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[2022] QCA 266
The appellant contracted to design and construct a hotel for the respondent. The contract was based on a tender that had proposed an alternative air conditioning system to the system originally specified by the respondent. After the appellant commenced installing its proposed air conditioning system, the respondent issued a defects notice requiring it to replace the system with one that complied with the contract, specifically one with allowed each individual room mode control. The appellant sued, contending that the defects notice constituted a variation of the contract, but was unsuccessful at first instance. On appeal, Morrison and Dalton JJA and Bradley J concluded that the contract did not include a performance requirement that the air conditioning system would provide the functionality specified by the respondent, and as such, the notice constituted a variation.
Morrison and Dalton JJA and Bradley J
20 December 2022
Background
The appellant contracted to design and construct a hotel for the respondent. [1]. The respondent’s original invitation to tender for the works had required that the building include a specific air conditioning system, identified in specification documents prepared by its engineer, which enabled rooms to independently switch between heating and cooling air conditioning modes (“mode control”). [2]–[3], [12]. The appellant submitted an alternative tender that had relevantly proposed a different air conditioning system, but which did not clearly identify if the system would provide mode control. [5]–[6], [13]–[15]. The appellant’s alternative tender ultimately formed the basis of the contract. [6].
Sometime after the appellant began installing its proposed air conditioning system, the respondent issued a defects notice requiring the appellant to remove the partially installed system and replace it with one that complied with the contract, relevantly by providing mode control. [1], [17]–[18]. The appellant subsequently sued the respondent in the Supreme Court, contending that the notice amounted to a direction to vary the contract, such that it was entitled, inter alia, to the price of the varied work. [1]. After the primary judge found in favour of the respondent, the appellant appealed to the Court of Appeal. [1].
On appeal the appellant argued two independent grounds in favour of its conclusion that the contract did not oblige it to deliver an air conditioning system which provided mode control. [18]. First, it submitted that the contract did not properly define the obligation to build the system, such that it was necessary and permissible to have resort to extrinsic evidence, specifically email correspondence between the parties. [18]. Second, it contended that the contract only obliged it to deliver a system which complied with any performance requirements contained in the specification documents prepared by the respondent’s engineer, which did not include mode control. [18].
The parties agreed that if the appellant was correct, the notice was not correctly given as a defect notice and would constitute a variation under cl 36 of the contract. [53]–[54].
Extrinsic evidence
The Court considered that the primary judge had erred in concluding that the contract must be ambiguous before extrinsic evidence could be considered for the purpose of identifying the meaning of a descriptive term. [20]. Macpherson JA’s approach in Macdonald v Shinko Australia Pty Ltd [1984] 1 Qd R 302 supported resort to extrinsic evidence where, as in this case, a descriptive term was not so much ambiguous as it was uncertain. [25]. Entire agreement clauses did not prevent that course because the evidence was not to add to or change the meaning of the contract, but to know what the contract means. [26].
That said, the appellants extrinsic evidence case nevertheless failed on a factual, rather than a legal basis. [27]. The emails relied upon by the appellant did not show that the parties had a common understanding of the air conditioning system contemplated by the contract. [27]. They merely contained continued negotiations regarding the details of the system that was to be provided. [27]. The parties had therefore simply contracted for the provision of the appellant’s proposed alternative air conditioning system, on the basis that the system would meet the performance requirements set out in the specification documents prepared by the respondent’s engineer. [28].
Performance requirements
The appeal therefore turned upon the question of whether the specification documents prepared by the respondent’s consultants contained a performance requirement concerning mode control. [33]. The Court explained that cl 3.1 of the specification documents contained performance requirements, because it identified criteria which the relevant system must meet but did not specify how that must occur. [35]. However, the system originally installed by the appellant had met the requirements of the clause, because the requirements in question did not mention mode control. [36]–[38].
Other sections of the documents which were surveyed by the Court contained prescriptive specifications for the system which the respondent had originally envisaged, rather than performance requirements. [41]–[51]. Various aspects of the system described in those documents could never have applied to the system proposed by the alternative tender, and none contained a performance requirement that the relevant system have mode control. [41]–[51]. The air conditioning system originally installed by the appellant had therefore been in accordance with the contract. [52].
Disposition
In the result, the court (Morrison and Dalton JJA and Bradley J) allowed the appeal and made directions for the calculation of judgment and the disposition of costs. [176].
B McNamara