Cable Ltd v Hutcherson Bros Pty Ltd [1969] HCA 37; (1969) 123 CLR 143 (8 August 1969)

HIGH COURT OF AUSTRALIA

CABLE (1956) LTD. v. HUTCHERSON BROS. PTY. LTD. [1969] HCA 37; (1969) 123 CLR 143

Contract

High Court of Australia
Barwick C.J.(1), McTiernan(2), Kitto(3), Menzies(4) and Windeyer(5) JJ.

CATCHWORDS

Contract - Building and engineering contracts - Construction and interpretation - Builder's tender to design supply and install bulk storage and handling plant - To be done according to specification prepared by building owner's consulting engineer - Builder's drawings approved by building owner's consulting engineer - Promise to execute and complete in a workmanlike manner works shown on drawing and described in specification - Drawings show particular design of foundation - Subsoil subsided when foundations loaded - Whether promise to produce result or execute work described in drawings and specification.

HEARING

Sydney, 1969, March 19; August 8. 8:8:1969
APPEAL from the Supreme Court of New South Wales.

DECISION

August 8.
The following written judgments were delivered : -
BARWICK C.J. This is an appeal against a judgment of the Supreme Court of stated to it by an arbitrator pursuant to s. 9 of the Arbitration Act, 1902, of that State. The Court, by majority, answered the questions favourably to the respondent. The arbitration was in a dispute arising out of a building contract between the parties, the appellant being the building owner and the respondent the builder. The arbitrator who carefully and clearly made his findings of fact made his award in various alternatives according to the answers which the Court might give upon the matters of law submitted to it in the case stated. Appended to the case and forming part of it is a large number of documents, including a document called "Articles of Agreement and Specifications". (at p145)

2. From the findings of the arbitrator and the documents in his award the following relevant facts emerge. The appellant is the lessee from the Bunbury Harbour Board of land at Bunbury Harbour in the State of Western Australia. That land had been reclaimed from the harbour by a process of hydraulic filling. Both parties accepted the results of certain load bearing tests which showed "a settlement of approximately one inch at a load of 4 tons per square foot" and a statement which said that "it is anticipated that the ground will remain solid after the initial settlement". At no time did either of the parties by itself or by consultants make any investigation of the character of the subsoil beneath the site on which the appellant desired certain works to be erected. In 1964 the appellant, a producer of ilmenite and associated minerals derived from beach sands in Western Australia, proposed to have a bulk storage and handling plant erected on the said site which is in the vicinity of a land-backed wharf where storages for other producers of such minerals were then under construction. The scheme or project of the appellant consisted of two storage bins, each capable of holding 8,000 tons of ilmenite recoverable by gravity flow, a bucket elevator to transfer the material from a hopper to a conveyor to convey it to the bins whence it would discharge through bottom chutes to an under bin conveyor. The ilmenite would arrive by road transport in batches of 28 tons weight and be elevated and placed into the bins at the rate of 120 tons per hour. It would be discharged from the bins at a constant rate of 850 tons per hour. (at p145)

3. The appellant at the outset engaged a qualified mining, mechanical and electrical engineer as its consulting engineer in connexion with the installation it proposed to place on the site. This engineer prepared a specification and drawings for the installation. The appellant thereupon called tenders on the basis of this specification and these drawings. None of these drawings related to the foundations of the storage bins. The following portions of the specification have been made the basis for some of the submissions made to the Court and can conveniently be set out at this point.

"EXTENT OF INQUIRY :
This inquiry (i.e., call for tenders) covers the supply and
installation on a 'turnkey' basis and includes the following
work : -"
There follows a list of items of work or equipment, including : "2.

Supply and install all concrete foundations complete

with H.D. bolts."
"SUMMARY OF PLANT REQUIREMENT :
1. To receive Ilmenite in batches of 28 tons weight from road
transport.
2. To elevate and discharge into storage bins at the rate of
120 tons per hour.
3. To hold the following quantity of Ilmenite all recoverable
by gravity flow - 16,000 tons.
4. To outload at a constant rate of 850 tons per hour."
"COMPLETION DATE :
The project is scheduled for completion by the end of
September of this year and the successful tenderer will be
required to complete this storage section of the installation
at this date."
"BASIS OF TENDER :
Tenders shall be as a 'turnkey' proposition in which
tenderers, irrespective of any information contained in this
specification or associated drawings, shall take all responsibility
for supply and erection, and efficient operation of the project
to a guaranteed rate of output and continued maintenance for
twelve months from the date of acceptance of the unit by the
consulting engineer on behalf of the owners." (at p146)

4. On 17th April 1964 the respondent by letter addressed to the appellant submitted its tender "for the design, supply and erection of the above project in accordance with drawing No. 155/8 and specification prepared by" the appellant's consulting engineer. The respondent's letter added -

"Our tender is prepared in accordance with our enclosed
drawings Nos. ALB-001 to 4 inclusive, concrete details and
the brief outline specification for the mechanical installation
and civil work." (at p146)

5. One of these drawings was of the foundations proposed for the storage bins. These proved unacceptable to the appellant's consulting engineer, who required some amendments to be made to them. The engineer also gave to the respondent various results of soil tests which had been carried out for similar storage bins being erected in the vicinity of the site for other mineral producers. However, on 8th May, apparently whilst the discussions of the abovementioned drawing of the foundations were taking place, the appellant accepted the respondent's tender. Work was commenced by the respondent in July 1964. However, as the arbitrator found, both prior to and after 8th May 1964, the date of the acceptance of the tender, further drawings were prepared on behalf of the contractor indicating the proposed design and construction of the installation which were all submitted to the appellant's consulting engineer for approval. From time to time, that engineer directed alterations to the drawings and all such directions were carried out by the respondent. These drawings included drawings of the foundations for the bins and a drawing emerged, approved by the appellant's consulting engineer, providing for the erection of the storage bins upon a ring beam foundation of stated dimensions, which drawing after amendment became No. 155/8 mentioned in the articles of agreement to which I now refer. It is quite clear from the award and its annexures that the parties throughout contemplated the execution of a formal agreement to regulate their relevant relationships. The arbitrator found that:

"(xxxv) the agreement between the parties in relation to the
said installation constituted by the acceptance of
tender referred to in par. (viii) was that the said
installation be constructed according to a design
prepared by the contractor subject to the approval
of the said W. H. Burnett on behalf of the proprietor
and it was not a term of the said agreement that the
contractor be responsible for the adequacy of the
said design and all prior agreements between the
parties for the design construction and erection of
the said installation were superseded by the articles
of agreement executed on 22nd September 1964 and
referred to in par. (xvii);" (at p147)

6. The parts of these articles of agreement which need to be reproduced in these reasons are as follows:

"PARTICULARS OF WORKS
Description: Structural Mechanical and Electrical work for
Bulk Loading of Ilmenite at Bunbury, Western Australia
(hereinafter called 'the works')
DRAWINGS AND SPECIFICATION
Drawings Prepared by: McPhee Constructions and W. H.
Burnett, Consulting Engineer.
Numbers: AL-B-001 A. 001/1, 001/2A, 001/3A, 001/4, 001/4A,
001/30A, 777/1, 777/2A and 155/8 and such other drawings as
may from time to time be called for by the company's
engineers.
Specification prepared by: W. H. Burnett, Number of pages:
9.
AND WHEREAS the said drawings and the said specification have
been signed by or on behalf of the parties hereto.
NOW IT IS HEREBY AGREED 1. For the consideration hereinafter mentioned

the contractor

will upon and subject to the conditions annexed hereto
execute and complete the work shown upon the contract
drawings and described by or referred to in the said
specification and conditions."
"THE CONDITIONS HEREINBEFORE REFERRED TO :
1. (a) The contractor shall in a workmanlike manner and
subject to these conditions execute and complete the
works shown on the contract drawings and described
in the specification.
(b) . . . .
(c) Should there be any divergence or conflict between the
specification and these conditions, then these conditions
shall take precedence over and be paramount to the
specification.
. . . .
13. (a) Any defects or other faults which may appear and be
notified in writing to the contractor within a period of
twenty six weeks after the date of practical completion
and due to materials or workmanship not in accordance
with this contract shall be amended and made good by
the contractor at his own cost. . . ." (at p148)

7. The arbitrator found that - "neither the word 'turnkey' nor the phrase 'turnkey basis' nor the phrase 'turnkey proposition' or any of them had as at February 1964 acquired, nor have they or any of them yet acquired in Australia any usually accepted meaning in the building industry or in connexion with civil engineering works or in connexion with mechanical and electrical works;". He also found that - "the ring beam foundation shown in the drawings referred to in the articles of agreement was capable of supporting the bin structure when the bins were unloaded" but that "the character of the subsoil beneath the surface upon which the bins were erected was such that when the bins were loaded the surface of the soil would subside". He said "to provide an installation which, having regard to the character of the subsoil, was capable of adequately performing the function for which it was intended by the proprietor, it would have been necessary to erect the said bins upon piled foundations and not upon ring-beam foundations". (at p148)

8. When the construction of the bins was about completed the inadequacy of the foundation was discovered and a dispute arose between the appellant and the respondent as to which of them should bear the cost of piling the foundation of the bins. The appellant, acting on the footing that it was the contractual responsibility of the respondent to do so, purported to cancel the contract for its refusal to do the piling work. The respondent, disputing the appellant's claim to be entitled to terminate the contract, referred the matter to arbitration pursuant to a clause in the articles of agreement. (at p149)

9. The arbitrator found that ". . . the work described in the plans referred to in the said articles of agreement was carried out by the contractor in accordance with the said plans and in a workmanlike manner ;". He found the cost of providing an adequate and propand proper piled foundation for the bins to be 23,930 Pounds. He found that - "under the agreement between the parties and in the events which have happened the contractor was not required to erect bins otherwise than upon the ring-beam foundation upon which they were in fact erected". Nevertheless, he stated as a question for the Court :

"2. (b) (i) Whether upon the true construction of the
agreement between the parties and in the events which have
happened it was the obligation of the contractor to design
and erect bins of such a character and upon foundations of
such design as would ensure that the bins, when loaded
with ilmenite were not affected adversely by subsidence
caused by failure of the ground to support the weight of
ilmenite intended to be contained in the bins?"

This question the Supreme Court answered in the negative, and after due consideration I have to agree with the majority of that Court. I can express my reasons briefly. The point at issue is one of construction of the articles of agreement. Though the question refers to events which have happened, it has rightly been conceded in argument that there were no such subsequent events which could affect the answer to the question. But the anterior settlement of the design of the foundations by the appellant's architect and the incorporation of that agreed design in the articles of agreement are facts which if the terms of the agreement were ambiguous could not be ignored. The arbitrator has found the articles of agreement to constitute the contract between the parties. This finding rendered unnecessary the decision of any question as to the effect of the acceptance of the tender or as to the state of the design of the foundation of the storage bins at the time of that acceptance. In any case the arbitrator found that the respondent was under no obligation as to the adequacy of the design, even at that stage. (at p149)

10. The principal matter to be resolved is the effect upon the promise of the respondent of the incorporation in the contract of the terms of the specification. The competing views are that of the appellant that the promise of the respondent was to produce a result, namely, storage bins of given holding capacity which with the ancillary plant would operate and carry out the appellant's scheme or project, that is to say, receive, hold and discharge the volume of the stated mineral to the specified extent at the specified rate : and that of the respondent, that the promise was to do only the work described in the agreed drawings, the appellant being itself satisfied upon its own engineer's advice that work so done would operate and carry out the scheme or project it proposed. In my opinion, the choice between the contentions can be quite securely made without reference to decided cases or indeed any attempt to find an analogy in any of them or in the facts of any of them. No doubt at times the question whether the promise of a builder is to produce a result or merely to do specific work is difficult to answer. In reaching a conclusion, the fact that it can be seen that reliance is placed upon the skill and judgment of the builder may on occasions be an important if not a decisive consideration. Here, there is no doubt that the respondent knew the result which the appellant sought to achieve ; and it might well be that at the time of tender an area of the design of the installation was left to the tenderer. Indeed, the respondent tendered a price to include "design" (see the letter of tender) though oddly enough the word "design" is not found in the basis of tender clause in the specification. The respondent did in fact propose the design of the foundation for the storage bins and prepared the first drawings for them. But, by the time the agreement was made the "design" of the foundations had been agreed, after participation of the appellant's consulting engineer in the determination of its form. That agreed design, extrapolated in a drawing, was expressed to be part of the contract works (see reference to drawing No. 155/8 in the articles of agreement). But the appellant says that notwithstanding that fact so much may be drawn from the inclusion of the specification in the articles of agreement, that the responsibility for the suitability of the design to the appellant's mutually known purpose remained with the respondent. It is therefore necessary and important to observe what is brought out of the specifications prepared for tendering into the operation of the articles of agreement. (at p150)

11. The description of the "works" in the portion of the articles of agreement which I set out earlier in these reasons includes a reference to the specifications. The respondent's promise in cl. 1 of the articles is to do the work shown in the drawings and described by or referred to in the specification and conditions. The conditions refer to the works shown in the drawings and described in the specification : but the contract conditions are paramount (cl. 1 (c)). However, in any case the specification is only incorporated in so far as it describes the "works", presumably, the works which are to be found in or which form part of the works found in the drawings. It seems to me that the part of the specification most relied upon by the appellant, namely the basis of tender, does not perform or relate to the function of describing the works. In terms it relates only to the footing on which the tenderer should make his bid. Whether or not the building owner will exact a promise to make good that footing is quite another matter, particularly where as here, it is throughout intended that the mutual rights and obligations of the parties shall be exclusively expressed in a formal manner. So far from the basis of tender clause in the specification being a description of work, it seems to me to have become at the time of the execution of the contract no more than an historical step in a negotiation which preceded the making of the agreement. It is not reflected in the terms of that agreement either expressly or by implication. But out of deference to the submissions which were pressed upon us, let me say that, even if one moved the whole of the clause "Basis of tender" into the operative part of the articles of agreement, the result would, in my opinion, be the same. Nothing can be made, in my opinion, of the use of the word "turnkey". It is not a term of art and, even if it could be taken to mean that the works must be handed over as a going concern, I would not have thought that in the context of these articles the word or expression meant that the builder warranted the efficacy of the works he had agreed to erect. The same reasoning would, in my opinion, deny that the acceptance of all responsibility for supply and erection and efficient operation of the project - itself a very inapt word in any case in the circumstances - involved any undertaking as to the suitability of the agreed design. Lastly, the paramountcy of the contract conditions, which do describe the works agreed to be done, would prevent the clause of the specification having the submitted effect, if in truth it could be construed as imposing the obligations the appellant seeks to draw from it. (at p151)

12. In my opinion, for all these reasons I conclude that the respondent promised no more than to carry out the specified work in a workmanlike manner. This, according to the arbitrator, it did. (at p151)

13. In my opinion, the Supreme Court was right in the answers it gave to the questions asked in the stated case. The appeal should be dismissed. (at p151)

MCTIERNAN J. I am of the same opinion as the Chief Justice and agree with his Honour's reasons. (at p151)

KITTO J. This is by no means an easy case. The dissenting judgment of Jacobs J.A. in the Supreme Court contains much that has called for serious consideration, but the conclusion to which I have come is that the judgments of the majority in that Court are correct. I agree with the Chief Justice that for the reasons he has given the appeal should be dismissed. (at p152)

MENZIES J. I agree with the judgment of the Chief Justice. (at p152)

WINDEYER J. I agree that this appeal should be be dismissed. (at p152)

ORDER

Appeal dismissed with costs.