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Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited

 

[2011] QSC 95

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited  [2011] QSC 95

PARTIES:

VELVET GLOVE HOLDINGS PTY LTD

ABN 26 057 851 788

 (plaintiff)

v

MOUNT ISA MINES LIMITED

ABN 87 009 661 447

(defendant)

FILE NO/S:

S 5306/09

DIVISION:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

Supreme Court, Brisbane

DELIVERED ON:

27 April  2011

DELIVERED AT:

Brisbane 

HEARING DATES:

15, 16, 17 November 2010

JUDGE:

Margaret Wilson J

ORDERS:

1.That the plaintiff’s claim be dismissed; and

2.That the proceeding otherwise be adjourned to a date to be fixed; and

3.That the parties file and serve written submissions on costs, and deliver copies of them to the associate to Margaret Wilson J, by 4 pm on 13 May 2011.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where plaintiff entered into contract to make accommodation units and other facilities available to the defendant for 12 months – where plaintiff contends that contract comprised written agreement plus three documents accompanying it when delivered to the plaintiff for execution – whether three documents were part of the contract

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where contract terminable in a number of circumstances – where defendant exercised right of termination for convenience – where contract to be read as a whole – whether amounts became due from time to time as progress claims were advanced – whether amount payable to the plaintiff was the total amount payable had the contract run for 12 months – whether that amount due upon entry into contract

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where plaintiff identified evidence relating to communications between the parties before the contract was executed – where plaintiff submitted evidence was admissible evidence of the context in which the parties reached agreement – whether evidence admissible

Supreme Court Act 1995 (Qld), s 47

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57, cited

Codelfa Construction Pty Ltd v State Railway Authority (NSW) (1982) 149 CLR 337, cited

Elderslie Property Investments No 2 Pty Ltd v Dunn [2008] QCA 158 , cited

Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407, cited

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65, cited

Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111, cited

North v Marina [2003] NSWSC 64, cited

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 606; [1979] HCA 51, cited

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52, cited

Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2005] QSC 364, cited

Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32, [47], cited

COUNSEL:

P J Dunning SC, with D A Quayle, for the plaintiff

J K Bond SC, with S J Armitage, for the defendant

SOLICITORS:

HopgoodGanim Lawyers for the plaintiff

Carter Newell Lawyers for the defendant

  1. MARGARET WILSON J:   The plaintiff owns the Moondarra Caravan Park near Mt Isa.  It entered into a contract to make available 144 accommodation units together with mess/kitchen and laundry facilities to the defendant, a large mining company within the Xstrata group, for 12 months from 30 August 2008. The contract was executed by the defendant on 15 August 2008 and by the plaintiff the next day.
  1. The contract contained a “termination for convenience” provision,[1] by which the defendant had an absolute discretion to terminate it on 10 business days’ written notice to the plaintiff.  The defendant exercised that right by letter dated 3 December 2008, the effective date of termination being 20 December 2008.
  1. Both parties acknowledge that the termination was effective. The issue is the amount payable to the plaintiff in the circumstances. 
  1. On 2 February 2009 the defendant issued an “Approved Contractor’s Claim Form” purporting to determine pursuant to clause 18.5(d) of the contract that the amount payable to the plaintiff was $71,280 plus GST (a total of $78,408). On 18 August 2009 the plaintiff accepted that amount without prejudice to its rights under the contract.
  1. The plaintiff claims the balance of the total amount payable in respect of the accommodation units had the contract run for the full 12 months (and GST); further or alternatively damages for breach of contract; and interest pursuant to s 47 of the Supreme Court Act 1995 (Qld).

Particulars of the plaintiff’s claim

  1. The plaintiff’s claim is as follows:-
Total rental for 12 months $5,203,440.00
Less:  Received to 30 December 2008 $1,767,744.00
  $3,435,696.00
Plus:  GST $   343,569.60
  $3,779,265.60
Less:  Part payment 18/08/2009 (inclusive of GST) $     78,408.00
  $3,700,857.60
Less:  Rent from subletting 15/01/09 – 29/08/09(inclusive of GST) $     97,759.23
  $3,603,098.37

==========

plus interest at 10 per cent per annum from 27 February 2009 ($987.15 per day).

What comprised the contract?

  1. The plaintiff contends that the contract was comprised of an agreement in writing called “Contract for Recurring Services Contract Number 11003402” dated 15 August 2008, or alternatively that it was comprised of that document plus –
  1. a letter from the defendant to the plaintiff dated 15 August 2008;
  1. a copy of an Xstrata document dated 29 July 2008 giving particulars of the contract; and
  1. a letter of intent dated 28 July 2008.

These three documents accompanied Contract No 11003402 when it was delivered to the plaintiff for execution.

  1. The defendant contends that the contract consisted only of the Contract for Recurring Services dated 15 August 2008.
  1. The Contract for Recurring Services contains a definition of “contract”, an “entire agreement” clause and a clause headed “Contract comprises” –

Contract means this period contract for services including the schedules and annexures, and any other document or materials incorporated by reference.”

“1.6Prior agreements

This Contract, the Accreditation Agreement and any confidentiality agreement contain the entire agreement between the parties about its subject matter.  Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by these documents and has no further effect.

1.7Contract comprises

(a)The terms and conditions of the Accreditation Agreement, including the Principal’s Site Procedures, are incorporated by reference in, and are taken to be part of, this Contract.

(b)In the event of any inconsistency between any [of] the following documents, they take precedence over each other in the following descending order:

(i)schedule 1, Additional Conditions to this Contract;

(ii)the General Terms and Conditions of this Contract;

(iii)schedule 2 to 8 to this Contract in the order in which they appear; and

(iv)the Accreditation Agreement.”

  1. There were no documents incorporated by reference into the Contract for Recurring Services. The only one of the three documents listed above even referred to it is the letter of intent. In schedule 4 the Commencement Date is fixed by reference to the date of the letter of intent of 28 July 2008. That is insufficient to incorporate its contents by reference.
  1. There was no “Accreditation Agreement”, and so the references to it are irrelevant.
  1. None of the three documents was contractual in character or intent. The first was merely a covering letter. The second was an internal Xstrata document confirming that relevant persons within the corporate hierarchy had approved the defendant’s entering into the contract. The third was a letter of intent in the following terms –

“Xstrata Zinc Mount Isa Mines Limited acknowledges Velvet Glove Holdings Pty Ltd offer for the rental of 144 accommodation units at Moondarra Caravan Park.

Xstrata Zinc Mount Isa Mines will take occupancy of the accommodation units for a period of twelve (12) months at a cost of $99.00 per unit per night, whether occupied or not.

The rooms shall not be sublet to any other party without Xstrata’s consent.  If Xstrata Zinc agree to sublet, the units can be sublet at a lower rate and all money shall be reimbursed to Xstrata Zinc Mount Isa Mines.

The awarding of the Contract for the abovementioned will be subject to the finalisation of the terms and conditions of the Contract and Xstrata’s BOARD final approval.

In the event that the parties are unable to agree on final terms and conditions of the Contract, Xstrata Zinc Mount Isa Mines shall meet all reasonable costs incurred by Velvet Glove Holdings Pty Ltd up to the date that the formal notification is provided that the Contract shall not proceed.

This Letter of Intent shall act in the form of an order for Velvet Glove Holdings Pty Ltd to proceed with the construction of the rental accommodation in order to meet Xstrata Zinc Mount Isa Mines expected outcomes.

Xstrata Zinc Mount Isa Mines looks forward to a mutually rewarding relationship with Velvet Glove Holdings Pty Ltd.”

The letter of intent contained an express acknowledgement that the parties were still negotiating the terms of their agreement.

  1. I am satisfied that the contract consisted only of the document styled “Contract for Recurring Services Contract No. 11003402”.
  1. For completeness, I mention that in the course of oral argument I asked senior counsel for the plaintiff to identify what effect these three documents would have on his arguments if I accepted they were part of the contract. He responded that they merely reinforced the notion that when the contract was read as a whole the obligation to make the total payment existed whether the defendant made use of the accommodation units or not, which necessarily meant whether it exercised its right of termination for convenience or not.[2]

Approach to the interpretation of the Contract

  1. The parties adopted a standard form contract document used by the defendant – “Contract for Recurring Services”. This contract, being number 11003402, was entitled “Rental of 144 Accommodation Units at Moondarra Caravan Park” and dated 15 August 2008.
  1. In order to determine the extent of the amount payable to the plaintiff where the defendant exercised its right of termination, it is necessary to view the contract as a whole. There are well established principles for the interpretation of commercial contracts, which may be summarised as follows –
  1. The intention of the parties is to be ascertained from the words of the contract, considered in the context of the purpose and object of the transaction.[3]
  1. The contract is to be construed with a view to making commercial sense of it.[4]  A commercially sensible construction is more likely to give effect to the intention of the parties.[5]  There is a general tendency against literalism and technical interpretation.[6]
  1. The intention of the parties is to be determined objectively:  what each party, by words and conduct, would have led a reasonable person in the position of the other to believe.  The subjective beliefs and understandings of one, or even both, parties to the contract are irrelevant.[7]
  1. In order to ascertain the intention of the parties objectively, it is normally necessary to consider not only the words of the contract, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction.[8]
  1. Ambiguity is not a necessary precursor to examination of surrounding circumstances.[9]
  1. To be admissible, extrinsic evidence must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background context and the market in which the parties are operating.[10]
  1. It must be shown that both parties had knowledge of the facts relied on.[11]
  1. Antecedent oral negotiations and expectations of the parties are inadmissible to show actual intentions or expectations, but admissible to show background facts known to both parties and the subject matter of the contract.[12]
  1. Evidence of concurrent mutual intention is admissible to negative an inference to be drawn from surrounding circumstances.[13]
  1. Post-contractual conduct is not admissible in aid of construction.[14]
  1. Senior counsel for the plaintiff adverted to other relevant principles of construction 
  1. where the contract is in a standard form to which the parties have added special conditions, then, unless it provides otherwise, greater weight will be given to the special conditions;[15]
  1. where a contract contains general provisions and specific provisions, the specific provisions will be given greater weight where the facts to which the contract is to be applied fall within the scope of the specific provisions;[16]
  1. contra proferentem,[17] by which I took him to mean that any ambiguities in what was one of the defendant’s standard form documents should be resolved in favour of the plaintiff and against the defendant.

The contract

  1. The contract began with a schedule of Particulars. The Principal was identified as Mount Isa Mines Limited (the defendant) and the Contractor was identified as Velvet Glove Holdings Pty Ltd (the plaintiff). The Particulars continued (inter alia):

ServicesThe Services comprise Rental of 144 Accommodation Units at Moondarra Caravan Park as set out in schedule 2.

Commencement

Date of the The facility shall be fully operational by 30th August

Services2008.

 

TermOne (1) Year.”

  1. Then there were recitals, which included:

RECITALS

A.The Principal requires the provision of the Services on a periodic basis.

...

C.The Contractor has agreed to carry out the Services in accordance with this Contract.”

  1. The parties’ fundamental obligations were defined in clause 2.1 -

“2.1Fundamental obligations

(a)The Contractor must provide the Services to the Principal on the terms set out in this Contract.

(b)The Principal must pay for the Services in accordance with this Contract.”

The  plaintiff’s obligation to provide Services

  1. By clause 5.1 –

“5.1Scope of the Services

(a)The Contractor must execute the Services in accordance with the requirements of the Contract.

...”

  1. Those Services were defined in Schedules 2 and 5 –

SCHEDULE 2

         SCOPE OF WORK

2.1Refer to Schedule 5.”

SCHEDULE 5

   PAYMENT SCHEDULE

 

5.1Pricing Breakdown

The Principal shall take occupancy of the 144 accommodation units for a period of twelve (12) months at a cost of $99.00 per unit per night, as detailed in the table below, whether occupied or not.

 

Item

 

Description

Rental Period (days)

Daily Rate

(Per Unit Per Night)

Total Rental Price

(for 365 d ays)

 

01

 

Rental of 144 Accommodation Units

 

 

365

 

 

$ 99.00

 

 

$5,203,440.00

5.2Sublet of Units

The rooms shall not be sublet to any other party without prior consent from the Principal’s Representative.  Should the Principal’s Representative agree to sublet the unit/s, the unit/s shall be sublet at a lower daily rate, than detailed in table 5.1.  All monies received by the Contractor for the sublet of the unit/s shall be reimbursed to the Principal.

5.3Provision of kitchen / mess suitable for one hundred (100) people.

5.4Provision of laundry facilities – One (1) machine per ten (10) people.

5.5Provision of reimbursable costs.”

  1. Both parties knew that the defendant would have to undertake construction works before it could provide the Services. The provision of the Services was to commence on 30 August 2008. By clause 7.2:–

“7.2Program

(a)The Contractor must comply with the Program.

...”

Schedule 4 was in these terms:–

SCHEDULE 4

   PROGRAM OF WORKS

4.1Commencement Date:

The facility shall be fully operational by 30th August 2008 which is five (5) weeks after signing the Letter of Intent on 28th July 2008.

4.2Completion Date:

29th August 2009”

The defendant’s payment obligations

  1. The “Contract Price” was defined in clause 1.2 as follows:-

Contract Price is:

(a)where the Principal has accepted a lump sum, the lump sum set out in schedule 5;

(b)where the Principal has accepted rates, the sum ascertained by multiplying the measured quantity of an item of the Services actually executed by the Contractor by the corresponding rate in schedule 5; or

(c)where the Principal has accepted lump sum and rates, an aggregate of the sums referred to in paragraphs (a) and (b).”

  1. There are three provisions of particular relevance to the present dispute – schedule 5, clause 11 (Payment) and clause 18 (Default and Termination).
  1. Clause 11 provided:-

11.PAYMENT

11.1The Principal’s payment obligations

(a)The Principal must pay the Contractor the Contract Price and Reimbursable Expenses in accordance with this Contract.

(b)The lump sum breakdown, if any, in schedule 5, may be referred to by the Principal’s Representative for the purposes of:

(i)the assessment of payment claims; and

(ii)the valuation of changes to the scope of the Services pursuant to clause 6.2 to the extent that items are relevant, and for no other purpose.

(c)The Contractor acknowledges that the Contract Price includes all costs and expenses (other than the Reimbursable Expenses) it may incur in performing the Services and its other obligations under this Contract.”

11.2Payment

(a)Provided the Contractor has also complied with clause 11.2(f), the Contractor may submit to the Principal’s Representative within 5 Business Days after the end of each month a payment claim in the form of the Principal’s contract claim form (Contractor’s Claim Form) attaching the information required by the Principal’s Representative and including:

(i)details of the value for the Services executed by the Contractor to the end of the previous month;

(ii)details of any amount claimed by the Contractor’s subconsultants which is the subject of a dispute between the Contractor and those subconsultants and details of the dispute; and

(iii)documentary evidence that it has incurred the Contract Price for Services performed and the Reimbursable Expenses claimed.

(b)Within 10 Business Days of receipt of a Contractor’s Claim Form provided in accordance with clause 11.2(a), the Principal’s Representative must determine in writing the amount payable to the Contractor pursuant to clause 11.2(c) (Approved Contractor’s Claim Form).

(c)The amount payable to the Contractor is:

(i)the value of the Services performed by the Contractor excluding any amounts for which the Contractor has no Entitlement and excluding the amount estimated by the Principal’s Representative to rectify any defects in the Services;

(ii)the amount of any Reimbursable Expenses incurred by the Contractor with the prior written approval of the Principal’s Representative;

(iii)any amounts due from the Principal to the Contractor pursuant to this Contract;

(iv)less the amounts already paid by the Principal to the Contractor in relation to the Contract and the Services;

(v)less amounts payable but not yet paid to the Contractor in relation to the Services; and

(vi)less any money which is due or which may become due from the Contractor to the Principal in respect of this Contract or the Services or which the Principal is entitled to deduct or withhold.

(d)...

(e)Where an amount is due from the Principal to the Contractor in respect of a an [sic] Approved Contractor’s Claim Form issued pursuant to clause 11.2(b) or 18.5(d), the Principal must pay the Contractor the amount certified as payable by the Principal’s Representative under clause 11.2(b) or 18.5(d):

(i)...

(ii)in all other cases, within 20 Business Days after the end of the month in which the Principal’s Representative receives the Tax Invoice.

(f)...

(g)Payments made by the Principal are on account only and are not:

(i)evidence of the value of work; or

(ii)an admission of liability on the part of the Principal.

(h)...”

  1. Clause 18 provided for termination in a number of circumstances – termination by the defendant for breach by the plaintiff (clause 18.2), termination in the event of insolvency of either party (clause 18.3), and termination for the convenience of the defendant (clause 18.5).
  1. Clause 18.5 was in these terms:-

“18.5Termination for convenience

(a)Notwithstanding any other provision of this Contract:

  1. the Principal may at its sole discretion terminate this Contract by giving 10 Business Days’ written notice to the Contractor; and
  2. the Contractor must:
  1. cease the execution of the Services within the time specified in the written notice; and
  2. ensure that the Work Area is left in a safe condition and the Services are properly secured.
  1. If for any reason a purported termination under clause 18.2(b) or clause 18.3 or at general law by the Principal is held to be ineffective, the purported termination is not a breach or repudiation of this Contract and will be deemed to have been effected under clause 18.5(a).
  2. If this Contract is terminated pursuant to clause 18.5(a), the Contractor may submit a statement in a form approved by the Principal’s Representative showing the value of the Services performed by the Contractor and the amount payable under clause 18.5(d).
  3. Within 10 Business Days of receipt of a statement provided in accordance with clause 18.5(c), the Principal’s Representative must determine in writing the amount payable as a consequence of termination under clause 18.5(a) and issue it to the Contractor setting out that determination (and which is an Approved Contractor’s Claim Form for the purposes of clause 11.2).  The amount payable is:
  1. the value of the Services performed by the Contractor excluding any amounts which the Contractor has no Entitlement;
  2. the amount of any Reimbursable Expenses incurred by the Contractor with the prior written approval of the Principal’s Representative;
  3. any amount due from the Principal to the Contractor pursuant to this Contract;
  4. less the amounts already paid by the Principal to the Contractor in relation to the Contract and the Services;
  5. less any amounts payable to the Contractor but not paid in relation to the Services; and
  6. less any money which is due or which may become due from the Contractor to the Principal in respect of this Contract or the Services;

up to but not exceeding the Contract Price.

  1. Except as set out in clause 18.5(d), the Contractor has no Entitlement, including for any consequential costs, losses or damages as a consequence of termination under clause 18.5(a).”

The plaintiff’s submissions

  1. Senior counsel for the plaintiff submitted that this was a lump sum contract, and that the full amount of $5,203,440 was due upon entering into the contract.
  1. He submitted –
  1. There were two commercial imperatives known to both parties:
  1. from the defendant’s perspective – to achieve the accommodation in a short timeframe without any up-front capital payment given that it was on the plaintiff’s land;
  2. from the plaintiff’s perspective – not to incur the capital expenditure if it did not receive a guaranteed return.

I accept the submission of senior counsel for the defendant that these were matters of subjective intention not relevant to an objective interpretation of the contract.

  1. The words “whether occupied or not” in schedule 5 are critical.  They are incorporated, by reference to schedule 5, in the definition of “Services” and in the definition of “Contract Price”.  By clause 2.1(b) the defendant must pay for the Services in accordance with the Contract:  that means the Contract Price as defined in the agreement. 
  2. The defendant undertook a lump sum obligation.  This was incurred at the time of entry into the agreement.  There were then mechanisms for when and how the lump sum was to be paid.  But there was nothing in the agreement derogating from the obligation created upon entry into it.
  3. The provision for “subletting” was a clear recognition that the defendant was bound to take the accommodation units for 12 months, whether it used them or not. 
  4. The subletting obligation survived the termination.
  5. That the contract could be terminated at any time was inconsistent with a daily rental. 
  6. Paragraph (a) of clause 18.5 conferred a contractual power to terminate. Paragraphs (c), (d) and (e) did not purport to adjust the rights of the parties or to expunge existing obligations, but rather provided a mechanism by which the calculation was to be made.  In particular, paragraph (d)(iii) was plenary in its terms.
  7. On termination the defendant no longer had the right to occupy, but it still had the obligation to pay.  Clause 18.5 brought the defendant’s future obligations to an end, but not its existing ones.  
  8. There was no inconsistency between the right of termination and the obligation to pay the contract price if the price were a lump sum.  The term of the contract and the defendant’s entitlement to terminate it were distinct from whatever payment obligations arose and how they arose.

The defendant’s submissions

  1. Senior counsel for the defendant submitted that his client’s obligation was to pay “in accordance with this contract” and ultimately it mattered not whether it was an obligation to pay “a lump sum” or “rates”; he submitted that in so far as it was a contract for a lump sum, it was a lump sum over time, and amounts became due from time to time as progress claims were advanced for the amount of services provided during the periods to which they related.
  1. He submitted -
  1. The defendant was obliged to pay in accordance with the terms of the contract.  There were two processes for establishing the amounts due – clauses 11.2 and 18.
  2. Clause 11.2 provided the mechanism of claim, certification and obligation to pay within specified period.  The payments were on account only.  If the full amount in schedule 5 was not paid by the end of the 12 months, then the dispute resolution process in clause 19 applied. 
  3. Thus in so far as the contract was for a lump sum, it was a lump sum over time, and amounts became due from time to time over the term of the contract as progress claims were advanced for the amount of services provided during the period.
  4. Clause 18.5 provided the mechanism for establishing the amount payable not only in the event of termination for convenience, but also in the event of ineffective termination for breach or termination for insolvency. 
  5. Clause 18.5(d) provided a mechanism for establishing the value of the services performed to the date of termination: a contractor’s statement, followed by a  determination by the principal’s representative (akin to a certificate under clause 11.2), and an obligation to pay in 20 days, with provision for dispute resolution in clause 19.
  6. Clause 18 provided a mechanism for payment of the services provided.  If a deemed termination or a termination for convenience merely accelerated payment of the amount that would otherwise be payable at the end of the 12 month term, there would be no point in having that clause.
  7. If it had been the parties’ intention that the balance of the contract price became immediately payable, that could have been simply said. 
  8. If the plaintiff’s construction were correct, this would accelerate payment of the entirety of the contract price with no provision for deduction, and operate in a penal way.  This would be so because it made no provision for any rebate for accelerated payment, or for any deduction of costs savings to the plaintiff in consequence of not having to make the accommodation units available for the balance of the term, or for any deduction of rental income earned from the rental of the accommodation units to other persons during the balance of the term.
  9. The objective intention of the subletting provision was to provide (in effect) an exclusivity agreement together with a guard against unjust enrichment to the plaintiff as a result of being paid by both the defendant and some other person for occupancy of the accommodation units.  It operated only during the term of the contract. It did not have any operation in the assessment of the payment to which the plaintiff was entitled in the event of termination for convenience.  It could not be construed as part of a formula to calculate damages or monetary entitlement post termination.

Discussion

  1. The purpose or object of the contract was to provide for the rights and obligations of the parties inter se in relation to the plaintiff’s provision of the accommodation units to the defendant.
  1. It is not clear from schedule 5 whether the parties intended a lump sum contract or a rates contract or something else. But schedule 5 must be read with the other provisions of the contract. I do not accept that the defendant’s payment obligations were unrelated to the term of the contract and the defendant’s right to terminate it.
  1. For the defendant to be liable for the full 12 months’ rental as a lump sum from the commencement of the contract would be inconsistent with the contract’s always being terminable at the convenience of the defendant, and it would be contrary to commercial sense.
  1. Similarly, for the “sub-letting” obligations of the plaintiff to survive termination, whether for convenience or otherwise, would be inconsistent with “termination” and contrary to commercial sense. The sub-letting provision was intended to ensure exclusivity for the defendant and at the same time allow the plaintiff to rent accommodation units not occupied by the defendant to other persons (presumably to advance or at least protect the reputation of its business); because the defendant was obliged to pay rental whether or not it occupied the accommodation units, the sub-letting provision afforded an appropriate safeguard against its receiving double payment.
  1. The defendant’s obligation was to pay in accordance with the contract. By clause 18.5(d)(i) it had to pay the value of the Services performed by the plaintiff: in my view that necessarily meant those performed up to the date of termination. Then it had to pay the amount of any Reimbursable Expenses incurred with the prior written approval of its representative (clause 18.5(d)(ii)). And it had to pay “any amount due from [it] to the [plaintiff]” pursuant to the contract (clause 18.5(d)(iii)), less certain deductions.
  1. Clause 18.5(d)(iii) is similar to clause 11.2(c)(iii) in relation to progress claims. The contract contained several provisions by which other moneys might have become due by the defendant to the plaintiff – clause 6 (variations), clause 7.3(h) (extra costs resulting from any suspension of the provision of Services) and clause 10.2 (extra costs resulting from changes to the law). Clause 18.5(d)(iii) would not be otiose if, on its proper construction, clause 18.5(d)(i) referred to services performed by the plaintiff up to the date of termination: it would, in my view, embrace moneys due under those other provisions.
  1. When the contract is read as a whole, its meaning is clear. The plaintiff is entitled to no more than was certified by the defendant’s representative on 2 February 2009 and paid to it on 18 August 2009.
  1. It is not necessary to consider the defendant’s argument about the penal effect of the plaintiff’s construction of the contract.

Breach of contract

  1. The plaintiff alleges that the defendant has failed to fulfil its obligation under clause 18.5(d) – that it has:
  1. failed to cause its representative to provide a determination of the amount payable pursuant to the clause; or
  1. further and in the alternative, failed to cause its representative to provide a correct determination of the amount payable to it;

and that it has thereby breached its obligation under cls 2.1(b) and 11.1(a) of the contract.

  1. The determination on 2 February 2009 was a correct determination of the amount payable to the plaintiff under the contract. The claim for breach of contract must fail.

Admissibility of extrinsic evidence

  1. In paragraph 2 of its Reply the plaintiff alleged –

“2.The context in which Velvet Glove and MIM entered into the contract was, relevantly as follows:

  1. on 23 July 2008 by written proposals from Velvet Glove (by Neal Guilmartin) to MIM (by Max Hines-Rhodes), Velvet Glove proposed providing, by the first proposal 350 and by the second proposal 144, accommodation units on terms that MIM ‘[e]nter into a lease to rent all [350 for the first and 144 for the second] rooms provided [sic: providing] for a minimum term of 5 years...at a room rate of $30 per night plus GST’ and that relevantly, MIM ‘[p]ay on a cost plus 10% basis the establishment expenses’ as outlined in schedule 1;
  2. as a result of a discussion on that day between Neal Guilmartin for Velvet Glove and Max Hines-Rhodes and Robert Brougham for MIM the second proposal referred to at (a) was adjusted by hand written amendment to the written document, such that the minimum term was reduced from 5 years to 18 months; and
  3. later on 23 July 2008, Max Hines-Rhodes informed Neal Guilmartin that Velvet Glove’s proposal (as pleaded at (b)) had been approved by Kevin Hendry, whose approval was necessary because of the fact that the proposed expenditure exceeded $5,000,000.00, and that a letter of intent would be provided the next day;
  4. in fact no such letter of intent was provided;
  5. on 25 July 2008 Max Hines-Rhodes telephoned Neal Guilmartin and told him (by leaving a message on Neal Guilmartin’s voicemail) that Kevin Hendry did not wish to proceed as proposed on 23 July 2008 because he was not happy for MIM to be giving out such a large sum of money upfront to Velvet Glove;
  6. on 28 July 2008 at about 1.40pm, at MIM’s premises at Mt Isa, Neal Guilmartin met with Robert Brougham.  Robert Brougham asked if Velvet Glove would be prepared to build the rooms, at Velvet Glove’s expense, if MIM guaranteed to pay $100 per night per room for a period for 12 months, whether or not MIM used the rooms, on the basis that MIM paid no upfront contribution towards establishment or mobilisation of the rooms.  Neal Guilmartin indicated that Velvet Glove would be willing to do this;
  7. shortly after the meeting referred to in (f) Neal Guilmartin for Velvet Glove met with Robert Brougham and Kevin Hendry for MIM at which meeting it was proposed between those men that Velvet Glove build the rooms for MIM and MIM guarantee to rent them for a year at $100 a night, but pay no upfront mobilisation fee for the establishment of the rooms;
  8. discussions ensued about other aspects of the proposal and in particular a 3 month bond, but Kevin Hendry said MIM was not willing to put money upfront but that the rent would be paid for 12 months so the issue of a bond should not be a concern to Velvet Glove;
  9. ultimately Kevin Hendry asked Neal Guilmartin if Velvet Glove would accept $99 instead of $100 a night, which Neal Guilmartin agreed to do;
  10. Kevin Hendry also raised the possibility that subletting of the rooms might be necessary during the year and that all monies received from subletting were to go to MIM, to which Neal Guilmartin also agreed; and
  11. a letter of intent consistent with this discussion was provided to Velvet Glove by MIM on that day;
  12. during the period from 23 July 2008 until 28 July 2008 the mobilisation and preparation for the installation of the works had been commenced by Velvet Glove;
  13. in fact, by the time the contract was signed on 15 August 2008, consistent with the discussions on 28 July 2008, the construction of the units was largely complete;
  14. a draft contract including MIM’s standard terms for, inter alia such contracts, was sent to Velvet Glove on or around 7 or 8 August 2008;
  15. on or about 12 or 13 August 2008, Neal Guilmartin met Max Hines-Rhodes at the Moondarra Caravan Park  to discuss the draft contract; and
  16. the termination for convenience clause (Clause 18.5) was discussed, Neal Guilmartin asked Max Hines-Rhodes what it meant and did it mean that the deal previously agreed to was being changed or undone;
  17. Max Hines-Rhodes replied to the effect that:
  1. there was no change to the deal;
  2. the Contract was a lump sum contract with the lump sum payable over 12 months (whilst saying this, pointing to schedule 5) and the words ‘whether occupied or not’;
  3. the termination for convenience clause could have no effect or relevance to a lump sum contract;
  4. its only relevance was if Velvet Glove did not construct or make the units available on time or if the quality of the units was unsatisfactory in which case the clause might be used;
  5. but once constructed satisfactorily and made available to MIM, the lump sum became payable in monthly instalments and so a termination for convenience even if it happened would have no effect and in those circumstances, why would MIM ever use it?;
  6. that once the units were available the risk of the need for the units was with Xstrata (by which he meant and by which Neal Guilmartin took him to mean, MIM); and
  1. the circumstances alleged in paragraph 1(b)(ii) above.”
  1. At the commencement of the trial, senior counsel for the plaintiff opened a large body of oral and documentary evidence relating to communications between the parties before the contract was executed, submitting that it was admissible as evidence of the context in which the parties reached their agreement. Senior counsel for the defendant objected to its admission. I ruled it inadmissible, saying I would give my reasons for doing so when I gave my reasons for judgment.
  1. The identity of the parties and the nature of their respective businesses were admitted on the pleadings. The purpose or object of the contract was readily apparent from the terms of the contract itself. It was common ground that the accommodation units had to be constructed in order to meet the plaintiff’s fundamental obligation under the contract, and the contract contained an express requirement that they be fully operational by 30 August 2008.
  1. I considered that the evidence sought to be adduced was probative of the parties’ subjective intentions and expectations rather than of objective background facts known to both of them and the subject matter of the contract.
  1. This can be illustrated by the documents which were marked “A” – “I” for identification (“MFI-A”, et cetera) and the evidence of a conversation between Mr Guilmartin and Mr Hines-Rhodes on 12 or 13 August 2008.
  1. Mr Neal Guilmartin was a director of the plaintiff, and Ms Fiona Guilmartin (a lawyer) was his sister. Mr Max Hines-Rhodes was an employee of Evans & Peck, who were consultants to the defendant; he corresponded with the plaintiff as if he were acting on behalf of the defendant. Mr Kevin Hendry was a senior employee of the defendant. Ms Jacqui Jeffries and Ms Lynette Napier were both employees of the defendant.
  1. MFI-A was a letter from Mr Guilmartin to Mr Hines-Rhodes dated 23 July 2008 setting out the plaintiff’s first proposal.
  1. MFI-B was a further copy of that letter bearing some handwritten changes to the proposal which emerged from a discussion between Mr Guilmartin and Mr Hines-Rhodes.
  1. MFI-C was an amended version of that letter produced electronically to reflect changes that Mr Hines-Rhodes wanted.
  1. The contract documentation was to be prepared by the defendant. MFI-D was a short letter which Mr Guilmartin caused his sister to send to Mr Hines-Rhodes on 24 July 2008 quoting a unit price for the accommodation units. This was sent in response to the defendant’s request for a pricing breakdown.
  1. MFI-E was an email from Mr Hines-Rhodes to Mr Guilmartin dated 25 July 2008 in response to Mr Guilmartin’s inquiry about when he would receive a letter of intent from the defendant. Mr Hines-Rhodes said that the Executive General Manager and he had “signed off for you to proceed with the works, as agreed the expectation is a four week period from today all in”.
  1. MFI-F was an internal Xstrata document – a memorandum from Mr Hines-Rhodes to Mr Hendry dated 23 [sic] July 2008 recommending that a contract be awarded to the plaintiff. Attached to it was a document headed “Application for Contract” dated 24 July 2008, which referred to a contract for the supply of the accommodation units “on cost reimbursable basis estimated at $9,000 each plus 10% mark-up plus $100,000” together with a copy of MFI- D, a quotation from another company to construct the units, and design data.
  1. MFI-G was another internal Xstrata document an email from Ms Jeffries to Ms Napier dated 25 July 2008 to which was attached an unsigned letter of intent in relation to a proposed contract for the supply and construction of the accommodation units.
  1. MFI-H was the letter of intent dated 28 July 2008 a copy of which eventually accompanied the contract when it was delivered to the plaintiff for execution, as referred to in paragraphs 7 and 12 of these reasons for judgment.
  1. MFI-I was the Xstrata document dated 29 July 2008 referred to in paragraph 7(ii) of these reasons for judgment. It was headed “Application for Contract” and contained a brief description of the contract for the rental of the accommodation units which was ultimately executed by the parties. It bears the consents of the relevant senior officers of Xstrata to the defendant’s entering the contract, those consents having been endorsed between 30 July and 12 August 2008.
  1. Evidence of the conversation between Mr Guilmartin and Mr Hines-Rhodes on 12 or 13 August 2008 that was alleged in the Reply would have been probative of no more than what Mr Hines-Rhodes and perhaps Mr Guilmartin intended the contract to mean. Even if Mr Hines-Rhodes could be shown to have had the defendant’s authority to say what he did, the evidence was not sought to be led to negative an inference to be drawn from surrounding circumstances: it did not come within the narrow category of evidence of subjective mutual intent identified by Mason J in Codelfa.[18]

Conclusion

  1. The plaintiff has failed to establish that it is entitled to any more than was certified by the defendant’s representative on 2 February 2009 and paid to it on 18 August 2009.
  1. Accordingly, there should be orders –
  1. that the plaintiff’s claim be dismissed; and
  1. that the proceeding otherwise be adjourned to a date to be fixed; and
  1. That the parties file and serve written submissions on costs, and deliver copies of them to the associate to Margaret Wilson J, by 4 pm on 13 May 2011.

Footnotes

[1] Clause 18.5, Trial Bundle 62.

[2] Transcript 3-39.

[3] Elderslie Property Investments No 2 Pty Ltd v Dunn [2008] QCA 158 , [20] per Muir JA, citing Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179.

[4] Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2005] QSC 364, [36]; (2006) 22 BCL 218.

[5] Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2005] QSC 364, [37]; (2006) 22 BCL 218, citing L Schuler A G v Wickman Machine Tool Sales [1973] 2 All ER 39, 45 per Lord Reid.

[6] Australian Casualty Co Ltd v Federico (1986) 160 CLR 513, 520 (referred to in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 641-642 [197]; Sirius International Insurance Co (Publ) v FAI General Insurance Ltd [2005] All ER 191, 200; [2004] UKHL 54, [19], per Lord Steyn.

[7] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, [22]; [2004] HCA 35; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40]; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, [53].

[8] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40].

[9] Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407, [14]-[18] per Allsop P, [49] per Giles JA and [239] – [305] per Campbell JA; Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 per Macfarlan JA (with whom Young JA and Sackville AJA agreed); Ralph v Diakyne Pty Ltd (ACN 099 168 402) [2010] FCAFC 18, [46] per Finn, Sundberg and Jacobsen JJ.

[10] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 350 per Mason J, citing Reardon Smith Line Ltd v Hansen Tangen [1976] 1 WLR 989.

[11] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111.

[12] Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407, [51] per Giles JA, citing Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 606; [1979] HCA 51 and Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352 per Mason J.

[13] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982)149 CLR 337 at 352 – 353.

[14] Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407.

[15] Sir Kim Lewison, The Interpretation of Contracts (Sweet & Maxwell, 4th ed, 2007) [7.04]; Rivat Pty Ltd v Brian & Neill Elomar Engineering Pty Ltd [2007] NSWSC 638 at [43].

[16] Sir Kim Lewison, The Interpretation of Contracts (Sweet & Maxwell, 4th ed, 2007) [7.05].

[17] North v Marina [2003] NSWSC 64; Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32, [47]. There are limits on the application of this principle: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 602 per Kirby J.

[18] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352-353.

Close

Editorial Notes

  • Published Case Name:

    Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited

  • Shortened Case Name:

    Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited

  • MNC:

    [2011] QSC 95

  • Court:

    QSC

  • Judge(s):

    M Wilson J

  • Date:

    27 Apr 2011

Litigation History

Event Citation or File Date Notes
Primary Judgment [2011] QSC 95 27 Apr 2011 -
Primary Judgment [2011] QSC 156 03 Jun 2011 -
Appeal Determined (QCA) [2011] QCA 312 04 Nov 2011 -

Appeal Status

{solid} Appeal Determined (QCA)