HIGB Pty Ltd v Townsville City Council
[2009] QSC 285
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- Notable Unreported Decision
- HIGB Pty Ltd v Townsville City Council[2009] QSC 285
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HIGB Pty Ltd v Townsville City Council[2009] QSC 285
HIGB Pty Ltd v Townsville City Council[2009] QSC 285
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO: | |
Trial Division | |
PROCEEDING: | Originating application |
DELIVERED ON: | 11 September 2009 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 17 August 2009 |
JUDGE: | P Lyons J |
ORDER: |
|
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – Where the parties entered into an agreement which made provision for the payment of moneys – where an issue arises as to the time at which the moneys are to be paid INTERPRETATION – ADMISSIBILITY OF EXTRINSIC EVIDENCE IN RELATION TO INSTRUMENTS – WHEN EVIDENCE ADMISSIBLE – TO SHOW MEANING OF TERMS – admissibility of draft agreements INTERPRETATION – ADMISSIBILITY OF EXTRINSIC EVIDENCE IN RELATION TO INSTRUMENTS – WHEN EVIDENCE ADMISSIBLE – TO SHOW FACTS TO WHICH INSTRUMENT APPLICABLE – whether earlier drafts provide additional proof of knowledge of background facts Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, considered Queensland Power Company Limited & Ors v Downer Edi Mining Pty Ltd [2009] QSC 6, considered The Karen Oltmann (1976) 2 Lloyd’s Rep 708, distinguished |
COUNSEL: | D B Fraser QC for the applicant R G Bain QC with B Le Plastrier for the respondent |
SOLICITORS: | Connolly Suthers Lawyers for the applicant Townsville City Council Legal Services for the respondent |
[1] P Lyons J: The applicant (HIGB) and the respondent (the Council) entered into an agreement (the Infrastructure Agreement) which made provision for the payment by the Council to HIGB of moneys in respect of the provision of stormwater drainage infrastructure. An issue has arisen as to the time at which the moneys are to be paid.
Background
[2] HIGB is undertaking the redevelopment of land referred to as the Townsville North Rail Yards. On 26 November 2004, it entered into a Development Deed with Queensland Rail, relating to the redevelopment. However, HIGB had been taking steps with a view to carrying out the redevelopment since about 2002.
[3] Prior to the redevelopment, piped stormwater drainage passed through the land. It provided stormwater drainage both for the land, and for areas other than the land. HIGB proposed that as the redevelopment progressed, the existing pipes would be removed and replaced to permit connection to the stormwater drainage of that stage of the development.
[4] In preparation for the redevelopment, HIGB obtained a report from BMD Consulting relating to Preliminary Civil Infrastructure. The report was dated November 2004, and was referred to as Revision F. It identified the stormwater infrastructure proposed by HIGB.
[5] HIGB and the Council then undertook negotiations in relation to the contribution to the cost of stormwater drainage, and other matters. A meeting took place on 24 February 2005 between representatives of HIGB, the Council, and Queensland Rail. The minutes of the meeting record a discussion of stormwater infrastructure. They record that the cost of the new stormwater drainage was estimated at $1.2 million, with the stormwater drainage to be constructed in four stages. The approximate cost of stage 1 was $250,000; that of stage 2 was $350,000; that of stage 3 was $250,000; and that of stage 4 was $500,000. Of the stormwater to be accommodated by this infrastructure, 20 percent was estimated to come from the site, with 80 percent coming from beyond the site, no doubt from upstream.
[6] On 31 March 2005 HIGB’s consultant sent a draft Infrastructure Agreement to the Council. It recorded an offer to construct new stormwater drainage for the development, and the external upstream catchment. It made a proposal that the Council contribute $820,000 to the total cost, to be deducted from head works payable by HIGB to the Council “on a staged basis”.
[7] There were subsequent negotiations in which the Council indicated that it would not contribute more than 50 percent of the cost of the stormwater drainage infrastructure. That resulted in HIGB’s solicitors preparing a further draft Infrastructure Agreement in about July 2005, which was sent to the Council. That draft recorded that the current estimate of the cost of the stormwater drainage infrastructure was $1,170,000; and included provision for the Council to contribute $600,000 towards this cost which was deductible from head works payable on a stage by stage basis.
[8] On about 20 March 2006 the Council provided proposed changes to the draft Infrastructure Agreement. The structure of the agreement was changed significantly. The estimate of the cost of providing the stormwater drainage infrastructure was not retained. The provisions relating to the Council’s contribution towards the cost of this infrastructure was, in substance, as it appeared in the final agreement, which is set out later in these reasons.
[9] In the meantime, HIGB applied to the Council in about December 2004 for a development approval (by way of preliminary approval) for the redevelopment. The redevelopment was proposed to be carried out in seven stages. The application was approved as a staged development. The application was initially approved by a decision notice dated 13 November 2005, which was varied by a negotiated decision notice (Development Approval) dated 13 April 2006.
[10] The Development Approval included a condition dealing with stormwater drainage infrastructure. It is in the following terms:
“7.Stormwater Drainage
Unless otherwise agreed to by Council the construction of Stormwater Drainage Infrastructure on the site must be generally accordance with Preliminary Civil Infrastructure Report, by BMD Consulting, Revision F, dated November 2004 (Attachment F).
In particular where existing drainage pipes traversing the land are in poor condition and cannot be utilised or retained for use in the development, the developer must construct new stormwater drainage infrastructure suitable to cater for the external upstream catchment. Any Council contribution to the works will be subject to a separate agreement.”
[11] The Infrastructure Agreement was finally executed by the parties in February 2009. It was the “separate agreement” referred to in Condition 7. It included the following provision relating to infrastructure:
“Condition 7 of the Development Approval reads as follows: Stormwater Drainage
Unless otherwise agreed to by Council the construction of Stormwater Drainage Infrastructure on the site must be generally in accordance with Preliminary Civil Infrastructure Report, by BMD Consulting, Revision F, dated November 2004 (Attachment F).
In particular where existing drainage pipes traversing the land are in poor condition and cannot be utilised or retained for use in the development, the developer must construct new stormwater drainage infrastructure suitable to cater for the external upstream catchment.
Operative Provisions:
1.HIGB will construct the necessary new stormwater drainage infrastructure to replace any such existing infrastructure that will be disturbed by the Development including any external upstream catchment facilities such as kerb inlets.
2.Council will, upon satisfactory completion of such works (as determined by Council) or part thereof, reimburse HIGB $600,000 (exclusive of any GST).
Such reimbursement if sought incrementally, will be proportional to the amount of works in each stage.
3.HIGB acknowledges that any internal stormwater from the Development will be required to pass through a treatment device to Council's satisfaction before discharge into the new stormwater drains.”
[12] HIGB has constructed some of the stormwater drainage infrastructure. It has claimed the whole of the reimbursement of $600,000 from the Council.
[13] HIGB contends that the effect of the Infrastructure Agreement is that if it has constructed part of the stormwater drainage infrastructure, at a cost of at least $600,000, it is then entitled to be reimbursed that amount. The Council contends that HIGB is entitled to be reimbursed $600,000 only if HIGB has constructed the whole of the stormwater drainage infrastructure; and that if it seeks to be reimbursed prior to then, it is entitled to receive a proportional part of the $600,000, the proportion being determined by the amount of the works constructed in each stage.
Objections to evidence
[14] Objection was taken to reliance by HIGB on the drafts of the infrastructure agreement. HIGB supported reliance on them by reference to a passage from the judgment of Kerr J in The Karen Oltmann,[1] cited with apparent approval by Chesterman J (as his Honour then was) in Queensland Power Co Ltd v Downer Edi Mining Pty Ltd,[2] as follows:
“If a contract contains words … capable of … more than one meaning, and if it is alleged that the parties have … negotiated on an agreed basis that the words bore only one of two possible meanings, then it is permissible for the court to examine the extrinsic evidence … to see whether the parties have in fact used the words in question in one sense only, so that they have in effect given their own dictionary meaning to the word as a result of their common intention.”
[15] The material relied upon does not demonstrate an agreement by the parties that words, the meaning of which is in dispute, were given an agreed meaning by the parties. The principle stated in The Karen Oltmann is, in my respectful opinion, not applicable.
[16] Reliance was also placed upon a passage from the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW,[3] as follows:
“There may perhaps be one situation which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the Court is interpreting the contract which the parties have made and in that exercise the Court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.”
[17] The previous drafts do not demonstrate that the parties have united in rejecting a meaning of particular words. Rather, at one point in time it was proposed that the Council’s contribution to the cost of the stormwater drainage infrastructure would be met by progressive deductions from head works, to occur on a stage by stage basis. The Infrastructure Agreement adopted a different approach, that is to say, an approach by which the Council’s contribution to the cost of the stormwater drainage infrastructure would be by payment of money, rather than by way of deduction from head works contributions. It is therefore difficult to characterise this as an agreement to reject a meaning of words in the agreement. Moreover, the argument seems to me to be circular. It assumes the meaning of the relevant provision of the Infrastructure Agreement, as demonstrating that the parties had united in agreeing on rejecting a meaning which might otherwise be attributed to that provision.
[18] In my opinion the material relied upon does not demonstrate that the parties have united in rejecting a meaning which might otherwise be attributed to the relevant provision of the Infrastructure Agreement. There is no evidence of agreement between the parties prior to the adoption of a provision which it is now necessary to construe, and accordingly there is no scope for the operation of the principle identified in the passage from Codelfa which has been referred to. Moreover, the principle could only be relied upon if the meaning of the disputed provision were first determined.
[19] In my opinion, the earlier drafts of the Infrastructure Agreement are not admissible on the ground relied upon. However, they provide additional proof of background facts commonly known by both parties, namely, the estimated cost of the stormwater drainage infrastructure, and that the works were intended to be carried out in stages. These matters are, in my view, relevant to the construction of the Infrastructure Agreement. The fact that they are proven by other evidence does not mean that the drafts are inadmissible as proof of those facts. Accordingly, I consider the drafts admissible on that basis.
[20] A number of other objections were taken by the Council to material relied upon by HIGB. In the end, Mr Bain QC, who appeared with Mr Le Plastrier of Counsel for the Council, was prepared to accept that it was not necessary to rule on those objections.
Approach to construction
[21] The relevant provision of the Infrastructure Agreement makes reference to the report of BMD Consulting of November 2004 as a document identifying the stormwater drainage infrastructure which is to be constructed by HIGB. Recourse may be had to that document to understand the scope of the works. Likewise, the term “Development” used in the Operative Provisions is defined by reference to the Development Approval, and is to be understood by reference to that document. Indeed, as the definition in clause 1.1 of the Infrastructure Agreement demonstrates, a copy of the Development Approval was intended to be attached to the Infrastructure Agreement. Where the language of a contract is ambiguous or susceptible of more than one meaning, then background facts known to both parties, or of such notoriety that knowledge by both parties will be presumed, is admissible as an aid to the construction of the contract.[4] In my view, the fact that the stormwater drainage infrastructure was to be constructed in stages, and the estimated cost of each stage, are background facts known to the parties and are relevant to the construction of the Infrastructure Agreement.
[22] Subject to that, the Infrastructure Agreement is to be construed in a way which identifies what a reasonable person would understand by the language in which the parties have expressed their agreement.[5]
[23] Commercial contracts should be given “a businesslike interpretation”.[6] A construction that makes commercial sense and reflects business commonsense is to be preferred.[7]
Construction of Infrastructure Agreement
[24] The relevant provision of the Infrastructure Agreement was intended to accommodate more than one circumstance. It envisaged that the Council would, upon satisfactory completion of the construction of the stormwater drainage infrastructure, reimburse HIGB the sum of $600,000. It also envisaged payment prior to completion.
[25] HIGB submits that once it has expended $600,000 it is entitled to be reimbursed that amount, even if the works have not been completed. In my view, that construction reflects an intention which it is unlikely, viewed objectively, the parties had when they entered into the Infrastructure Agreement. It would mean that the first circumstance dealt with in Operative Provision 2, namely, payment of $600,000 on completion of the construction of the stormwater drainage infrastructure, would be unlikely ever to eventuate.
[26] HIGB submits that the effect of Operative Provision 2 was to give it some options. One was to seek reimbursement “incrementally”, in which case it would be paid a portion of the $600,000 proportional to the amount of the works in each stage. The other was to wait until it had expended $600,000 and then to be reimbursed that amount. In my view, it is unlikely that the parties intended that HIGB be paid portions of the amount of $600,000, with the total not payable until the works were completed in one case, with the full amount of $600,000 in advance of completion of the works in the other case. The more likely intention is that HIGB was not to be reimbursed the full amount until the works were completed. That in part follows from the structure of Operative Provision 2. It also follows from a consideration of the fact that the works were for the benefit of HIGB and the Council, and the evident purpose was to make provision for a contribution by the Council to the cost of the stormwater drainage infrastructure. It is likely that the parties intended that each contribute progressively towards the cost of the works.
[27] HIGB submits that the first sentence of Operative Provision 2 gave it the option of seeking reimbursement “upon satisfactory completion of … part (of the stormwater drainage infrastructure)”. It accepts that it could not get reimbursement until it had expended $600,000. However, it does not follow that the reference to “part” of the stormwater drainage infrastructure is simply the completion of works which cost at least $600,000. In my view, the purpose of the second sentence in Operative Provision 2 is to identify how reimbursement would be sought and paid in respect of part of the works. That is to say, the reimbursement of $600,000 would be paid progressively as parts of the work were completed, in proportion to the amount of the works carried out in each of the stages. That seems to me to be consistent with the general structure of Operative Provision 2, and to make commercial sense. The submissions for the Council point out that it is unlikely that the Council, as a public authority, would have entered into an agreement requiring it to pay a sum which is expressed to relate to the entirety of the works to be carried out by HIGB when only part of those works have been completed. In my view, that is correct.
[28] It follows that I do not accept the construction for which HIGB contends.
Conclusion
[29] In my view, on the proper construction of the Infrastructure Agreement, HIGB is only entitled to be reimbursed the sum of $600,000 when it has completed the construction of the stormwater drainage infrastructure required by condition 7 of the Development Approval; and until then, HIGB is only entitled to be reimbursed such part of the sum of $600,000 which is proportional to the amount of stormwater drainage infrastructure constructed in each completed stage of the development.
[30] I propose to hear the parties on the form of orders to be made, and as to costs.
Footnotes
[1] (1976) 2 Lloyd’s Rep 708 at 712.
[2] [2009] QSC 6 at [71].
[3] (1982) 149 CLR 337, 352-353.
[4] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352.
[5] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179.
[6] McCann v Switzerland Insurance Australia Limited & Ors (2000) 203 CLR 579 at [22].
[7] Décor Blinds Gold Coast Pty Ltd v Décor Blinds Australia Pty Ltd [2004] QSC 55 at [26]; see also Concut Pty Ltd v Worrell (2000) 176 ALR 693, 708-709; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1967) 118 CLR 429, 437; Minchillo v Ford Motor Co of Australia Ltd [1995] 2 VR 594, 609.