, and get an answer to it. I'm asking you whether it would be in accordance with your ordinary practices in 1996 in respect of such significant matters to maintain some appropriate record of what those matters were and what was being done to remedy them?
A. No, I believe that the result - the review action sheets were sufficient to document what the problems were, or issues were. And at that time I believe I, and probably Mr Nichols and others, had in our minds what the problems were - the understanding of the problems."

568 Shortly afterwards and in response to question of my own Mr Cook conceded that he was now speculating as to what might then have been in his mind. Mr Cook was then invited to review the Action Sheets overnight to see if he could identify what matters were so significant as to require non-approval of the ATD. Though he returned next morning with a list of matters in the Action Sheets that were inadequately defined, he again conceded to me, that the list did not represent anything he recollected, but was a contemporary rationalisation.
569 There are only two aspects of Mr Harris' evidence relating to the ATD reviews to which I need refer. First, he accepted that on receipt of the review sheets, his team would change the acceptance test descriptions and that that process occurred from the end of April 1996 onwards. He equally agreed that by mid-August GEC Marconi was still trying to finalise the review comments about the ATD. Secondly, he agreed that he was aware that the position of both DFAT and BHP-IT in August 1996 was that the ATD documents had not been approved.
(ii) The TASDD
570 As an early precursor to TRR, on 18 September 1995 GEC Marconi forwarded a "working draft" of the TASDD to BHP-IT for information and comment. BHP-IT provided comments in letters of 21 and 25 September 1995. The TASDD went through a number of versions subsequently and on 19 February Mr McGregor sent comments to GEC Marconi on what was then TASDD Version 1.0 Draft C1, in anticipation of the formal external reviews of (inter alia) this document. Those comments identified nine major defects. In the accompanying letter Mr McGregor said of this document and the SDSDD:

"The major problem with [them] as they currently stand is that they do not contain sufficient detail for either the contractor ... or the Commonwealth ... to install, configure and build the systems."

571 On 28 February 1996, Mr Brent forwarded to GEC Marconi DFAT's comments on the above draft. These identified five major and two minor defects. Item 7, which was described as a major defect, was in the following terms:

"The system should be configured to use sealers and a gateway. This will be by either:
(a) using Stubs emulation software if agreement is not reached on CR3057 (Stubs replacement); or
(b) using the Stubs replacement (KIV-7) as per CR3057.
Something should be shown in the TASDD to reflect the above."

572 A formal external review meeting for the TASDD was held on 1 March 1996. The Review Action Sheets are in evidence and disclose thirty action items resulting from the meeting.
573 According to Mr Harris further meetings were held between 1 March and 6 June. The minutes of the 6 June meeting to deal with now what was Version 1.0 Draft C2 of the TASDD indicated that:

"This review incorporated comments made at an informal discussion held on the 4th of June 1996, the letter titled TASDD Review (File: 90/015051, 24 May 1996) from L G Cook and the comments concerning the content of the document raised by David McGregor (KB-1259)."

The letter and comments referred to are not in evidence.
574 Under the heading "Broad Issues", the minutes recorded:

"BHP-IT raised the following broad issues:
* Sections 4.1, 4.3, and 4.6 require modifications. Figure 4-1 also requires modifications.
DFAT raised the following broad issues:
* TAS should be using the same software as the operational system. Therefore, the STUBS system (CR3049) should be included in the TAS.
* It was agreed that in principle the TAS should use as much of the existing equipment in the TIF as is possible, rather than requiring the purchase of new equipment.
* The diagram 4-1 is an extract from the ADD, and is out of date. The ADD should be re-reviewed to reflect reality, rather than have the TASDD using the ADD as its source. In DFAT's view, the PSI is responsible for maintaining documentation. There was some discussion on the process required to update the documentation."

The Review Action Sheet recorded nineteen action items.
575 In the "Relevant Sub-Contract Provisions" section of the "Construction Issues" above, I quoted from cl 7.6.2 of IPD Standard for Inspections Reviews and Audits. It envisaged that at the end of the review meeting the reviewers determine the review result and that this is to be recorded in the Review Result Record. The minutes of the formal review for the SDSDD record such a determination being made for that document. The meeting for the SDSDD occurred on 6 June 1996 and ran from 9.42am to 9.53am. It was immediately followed by the TASDD meeting which finished at 11.27am on the same day. The same persons were attendees at both meetings. The minutes of the TASDD meeting do not record any determination being made as to the result of the review.
576 Mr Harris accepted in cross-examination that he did not remember ever seeing a final version of the document that had been reviewed on 6 June. Les Cook in cross-examination, having been shown the minutes of the TASDD 6 June meeting recalled the TASDD was reviewed and in light of the minute that it must have been reviewed again on 6 June. To the question: "Will you agree that certainly by no later than 6 June 1996 the TASDD had been reviewed?" he responded: "There had been a review, yes".
(b) Submissions and Conclusions
(i) The ATD
577 As I earlier indicated the positions taken by the parties in relation to the ATD external review were, on the part of BHP-IT and the Commonwealth, that the ATD was never approved (conditionally or otherwise) as work was still being done, and, on GEC Marconi's part, either that the review was completed and the ATD approved for practical purposes or that the improper action of the Commonwealth prevented such from occurring.
578 The Brazil note on the Result Record Sheet is at the core of GEC Marconi's submission: the ATD would have been "passed with rework" but for the "contractual issues". Given the evidence before me, though, there is a very real question whether the point had in fact been reached where approval would have been given in any event. I make that observation for this reason.
579 On 12 February 1996 Les Cook wrote to Mr Brent describing what the Commonwealth's participation in the three ATD review meetings would be. In relation to that he said it would jointly "review and approve (subject to any agreed follow up changes being made no later than 1 month prior to the commencement of FQT)" that part being reviewed in each review. What this conveyed is of some importance. While anticipating that approval would be given on each occasion, it contained an important implicit qualification. That was that the "agreed follow-up action" would be identified and agreed prior to the approval being given. Unless and until it was agreed, the ATD would not be approved. And when it was agreed the approval would be an approval subject to agreed follow up action etc, or, to put it briefly, approval "subject to rework".
580 It should be said that this letter obviously was prospective and anticipatory in character and proceeded on the assumption that the ATD document would be able to be approved subject to agreed follow-up action. Save for any question of an estoppel subsequently arising in consequence of it: see below; it did not preclude a change of mind. It remained open to the Commonwealth to act otherwise than as foreshadowed in relation to approving the ATD document.
581 After the third ATD review, on 9 and 12 April, Mr Goldsmith by letter of 22 April sought both BHP-IT's and the Commonwealth's review and confirmation of the accuracy of the comments on the Review Action Sheets. Les Cook provided his to Mr Brent on 24 April 1996. That letter indicated in relation to some number of items that "DFAT reserves comment"; in relation to one group of items, "DFAT reserves agreement until the redrafting is completed and has been examined"; and it commented on a number of security items being absent from the action sheet.
582 It is clear from both of Mr Goldsmith's letters of 12 August 1996 that Mr Brent wrote to him on 29 April 1996 to provide comments from Les Cook on the third ATD review. One of those two letters addressed directly three comments so received, describing those comments in the actual language used in Les Cook's 24 April letter. Mr Brent's 29 April letter is not in evidence and no oral evidence was given on this sequence of correspondence. It is equally clear from the other of Mr Goldsmith's 12 August 1996 letters that Mr Goldsmith was aware from April 1996 that Les Cook was requiring amendments to the Action Sheets and that those sheets had not been agreed in their entirety. The burden of this letter was to get DFAT's approval to the amendments made so that GEC Marconi could update the ATD (ie take "agreed follow up action").
583 While it may not strictly be necessary in light of the above to make the following findings I do so because of criticisms made of DFAT's actions and, in particular, that it delayed until 26 August before communicating its reasons for refusing to pass the ATD. I infer as the most probable deduction that may reasonably be drawn from the correspondence (i) that BHP-IT received the Cook 24 April letter prior to 29 April 1996; and (ii) that BHP-IT forwarded that letter to GEC Marconi on 29 April 1996, rather than sending merely extracts from it relating to the three specific comments mentioned in Mr Goldsmith's 12 August 1996 letter.
584 Les Cook's comments on 24 April may be said to depart from what was expressly foreshadowed in the 12 February letter in that it indicated that agreement was reserved on some items until redrafting was complete and had been examined. It nonetheless made plain, as it did in relation to the security items, that DFAT was not agreeing, or agreeing conditionally, to the action items.
585 As at 12 August it was known that the action sheets still had not been approved by Les Cook. That approval was then being sought. It was denied in Les Cook's letter of 26 August 1996. A review was required after reworking had been performed.
586 Les Cook's evidence was subjected to the criticism that he was unable over five years later to indicate what were the matters that required such reworking as precluded the ATP being passed with follow-up action. I accept he had no memory of them when he gave evidence, but I am prepared to infer that such matters did exist at the time. The comment made on "Items No 43, 45, 50 etc" in his letter of 24 April 1996 clearly enough conveyed that DFAT was then reserving agreement until a redraft had been completed and examined "[b]ecause of the possible magnitude of the changes necessary to meet the intent of the comments provided".
587 As the Commonwealth had indicated in its submissions, GEC Marconi did not lead evidence to establish that the substance of the rework that was required was of such a trivial nature that, from a qualitative viewpoint, the ATD document should have been passed.
588 I do not consider that the objections raised by Les Cook to the Review Action Sheets were contrived or manufactured for a collateral purpose; I have no basis in the evidence for holding that from a technical point of view the reservations he made and the agreement he withheld were unreasonable. Mr Goldsmith did not give evidence in this proceeding so I am unable to consider what his understanding was of the outcome of the ATD reviews from at least the time he wrote his 22 April letter. What his correspondence then and thereafter indicated is that he was working to secure agreement to the Review Action Sheets so that the ATD document could be updated. Those actions were consistent with an appreciation that the review was still not completed for the reasons conveyed in Les Cook's correspondence.
589 Mr Brazil's note apart, the contemporary documentation would satisfy me (i) that the ATD review was not completed by agreement either at the end of the third review on 12 April 1996 or thereafter for reasons related to the ATD document itself and to action that needed to be taken in relation to it, and (ii) that the actions both of GEC Marconi and of the Commonwealth from 22 April until the "re-review letter" of 26 August 1996 were consistent with these reasons having that operative effect. The question is whether that note gives a quite different complexion to what occurred on and after the 12 April review.
590 Quite understandably, GEC Marconi has invited me to accept that the note was not a fictitious record. If it did not record a conclusion reasonably open having regard to the communications in which Mr Brazil had engaged there was a ready solution - BHP-T could have (and should have) called Mr Brazil to explain the note. For DFAT to have acted in the way suggested in the note was wrongful and cannot be relied upon by it or by BHP-IT.
591 I would have to say that I have been troubled by this unexplained document and by the course taken by BHP-IT in relation to it. While he both worked with the GEC Marconi at the time and represented it at the ATD reviews, Mr Brazil was a BHP-IT employee. Not only did BHP-IT not call him to give evidence, it was content simply to rely upon the Commonwealth's submissions on the status of, and weight to be given to, the Brazil note.
592 Having said this, I am satisfied that, the Brazil note notwithstanding, I should not depart from the conclusion I foreshadowed in light of the correspondence. My reasons for not attributing significant weight to the note in the circumstances are as follows. First, the note itself raises questions. It recorded that the Commonwealth unofficially informed GEC Marconi that the ATD would be passed with rework but the Commonwealth nonetheless declined to sign off until the contractual issues were resolved: (I will for convenience use the term "communication" to encompass both matters.) How GEC Marconi was informed (separately from, or as part of the meeting) was not indicated. Who, as representing GEC Marconi, was so informed was likewise not indicated. Though the Result Record Sheet names four GEC Marconi representatives as participating in the review of the ATD (Ms Schmidt, Mr Brazil, Mr Harris and Mr Carter), the evidence would suggest that only Ms Schmidt and Mr Brazil were present at the third review. Mr Harris' evidence is that he was present at the first two of the three reviews. Ms Schmidt, who appears to have been the "Chairperson" of the third review, was a GEC Marconi employee and in early 1996 took over as IPD integration acceptance test manager. There is nothing in the note to suggest that the communication was to Mr Brazil alone. Distinctly, the Result Sheet suggests that the intended signatories were to be the persons who took part in any one or more of the three ATD reviews even if they were not at the third review. As I will note below, Mr Harris was such a person. There is no evidence that he (or for that matter any other of the listed signatories) was ever aware of, or asked to sign, the Result Sheet. There is no evidence to suggest the note reflected the agreed view or understanding of the listed reviewers. On the contrary, in relation to Mr Cook and Mr Harris.
593 Secondly, what makes the communication to GEC Marconi unusual is that, if it was made at the meeting, there is no evidence to suggest that it was communicated beyond the meeting (particularly by the Chairperson) to persons in GEC Marconi who, one would expect, would have had a real interest in knowing of the communication either for reasons related to the document, or to the contractual dispute. I refer to Mr Harris, Mr Goldsmith and Roger Cooke. I would note in passing that GEC Marconi served its first notice of breach on BHP-IT nine days before the 12 April meeting, and BHP-IT forwarded its notice to DFAT the day prior to the meeting. Of the people to whom I have referred perhaps the most significant was Mr Harris as he participated in two of the three reviews; he was a person listed to sign off on the review of the ATD; and he was the person responsible for the ATD document. There is no evidence of the Commonwealth's communication being passed on to him. Rather, the evidence was that in August 1996 he understood the Commonwealth's position to be that it had not approved the ATD.
594 Thirdly, I will not traverse again the correspondence between the parties subsequent to 12 April other than to note the following. Not only was the correspondence bereft of any indication that would reflect the Commonwealth's unofficial communication, it also revealed the reason why the ATD review was not considered to be complete by the Commonwealth. The parties' actions in that period were consistent with their working towards completion of the ATD review.
595 Fourthly, Les Cook in cross-examination categorically denied making the unofficial communication. The other Commonwealth person listed as a participant in the ATD review on the Result Record Sheet was Mr Nichols (though the evidence does not suggest he was at the third review). Mr Cook's recollection of the detail of what transpired and of his own thoughts at the third review meeting is generally quite unreliable. Nonetheless, having regard both to the particular subject matter and to the context in question, I accept his disavowal of having made such an unofficial communication at the 12 April meeting notwithstanding he did not recall speaking with Mr Brazil at the conclusion of the review meeting. It is quite possible that something was said at the meeting about contractual issues given that the meeting was held the day after BHP-IT forwarded GEC Marconi's notice of breach to the Commonwealth and that one item in the notice related to non-payment of an invoice for Milestone 4000 (of which the TRR of the ATD was part). My preparedness to accept Mr Cook's disavowal is reinforced by what I consider to be the unlikelihood of such a communication being made in the circumstances. I later indicate (Part IV: BHP-IT's Second Cross-claim: Matters of weight and credit) that Les Cook on occasion could properly be said to be both partisan and manipulative. I do not consider that these qualities infected his denial of the unofficial communication and of the reason given for the failure to sign. Having regard to the significance of the communication and of the conduct attributed to the Commonwealth in the Brazil note and in light of the general evidence concerning Les Cook's project management and relationship with the Department, I consider it unlikely that he would have taken such an open and unequivocal step that would have had immediate contractual significance both for BHP-IT and GEC Marconi without the authority of at least Mr Skinner. There is no evidence of any such authorisation.
596 Finally, if the communication had been made in the terms indicated in the note it is surprising that GEC Marconi did not take steps, if only by way of seeking reassurance, to ensure that the two other reviews then underway, the SDSDD review (which was "Passed with follow-up action") and the TASDD review, would result in judgments being made on the merits.
597 There is no basis for my inferring that the Brazil note is a fabrication. Nonetheless, when considered in light of all of the evidence and in particular in light of (a) the general conduct of each of GEC Marconi, the Commonwealth and BHP-IT subsequent to the 12 April meeting; and (b) the absence of any reflection of the note in that conduct, I consider that it would be unsafe to attribute any significance or weight to it. The note itself is contradicted by what otherwise are established facts. When considered with the Result Sheet, the composite document raises ambiguities, doubts and speculations.
598 I am satisfied then that the third ATD review was not completed, conditionally or otherwise, at the conclusion of the 12 April meeting or thereafter.
(ii) The TASDD
599 The positions taken by the parties in relation to the review of the TASDD were as I earlier indicated: BHP-IT and the Commonwealth contend the review was never completed; GEC Marconi submits to the contrary, it being said in light of the minutes that no further work was to be done beyond implementation of what had been agreed and there was no suggestion that any further process of review was required.
600 Given (a) the long history of this document, (b) the exchanges and meetings that took place in relation to it, (c) that broad issues were raised by both BHP-IT and DFAT, (d) the absence of any recorded determination of a result (in contrast with the SDSDD meeting that preceded the TASDD meeting) and (e) the lack of evidence of a final version of the TASDD, I do not consider that the most probable deduction that may reasonably be drawn is that the review was completed for practical purposes. The absence of a recorded result in the minutes or in a Review Result Record is telling and made the more so as both the SDSDD and TASDD minutes suggest that the procedures followed for the reviews reflected those of the IPD Standard for Inspections, Reviews and Audits.
601 Les Cook's evidence that there had been a review by 6 June does not assist GEC Marconi. In the context in which his answers were given he can only reasonably be taken as affirming the facts that reviews of the TASDD took place on 1 March and 6 June. His answers did not address the result of the 6 June meeting let alone suggest that the formal external review process was completed.
602 I am not satisfied that a result had been reached in relation to the TASDD or that the review process had been completed for practical purposes. I agree with the submission of BHP-IT and the Commonwealth.
(c) GEC Marconi's Reply: Estoppel
603 I can deal with this matter shortly. GEC Marconi by reply, asserts that BHP-IT is not permitted to advance as a fact that the TRR documents were not "approved" or "reviewed" as the Sub-Contract on its face required. There was, it is alleged, an assumed state of affairs between the parties relating to external reviews upon which it relied detrimentally and from which BHP-IT and the Commonwealth are not permitted to resile. That state of affairs was that for the purposes of reviews in general, but of TRR in particular, the Commonwealth's role was to be limited to making comments which GEC Marconi was free to ignore, but which, if agreed with, should result in changes being made to the ATD no later than one month prior to the commencement of Acceptance Testing and that by such process, the Commonwealth would be taken to have approved the ATD.
604 This assumed state of affairs was claimed to be the product of correspondence passing between the parties both in 1995 and in 1996. I need to refer to several of the letters in some detail.
605 The first letter was written on 14 February 1995 after Milestone 2000 (the Preliminary Design Review or "PDR") in response to a letter forwarded by Mr Brent. It related to the manner in which DFAT had been commenting on agreed changes and making further comments on the documents. The letter stated in part:

"Following discussions with Mr Harris concerning the effort involved, DFAT will not insist on receiving versions of the documents with all of the agreed changes, provided that the agreed changes are incorporated by CDR.
Your letter raises questions concerning the purpose of the reviews. There is an implication that the review is to be regarded as a major contractual event in its own right. In fact, other than as proof that a certain amount of work has been done in order to justify a progress payment (which is refundable should final acceptance of the Canberra system not be achieved), the PDR and CDR have no contractual significance. The sole exception to this is the Acceptance Test Plan which is to be agreed as a final document.
DFAT regards its role in the design process as advisory, intended to provide advance warning to the PSI should there be an indication that the system may not meet the functional requirements when tested or that the standard of documentation will not meet the requirements identified in the DIDs. This advice should be offered whenever potential problems are perceived.
In particular, I am concerned by the statements that `If their (DFAT's) comments are not returned in time then we must reserve the right to disregard them. Also major issues identified after the formal review meeting (particularly at CDR) must be regarded as CRs, not as part of the review process'. Firstly, the PSI is under no obligation to act on any of the comments. If comments are ignored, the PSI risks failing to achieve requirements in acceptance testing or other project completion criteria."

This letter was passed on by BHP-IT to GEC Marconi on 21 February 1995.
606 Almost a year later, the Commonwealth wrote two letters concerning TRR to BHP-IT which resulted in the definitive version of the triple ATD reviews. That version was contained in the 12 February 1996 letter the terms of which are set out in full in "Additional Factual Material: (i) ATD" above. Here I merely repeat the first relevant part of that letter which reads:

"26 February
DFAT will jointly review and approve (subject to any agreed follow up changes being made no later than 1 month prior to the commencement of FQT) the ATD chapters on Functional Test Packets 1 to 10 for the Secret Canberra operational scenario only.
DFAT will also jointly review the TASDD and SDSDD." Emphasis added.

607 I would note of this that the qualification ("subject to agreed changes" etc) may well relate only to the concept of "approval", given that no such qualification is attached to the term "review" in the last sentence quoted above.
608 Both of Les Cook's February 1996 letters were forwarded to GEC Marconi. I infer that GEC Marconi acquiesced in the proposals put by Les Cook in the 12 February letter.
609 I have already indicated what I consider to be the burden of the 12 February letter as it related to the ATD review. Contrary to GEC Marconi's submission on the agreed state of affairs, that letter (i) required the agreed follow up action to be part of what was approved; (ii) it did not preclude a change of mind on the Commonwealth's part (subject to any question of estoppel); and (iii) being prospective in character, the letter presupposed that the ATD document was one capable of being approved with agreed follow-up action if necessary.
610 The 1995 letter could, in my view, only properly be taken as being concerned with the PDR and the Critical Design Review ("the CDR") and with the design process. These two reviews were quite different in function and purpose from the TRR. I do no consider that this letter had any bearing at all on the understanding any of the parties brought to the nature of the Commonwealth's participation in the TRR process - the more so given (i) that some number of GEC Marconi letters to BHP-IT (eg 22 November 1995 from Mr Wishart and 5 February 1996 from Mr Harris and, importantly given its date, 20 February 1996 from Mr Goldsmith) indicated that the various TRR reviews would be conducted in accordance with the IPD Standard for Inspections, Reviews and Audits; and (ii) that the evidence is quite consistent with their having been so conducted.
611 I am not satisfied at all there was the conventional understanding propounded by GEC Marconi. I likewise am not satisfied on the evidence that it was in fact relied upon in the actual review process itself. It is quite clear that the conduct of the Commonwealth and, to a degree, BHP-IT in both the long sequence of correspondence and meetings for the TASDD, and in the ongoing exchanges over and comments on, the ATD from the first review on 26 February 1996 until Les Cook's letter of 26 August 1996 would have made any such action in reliance quite unreasonable. Neither the Commonwealth nor BHP-IT were assuming the role of bare commentators. Moreover, even on GEC Marconi's own assumption the time for making "comments" was not spent. I have found the TASDD review was not completed. It was likewise with the ATD. Les Cook's 24 April letter is strongly indicative of this.
612 Distinctly, there is no evidence at the time in relation to either of the above reviews that GEC Marconi objected to the supposed change of stance by the Commonwealth. This tends to confirm my view that the Commonwealth was not actually perceived by GEC Marconi as having unexpectedly or otherwise moved from a position to which it had previously committed itself.
613 I agree with the submissions both of the Commonwealth and BHP-IT that the GEC Marconi's submission is based on a contrived use of the 1995 and 1996 correspondence. I reject the estoppel claim.
(3) Outcome
614 In light of my findings in relation both to the ATD and to the TASDD, the documents in question had not been "approved" or "reviewed" respectively at the TRR. Consequently in both instances the conditions required to be satisfied for the Milestone 4000 payment to become due, were not established. There was no breach of contract occasioned by BHP-IT's refusal to make payment on the Milestone 4000 invoice rendered by GEC Marconi. Accordingly the Notices of Breach lacked foundation.
7. MILESTONE 4000: ADDITIONAL DEFENCES
615 There are four additional matters raised by BHP-IT by way of defence to its alleged Milestone 4000 breach of contract.
616 The first is a consequence of what is said to be the proper construction of the Sub-Contract. This defence is that for TRR to be achieved not only must the relevant documents have been reviewed or approved, GEC Marconi also had to demonstrate to BHP-IT that the Developed Software was ready for acceptance testing. That need, reflecting the purpose of TRR, was a consequence of the provision in the SDP which provided:

"The TRR shall be held at the end of the Integration Testing phase, and shall be used to ensure that the system is ready for Acceptance Test."

I will refer to this as "the SDP Defence".
617 The second defence is that the invoice for Milestone 4000 was not correctly rendered. The essence of this defence is that when the invoice was submitted to BHP-IT on 12 March 1996 the review approval processes were not complete and GEC Marconi was still working on the relevant documents. In consequence payment for the Milestone was not due; the invoice was not "correctly rendered" as required by cl 16.5 of the Sub-Contract; and no fresh invoice was ever submitted to BHP-IT: ("the Invoice Defence").
618 The third defence is that even if the non-payment of the invoice constituted a breach, the breach was not one entitling GEC Marconi to terminate for "failure ... to perform [the] Contract" under cl 40.8: ("the cl 40.8 Defence"). There is a related defence that the non-payment was not a breach at all as Mr Brent was not satisfied on reasonable grounds under cl 16.1 of the Contract that the documentation met the requirements of the contract: ("the cl 16 Reasonable Grounds Defence").
619 The fourth defence is that, if there was a breach, GEC Marconi continued to proceed with the Sub-Contract and thus elected to affirm it: ("the Affirmation Defence").
620 I do not intend to consider all of these defences in detail. It is necessary for me to express concluded views on aspects of two of them. Otherwise I will confine myself to brief comments. My reason for taking this course is that I consider there to be an overwhelming case of bad faith on GEC Marconi's part in relation both to its claim that payment for Milestone 4000 was due and to its attempt to use non-payment of that Milestone as a basis for termination for breach.
(1) The SDP Defence
621 I would make simply this comment. The SDP indicated when and why TRR was to occur. In the event, the parties began the formal external reviews of the relevant documents long before integration testing was ever likely to occur. By so doing they acted inconsistently - and it must be presumed knowingly: cf Sargent v ASL Developments Ltd, above, at 645 - with the SDP. If they were content to proceed to approve or review the relevant documents, why should it not be said that the TRR was then completed, albeit at a time different from that prescribed in the contractual documentation?
(2) The Invoice Defence
622 In light of my findings, it is the case that when GEC Marconi submitted its invoice to BHP-IT on 12 March 1996, payment for Milestone 4000 was not due. The invoice at that time was not "a correctly rendered" invoice: Sub-Contract, cl 16.5(a), and cl 16.3. There was in consequence no trigger to the Delegate's obligation to make a progress payment pursuant to cl 16.1. No fresh invoice was ever rendered, although GEC Marconi now submits in this proceeding that all matters required to occur for Milestone 4000 to be achieved occurred no later than 6 June 1996. In all three of its Notices of Breach, GEC Marconi claimed that BHP-IT failed to pay the Milestone payment "pursuant to Invoice 14248 of 12 March 1996".
623 It is GEC Marconi's submission that if the TRR conditions were in fact later satisfied (ie payment for Milestone 4000 was due) that of itself would render effective the previously ineffective invoice. It is said that it would be commercial nonsense to construe cl 16 so as to require GEC Marconi to go through the "hollow formality" of submitting a fresh invoice.
624 I cannot accept this submission. The Sub-Contract went to some lengths in cl 16 to establish a regime for the making of payments based on correctly rendered invoices. For present purposes a correctly rendered invoice was one in which the amount claimed for payment was due for payment: cl 16.5(a). Unless and until such an invoice was submitted the Delegate's obligation under cl 16.1 was not enlivened. Neither did the 21 "Normal Working Day" period begin to run within which payment was to be made. On GEC Marconi's submission, on the day that fortuitously TRR was completed, the ineffective invoice was rendered effective; the 21 day period began to run; and the Delegate's obligation was triggered - notwithstanding (i) that no one might actually have been aware, or at least realised at the time, that TRR was completed; and/or (ii) that the Delegate might have been and might have remained, unaware that his obligation under cl 16.1 had been triggered and that the 21 day period had began to run.
625 If, as GEC Marconi further submits, a failure to make the TRR payment would entitle it to resort to cl 40.8 for termination purposes, it is readily understandable why the cl 16 payment procedure was agreed to be the parties. On GEC Marconi's submission, it would be possible for a contractor in the position of BHP-IT to be in breach of contract without ever being aware that its obligation to make payment had arisen or without ever being asked to pay after payment became due.
626 The submission is manifestly inconsistent with the actual requirements of cl 16. It also is contradicted by cl 40.8. A Notice of Breach had to specify the particular breach required to be remedied: cl 40.8. All these notices did this by reference to the non-payment of the 12 March invoice. It was that breach and no other that BHP-IT was required to remedy: cf Italmare Shipping Co v Ocean Tanker Co Inc [1982] 1 WLR 158 at 164. And it required BHP-IT to do something it was never, and could never be, obliged to do.
627 I agree entirely with the submissions of BHP-IT and the Commonwealth. The requirement that a fresh invoice be submitted once payment became due was no hollow formality. There were clear prudential reasons for it. Accordingly, having found that the 12 March invoice was incorrectly rendered at the time, I conclude that it was and remained ineffective to trigger BHP-IT's obligation to make payment under cl 16 of the Sub-Contract (assuming TRR was later completed), and that there was no breach of contract in relation to TRR that could activate the termination provisions of the Sub-Contract.
628 I need not explore the question whether GEC Marconi ever directed its mind at the time to the question of the date when TRR was completed. If it did and was satisfied that it was by a particular date, it was on its own head that it did not then render an invoice for payment.
(3) The cl 40.8 Defence/The cl 16.1 Reasonable Grounds Defence
629 I refrain from comment on either of these defences.
(4) The Affirmation Defence
630 I have earlier found that, prior to the service of the first Notice of Breach, GEC Marconi had in any event elected to affirm the Sub-Contract notwithstanding the breach occasioned by the non-provision of STUBS. BHP-IT has raised a like election to affirm defence on the dual assumptions that the non-payment of the 12 March invoice was a breach of contract and that it was one that attracted the cl 40.8 and cl 40.9 termination provisions.
631 The first Notice of Breach was served on BHP-IT on 3 April 1996. That Notice gave BHP-IT thirty-two days to remedy the breach. No payment on the invoice thereafter being made, the cl 40.9 conditions were satisfied by early May for GEC Marconi to terminate the contract. It did not do so then, or shortly thereafter. Two further Notices of Breach were served - the one on 18 June 1996, the other on 24 September 1996. Both relied upon the non-payment of the 12 March invoice. Termination was not effected until 10 December 1996.
632 Before referring to the evidence and arguments relating to affirmation, it is necessary to consider the legal significance of the second and third notices of breach. They were in my view incapable of altering the legal character of the breach resulting from the non-payment of the 12 March invoice. That breach, I consider, was a once-and-for-all breach when it occurred: cf Larking v Great Western (Nepean) Gravel Ltd, above; albeit (on the assumption that is being made) it was of such a character as permitted resort to the cl 40 termination provisions. I should add that I do not consider that the breach in its setting was repudiatory in the sense of evincing an intention no longer to be bound by the terms of the contract: see Byrnes v Jokona Pty Ltd, above, at [70]-[80]. As Mr Brent's 21 March 1996 letter setting out his reasons for not authorising payment of the invoice illustrates: see above "Construction Issues, Additional Factual Material"; he was endeavouring to adhere to the contract and to have it performed. The actual significance of the second and third notices was, at best, evidentiary. If an election to affirm had not been made prior to the service of each of them, the respective notices may have constituted evidence of continuing "reservations" communicated to BHP-IT: cf Champtaloup v Thomas, above, at 269.
633 The conduct subsequent to the first Notice of Breach that is relied upon by BHP-IT as being justifiable only if an election had been made to affirm is the following.
(i) In the period 3 April 1996 to 10 December 1996, GEC Marconi continued to perform software development and testing work and it continued to seek guidance and clarification from DFAT concerning requirements of the FRS through User Guidance Requests it raised.
(ii) Between April and August 1996 it continued to participate in the review of documents required for the TRR milestone. The evidence of this has been outlined previously.
634 It is GEC Marconi's submission that, at no time after 6 June 1996 (the date it submitted TRR was completed) and prior to 10 December 1996, did GEC Marconi ever resile from its contention that BHP-IT was in breach in failing to make payment. Nor did GEC Marconi ever expressly elect to affirm. The issuing of the two subsequent Notices of Breach is quite inconsistent with such an election having been made.
635 For my own part, I do not consider that acts of performance done by GEC Marconi during the thirty-two day period specified in the notice for remedying the breach could, as of course, be regarded as evidencing an election to affirm in that period. A clear and expressly communicated election would ordinarily need to be shown for an affirmation to be made out during that time. But if the circumstances were such that there was no reasonable likelihood of the breach being remedied, account properly could be taken (a) of that thirty-two day period in determining when after it a reasonable time to make an election had passed; and (b) of the significance of acts of performance done in that period in considering whether they led to a later election.
636 In the present case, the evidence does not suggest that BHP-IT gave any indication that it was likely at all to resile from the position it stated in Mr Brent's 21 March 1996 letter. BHP-IT confirmed as much in a letter to GEC Marconi of 3 May 1996. And on 5 May it wrote to GEC Marconi requiring it to comply with and complete its obligations under the Sub-Contract. I am prepared to infer that GEC Marconi had no reasonable expectation of BHP-IT to the contrary. In these circumstances, account properly can be taken of the passage of time from 3 April 1996 and of the acts done since then in determining whether the point had been reached by early June 1996 where GEC Marconi's conduct became unequivocal and was justifiable only on the basis of an election to affirm.
637 The period from 3 April onwards was one in which claims of breach or, alternatively requests to perform, passed between the parties. That state of affairs did not abate prior to termination of the Sub-Contract. In that climate of dispute in the period to early June 1996 BHP-IT could not have reasonably expected that GEC Marconi was no longer continuing to hold it in breach on account of the non-payment of Milestone 4000. Nonetheless GEC Marconi's continuing conduct in relation, in particular, to the TRR reviews from April 1996 until the 6 June TASDD review meeting was such as to evince an intention to keep the contract on foot at some time between late April and the beginning of June. Absent a notice of termination shortly after the expiry of the thirty-two day remedying period, that conduct was only justifiable if such an election had been made. In saying this I appreciate that there were other matters besides the non-payment of Milestone 4000 which GEC Marconi was continuing (mistakenly) to assert constituted breaches. But it was not open to GEC Marconi to act inconsistently by joining in the continuing performance of the contract while purporting to "keep warm" its power to terminate. The continuation of the TRR review after 3 April brought about the need to make an election. And that election was made by conduct that was not "consistent with the reservation of a right to terminate": Immer (No 145) Pty Ltd, above, at 30.
638 I would make this additional comment. Having activated the cl 40.8 termination provisions, GEC Marconi was required after the expiry of the thirty-two day period of grace to indicate with reasonable promptness what was the election it intended to make. Though it is unnecessary for me to express a concluded view on the matter, I consider that such a requirement is implicit in a clause structured in the fashion of cl 40.8 and cl 40.9. What GEC Marconi could not do was leave BHP-IT caught in a state of uncertainty. It could not speculate at BHP-IT's risk. Clauses such as cl 40.8 simply are not designed to hold the party in breach in continuing suspense, not knowing whether their further performance will, or will not, be rendered fruitless in the event. GEC Marconi purported to do this for a period of eight months from 3 April 1996.
639 On the dual assumptions I have been making for the purposes of this submission, an election to affirm was made prior to the service of the second Notice of Breach. The non-payment of Milestone 4000 no longer furnished a breach that could attract the termination provisions of the Sub-Contract.
8. GENERAL DEFENCE
640 BHP-IT has pleaded that in serving the three Notices of Breach, GEC Marconi breached its implied duty of good faith and fair dealing. It has not, though, relied on that breach to attack the efficacy of the termination itself. Rather that breach is a