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  • Unreported Judgment

Lewis Construction (Engineering) Pty Ltd v The Southern Electric Authority of Queensland

 

[1975] FC 23

IN THE SUPREME COURT OF QUEENSLAND

No. 246 of 1973

BETWEEN:

LEWIS CONSTRUCTION (ENGINEERING) PTY. LIMITED

(Plaintiff) Appellant

AND:

THE SOUTHERN ELECTRIC AUTHORITY OF QUEENSLAND

(Defendant) Respondent

_____________________

COR: Stable J.

Lucas J.

Andrews J.

_____________________

Judgments of Lucas J. and Andrews J. delivered on 16th September 1975. Stable J. concurring with the reasons of Andrews J.

_____________________

“APPEAL DISMISSED WITH COSTS”

_____________________

IN THE SUPREME COURT OF QUEENSLAND

No. 246 of 1973

BETWEEN:

LEWIS CONSTRUCTION (ENGINEERING) PTY. LIMITED

(Plaintiff) Appellant

-and-

THE SOUTHERN ELECTRIC AUTHORITY OF QUEENSLAND

(Defendant) Respondent

JUDGMENT - LUCAS J.

I have had the advantage of reading the Judgment which has been prepared by Andrews J., and I agree with his reasons and conclusions. There is little which I desire to add.

The contract was one for the erection of an electric power house. The written contract itself consists of a number of documents including the General Conditions, specifications, the Form of Tender and certain correspondence. All these were expressed “to form art of this contract as though separately set out herein”. The problem is to ascertain the intention of the parties as expressed in the Rise and Fall Clause which relates to the materials component of the work. The clause itself is set out in correspondence forming part of the contract, and is as follows:—

“The Contract price shall be deemed to have been calculated on the Building Materials index as published in the ‘Monthly Review of Business Statistics’ published by the Commonwealth Statistician for the month in which falls the date of the tender.

The variation between the index at date of Tender and the new index will be expressed as a percentage of the former.

For every one per cent, or prop-rata, variation in this index 85% of the uncompleted value of the Material content of the Contract amount at the date of the variation will be varied by one per cent.”

The clause has to be construed against the background of what is contained in all the documents which constitute the contract. The subject is referred to in the General Conditions, the full title of which is “General Conditions of Contract for Civil Engineering Works”. Clauses 42.3 and 42.4 are as follows:—

“Rise and Fall in Cost of Materials. If after the date of the Contractor's tender there occur an increase or decrease in the ruling market prices for such materials as shall have been stated in the Contract to be subject to the provisions of this Clause or if there shall be any variation in freight rates, or rates of exchange, or insurance premiums from the rates and premiums which applied at the date of the Contractor's tender which increases or decreases the cost to the Contractor of executing the Works, the net increase or decrease in cost shall be determined by the Engineer and the Contract Price adjusted accordingly.

Formula. A tenderer on the Principal may offer and the Contractor and the Principal may agree that a formula be used to calculate equitably variations to the Contract Price required by reason of rise or fall of costs.”

The matter was, then, to be dealt with by the Engineer, unless the parties should agree on a formula by which variations caused by rises or falls in costs should be calculated. The engineer was “Mr. A. McCullough, the Chief Engineer of the S.E.A.Q. or other person acting for the time being as Chief Engineer of the S.E.A.Q.” (See Annexure A to the General Conditions). The parties did of course agree on a formula. In the notes to the Form of Tender the following passage appears:—.

Price Variations for Rise and Fall: This clause is to be read in conjunction with Clause 42 of the General Conditions of Contract.

A firm Tender which makes no allowance for variations due to increases in the coot of labour and/or material will receive preference, other considerations being approximately equal.

Tenderers are to state clearly in the space provided in the Schedule of Rates, whether or not their Tender is on a firm basis, and if this is not done it will be assumed by the Principal that a firm Tender without variation is intended.

In the event of a Tenderer being unwilling to submit a firm Tender, consideration may be given to a Tender containing variations based on equivalent rates for labour and/or material, provided that it conforms to the requirements of the Principal as set out in the Specification.”

The Tender included the following proposal:—

“Our tender is based on a Rise and Fall basis as follows:—

“Adjustment to

 

 

Contract Amount:

= Nett unexpended value of contract

X 0.24% for each .10% rise or fall in State Award Rates.”

The matter of rise and fall clauses was again fully dealth with in clause A 15 of the specifications. This clause reproduced the extract quoted above from the notes to the Form of Tender and then set out in detail the requirements of the respondent, in paragraphs numbered 1 to 10.

The proposal made by the appellant in its tender was not acceptable to the respondent, and, after negotiations, the clause which I have quoted was adopted.

It will be seen that in the documents upon which the applicant submitted its tender, and which formed part of the contract, the respondent was careful to specify in some detail its requirements with regard to the provisions of any rise and fall clause. In particular in these documents, put forward by the respondent, it was made clear that the respondent would not accept “escalation clauses which merely state that variations in cost shall be to the Principal's account” (Paragraph 1 of clause A 15 of the specifications).

In such circumstances it is hardly likely that the respondent would agree to a clause which has the result contended for by the appellant, a result which includes the proposition that a fall in the price of materials has the consequence that the contract price is increased. Of course there is nothing to prevent the parties from agreeing to such a result, but I should have thought that in circumstances like this their agreement would need to be expressed in the clearest terms. What Lord Reid said in Wickman Tools v. Schuler A.G. (1974) A.C. 235 at p. 251, seems to be directly in point.

“The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it and if they do not intend it the more necessary it is that they shall make that intention abundantly clear”.

In that case his Lordship was not discussing a contract which contained an ambiguity; he was discussing a contract which he found to be “obscure” (see page 252B).

I repeat the sentence which is said by the appellant to lead to the conclusion contended for:—

“The variation between the index at date of tender and the new index will be expressed as a percentage of the former”.

On its face the sentence appears only to provide for a mode of expression; it does not itself provide for any payment to the appellant. Perhaps it was inserted because, as appeared in evidence, the building materials index is not expressed in terms of percentage but in terms of numbers. It does not specify in what document or documents the percentage provided for is to be expressed, but doubtless it must be taken as at any rate referring to the claims for payment to be put forward by the appellant pursuant to clause 43.7 of the General Conditions. Like the contract in Wickman Tools v. Schuler A.G. the sentence is obscure. I agree with my brother Andrews in thinking that the words “this index” in the third sentence of the clause refers to the building materials index described in the first sentence; it is the third sentence, and the third sentence alone, which secures to the appellant the increment to which it is entitled as the result of rises in the cost of materials. The second sentence seems to me to have quite a subsidiary operation; probably that of providing a means for the conversion of the numbers in the building material index to percentages. I find it impossible to construe it as clearly expressing the intention of the parties to bring about a result as unreasonable as that contended for by the respondent.

In my opinion the appeal should be dismissed with costs.

IN THE SUPREME COURT OF QUEENSLAND

No. 246 of 1973

BETWEEN:

LEWIS CONSTRUCTION (ENGINEERING) PTY. LIMITED

(Plaintiff) Appellant

AND:

THE SOUTHERN ELECTRIC AUTHORITY OF QUEENSLAND

(Defendant) Respondent

JUDGMENT - ANDREWS J.

Throughout these reasons I refer to the appellant as the Contractor, the respondent as the Authority, the clause relating to rises in cost of building materials, which appears to pose such problems in its interpretation, as the Rise and Fall Clause, and of that clause to the first sentence, second sentence and third sentence respectively.

The Rise and Fall Clause is as follows:—

“The contract price shall be deemed to have been calculated on the building materials index as published in the ‘Monthly Review of Business Statistics’ published by the Commonwealth Statistician for the month in which falls the date of tender.

The variation between the index at the date of tender and the new index will be expressed as a percentage of the former.

For every one per cent, or pro-rata, variation in this index 85% of the uncompleted value of thematerial content of the contract amount at the date of the variation will be varied by one per cent.”.

The Contractor and the Authority were parties to a schedule of rates contract, comprised partly in a written agreement dated 28th August, 1967 and partly in correspondence, for the construction of a power station building and associated civil works at Swanbank. The written agreement necessarily imports conditions of contract and specifications upon which the tender for the work was based.

The contract price was $2,646,669.00. The contract provided for progress payments based on work done.

The system under which the parties dealt with the matter allowed, in respect of each Claim for a progress payment, payment of sums calculated include amounts reflecting rises (and falls if any) in cost of materials used in the period since the last previous claim, being in the result rises above the base index occurring since the date of the contract in respect of such materials. The method of calculation contended for by the Authority is to proceed from the index figure obtaining at the time of the last previous claim, taking the percentage increase in the index which has occurred between that time and the time of the latest claim as a basis for calculating what amount to pay in respect of the rise in cost of materials yet to be used in the completion of work under the contract.

It has been shown that the first-mentioned method of calculation gives the same result as that which the Authority contends to be the correct method. The witness Peacock I think has established this. There seems to me to be little doubt that, assuming the index to be a fair and acceptably accurate reflection of averaged increases in material costs, the former method in fact gave the Contractor the benefit of actual rises in cost of materials used in work which was the subject of any particular claim.

In the result, by this method the Contractor has received $59,567.89 and, the Authority says, has been paid in full.

The contractor contends for an interpretation which would establish a formula by which it should be declared entitled to receive a further amount of $457,997.35, an amount considerably more than rises in coat of materials. The contractor's case is that when there is a variation in the index, apparently between claims, it is entitled to payment based on the overall percentage increase in the index from the date of the contract to the time of the particular claim; that the Rise and Fall clause properly interpreted achieves this result.

This would permit a claim to be made to-day for a rise and fall payment based on say a 10% rise in the index since the base date, in respect of the materials component of the balance of the work under the contract and anytime later, say a week, provided that some more work had been done to support a claim for a progress payment and that there had been an increase in the index, the contractor could again have 10% plus the percentage increase in the index. This is a formula for repeated payments going quite beyond rises in cost.

This emerges from a consideration of the schedule annexed to the of claims. Another curious result of adopting this method of calculation is that a reduction in the index may also produce a claim for increased payment, it being merely necessary that there be a variation, provided that it does not bring the current index figure below the base index. The amounts involved can be very substantial indeed.

It may be as well for ready understanding of the Schedule, and if necessary for the Schedule annexed to the defence to point out that “the material content of the contract amount” referred to in the third sentence is 635.

These seen to me to be absurd results and requiring, in my view, expression in the clearest terms to be regarded as effective. (See e.g. F.L. Schuler A.G. v. Wickman Machine Tools Sales Ltd. (1974) A.C. 235 esp. at p. 265).

In my view such a prevision is not so expressed. Now it was argued for the Contractor to the effect that in interpreting the Rise and Fall Clause the Court may not be swayed by the result, but must interpret the contract according to its terms, looking at nothing else, there being no ambiguity but merely, possibly, a difficulty in interpretation.

However, the Court in interpreting terms of the contract must consider then in context and with an understanding of what the contract ultimately, as interpreted, provides for.

I think that any difficulty in interpretation of the second sentence does not arise from an ambiguity, it is a difficulty in ascribing a nearing to it. To give it the interpretation contended for is to disregard the third sentence which if the rise and fall clause first submitted had been accepted would have been regarded as clear in its terms and the operative part of the clause.

I think that “This index” in the third sentence refers back to “Index” in the first sentence; that the third clause remains the operative clause, that “the variation” in the second sentence must in any case mean more than one and is no more selectively or exclusively indicative than “a” or “any” that “the index at the date of tender” has no more significant meaning than say “the base index”.

Looking at the Rise and Fall clause in context according to its terms one may I think as part of a process of interpretation of the second sentence find a reasonable explanation of its presence without an operative role. It could remove a possible ambiguity in the third sentence which might otherwise have called for evidence as to how the index was formulated. For example we know that the base index stood at 500.7 when the contract was entered into; that the index having been altered the parties accepted 100.6 as the base index. There is certainly no evidence to show that these figures or either of them represented percentages of some base unit or integar adopted for the formulation of the index, but they could have been. It is epexegetical and is not mere surplusage.

I think the Court must look at all the documents said to form part of the contract and if necessary to have regard to the fact that if they contemplate and provide that there be a term to cover payment in respect of rises in the cost of materials, a term in that context providing for something quite beyond such rises should do so in the clearest terms. As it is my opinion that the Rise and Fall Clause does not, I would dismiss the appeal.

I have therefore not found it necessary to consider the rectification question raised by the Authority.

The order I would propose is that the appeal be dismissed with costs to be taxed.

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Editorial Notes

  • Published Case Name:

    Lewis Construction (Engineering) Pty. Limited v The Southern Electric Authority of Queensland

  • Shortened Case Name:

    Lewis Construction (Engineering) Pty Ltd v The Southern Electric Authority of Queensland

  • MNC:

    [1975] FC 23

  • Court:

    QSC

  • Judge(s):

    Stable J, Lucas J, Andrews J

  • Date:

    16 Sep 1975

Litigation History

No Litigation History

Appeal Status

No Status