FEDERAL COURT OF AUSTRALIA

CPR Property Pty Ltd (ACN 100 407 341) v New South Wales Land and Housing Corporation [2010] FCAFC 32

CORRIGENDUM

1                     The date of judgment, as printed on the coversheet, and the Date of Order on the Orders page has been changed from “12 March 2010” to “11 March 2010”.

2                     The first paragraph of the Orders of the Court has been changed from “The orders of the Court are the appeal be dismissed” to “The appeal be dismissed.”

I certify that the preceding two (2) numbered paragraphs are a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justices Emmett, Stone and Flick.

Associate:

Dated:  7 May 2010

THE COURT ORDERS THAT:

1.                  The appeal be dismissed. 

2.                  The appellants pay the respondents’ cost of the appeal.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1                     This appeal concerns the effect of General Conditions of Contract (the General Conditions), entered into by the first respondent, the New South Wales Land and Housing Corporation (the Corporation).  The Corporation is a statutory body of the second respondent, the State of New South Wales (the State), and is associated with the New South Wales Department of Housing (the Department).  The Corporation entered into contracts with other parties on the basis of the General Conditions.  By clause 16 of the General Conditions, a contractor may be prohibited from using any person or subcontractor in the performance of works by the contractor, if the Corporation’s representative reasonably regards that person or subcontractor as incompetent, negligent or otherwise unsuitable. 

2                     On 3 June 2002, the Corporation entered into contracts (the Contracts) with Willowdene Constructions Pty Limited (Willowdene) and Transfield Services (Australia) Pty Limited (Transfield).  The Contracts related to the provision of maintenance services in various areas in which the Department owns properties.  The terms of the Contracts include the General Conditions.

3                     Under the General Conditions, the Director-General of the Department is named as the Principal.  The Principal’s Representative for the purposes of the Contracts was Mr Denis Schultz, an officer of the Department. 

4                     Clause 6 of the General Conditions precludes the contractor from subcontracting the works unless the contractor has obtained the written approval of the Principal’s Representative to do so.  Under clause 14 of the General Conditions, the contractor must comply with any direction given by the Principal’s Representative to the contractor.  Clause 16 relevantly provides as follows: under the heading

Contractors’ and Subcontractors’ Employees:

The contractor shall provide labour and all supervision necessary for the proper and complete performance of the works at the cost and expense of the contractor.  The contractor shall employ and ensure that subcontractors employed in connection with the works – only such persons as are careful, skilled, experienced and properly licensed.  The Principal shall be entitled to prohibit the contractor from using any person or subcontractor in the performance of the works if the Principal’s representative reasonably regards that person or subcontractor as incompetent, negligent or otherwise unsuitable.

5                     Each of Willowdene and Transfield entered into subcontracts with the first appellant, CPR Property Pty Limited (CPR Property).  The second appellant, Mr Robert Hine, is the sole director and shareholder of CPR Property. 

6                     On 24 March 2004, a notice was given to Willowdene under clause 16 of the General Conditions, by which Willowdene was prohibited from using CPR Property in the performance of work.  On the same day, Mr Schultz orally informed Transfield’s contract manager that Transfield was not to use the services of CPR Property until further notice.  It is common ground that that oral communication was a direction prohibiting Transfield from using CPR Property as a subcontractor under clause 16 of the General Conditions.

7                     Each of Willowdene and Transfield immediately ceased using CPR Property as a subcontractor for work to be carried out for the Corporation under their respective contracts.  CPR Property has not worked on any property owned by the Corporation since that date.  That has caused considerable loss to CPR Property. 

8                     CPR Property claims that the conduct of the Corporation, through Mr Schultz, in giving directions, purportedly under clause 16 of the General Conditions, was conduct that was misleading and deceptive in contravention of the Fair Trading Act 1987 (NSW) and constituted a breach of duty of care owed to CPR Property by the Corporation.  CPR Property claims that it suffered loss by that conduct. 

9                     Mr Hine and CPR Property commenced a proceeding in the Court against the Corporation and the State.  Allegations involving contravention of the Trade Practices Act 1974 (Cth) were also made, but those claims were summarily dismissed.  The proceeding continued to trial in the Federal Court on the basis of claims of contravention of the Fair Trading Act, as well as negligence in the giving of directions pursuant to clause 16 of the General Conditions.  On 14 April 2009, the Court ordered, pursuant to order 29, that the question of the liability of the Corporation and the State be decided separately from and before the question of any quantum of damage.

10                  On 4 November 2009, a judge of the Court ordered that the proceeding be dismissed with costs.  CPR Property and Mr Hine have appealed to the Full Court from those orders.  The only ground of appeal pressed is that the primary judge erred in failing to find a contravention of the Fair Trading Act. 

11                  It is necessary to say something about the circumstances that gave rise to the directions under clause 16.  It appears that, in April 2003, an anonymous complaint was made about an employee of the Department (the Impugned Employee).  The complaint alleged that the Impugned Employee was operating inappropriately by directly arranging work with CPR Property before raising a work order.  The Department also received other information alleging that the Impugned Employee had arranged for work to be done by contractors that was not required. 

12                  The Department contacted the Independent Commission Against Corruption (the Commission) about the allegations.  The Director-General of the Department wrote to the Commission about allegations that the Impugned Employee may be operating inappropriately by raising work orders in favour of CPR Property.  The Director-General requested that the Commission investigate the matter.  On 28 August 2003, the Director-General again wrote to the Commission, informing it of a change in the Impugned Employee’s role with the Department, saying that the Impugned Employee’s works orders would be subject to review by another employee.

13                  The Commission’s investigation concluded on 5 February 2004.  On that day, the Commission forwarded a letter to the Department, setting out its findings and conclusions, which included the following:

·                    It has been established that the Impugned Employee has a close relationship with CPR Property. 

·                    The Impugned Employee has a non-disclosed conflict of interest in that he has been working with or for CPR Property. 

·                    The Impugned Employee’s exact role with CPR Property was not established, but he was observed assisting in moving building materials on a Departmental site with other CPR Property workers. 

·                    The Impugned Employee’s telephone contact with Mr Hine appears to be in direct contravention of Departmental policy.

The Commission’s letter went on to say that its investigation established that there was insufficient evidence of either corrupt or criminal conduct and that it would not be conducting further inquiries in relation to the matter.  The letter said, however, that the Commission had found that there may exist sufficient evidence to support Departmental disciplinary action against the impugned employee.  The matter was therefore referred to the Department for appropriate action.

14                  On 23 February 2004, a meeting took place involving officers of the Department.  Those present included Mr Schultz and Mrs Susan Trudgett, the manager of the Department’s business assurance unit.  Those at the meeting decided to retain Ernst & Young to provide advice before considering the renewal of the Contract with Willowdene. 

15                  On 10 March 2004, the Department engaged Ernst & Young to report on the Impugned Employee in terms of how he carried out his work, his relationship with Willowdene and his relationship with CPR Property as a subcontractor.  In its letter of instructions, the Department said that it expected that the matter would be the subject of future legal proceedings against either or all of the Impugned Employee, Willowdene and CPR Property.

16                  On 18 March 2004, Mrs Trudgett and Mr Schultz met Mr Wayne Gilbert of Ernst & Young, together with other officers of the Department.  At that meeting it was resolved to recommend to the Director-General that the Impugned Employee be suspended, that Ernst & Young undertake an audit of Willowdene and that Willowdene be directed not to use CPR Property as a subcontractor, pending the completion of the investigation into the Impugned Employee. 

17                  On 19 March 2004, a meeting was convened within the Department, so that departmental officers could brief, and make a recommendation to, the Director-General.  Mrs Trudgett, Mr Schultz and Mr Gilbert, together with other Departmental officers, attended the meeting.  A recommendation was put to the Director-General consistent with the resolution of the meeting of 18 March 2004.  The Director-General decided that Willowdene should be instructed not to use CPR Property as a subcontractor indefinitely. 

18                  At the meeting, a decision was also made to retain Mr Michael Fordham, barrister, to investigate and report on the allegations made against the Impugned Employee.  Mr Fordham was retained by letter of 23 March 2004 and was requested to report by 21 April 2004.  On the same day, 23 March 2004, the Director-General initiated an investigation under the Public Sector Employment and Management Act 2002 (NSW) and suspended the Impugned Employee from duty, pending the outcome of the investigations.

19                  It is against that background that the directions under clause 16 of the General Conditions were given to Willowdene and Transfield.

20                  On 24 March 2004, the Corporation issued to Willowdene a direction in writing under clause 16 of the General Conditions.  The terms of the direction were as follows:

TO:      WILLOWDENE PTY LIMITED (“the Contractor”)

NOTICE UNDER CLAUSE 16 OF THE GENERAL CONDITIONS OF CONTRACT

In accordance with clause 16 of the General Conditions of Contract the Principal’s Representative directs that the Contractor is prohibited from using the person/s and/or entity/ies named in Schedule 1 in the performance of the Works as the Principal’s Representative reasonably regards them as unsuitable on account of the matters raised in Schedule 2.

Signed D Schultz

Dennis Schultz

Principal’s Representative

24 March 2004

Schedule 1

CPR Property Pty Limited (ACN 100 407 341)

Schedule 2

The person/s and/or entities involvement in a pending investigation by their Department into their association with a Departmental employee, and certain allegations of misconduct made against the employee arising therefrom.

21                  On the same day, 24 March 2004, Mr Schultz spoke to Transfield’s contract manager and told him that Transfield was not to use the services of CPR Property until further notice. 

22                  CPR Property and Mr Hine complained that, by giving the directions under clause 16 in the form just indicated, the Corporation represented that Mr Schultz regarded CPR Property as incompetent, negligent or otherwise unsuitable so as to warrant permanent or indefinite preclusion from working as a subcontractor on any premises of the Department and that, in the circumstances, it was misleading or deceptive or likely to mislead or deceive to make such a representation to each of Willowdene and Transfield.  They say that it was misleading and deceptive to make such a representation in circumstances where that was not the view held by Mr Schultz as the Principal’s Representative under the contract with Willowdene and Transfield. 

23                  The primary judge accepted Mr Schultz’s evidence that the view he came to in February and March 2004 was that a direction should be given to Willowdene that it was not to use CPR Property or Mr Hine, pending an investigation.  So far as Mr Schultz was concerned, the unsuitability of CPR Property at that time was only insofar as an investigation was continuing and so long as an investigation continued.  He did not believe that CPR Property was to be prohibited for all time.  He accepted that no one expressed the view that CPR Property was so unsuitable that it would be prohibited as a subcontractor indefinitely.  He himself did not form the view at any stage that CPR Property was so unsuitable that it ought to be prohibited from being a subcontractor indefinitely. 

24                  The primary judge also accepted Mr Schultz’s evidence that the information that had been given at the meeting, and the pending investigations, conveyed to him the belief that CPR Property was an unsuitable contractor to continue with the Corporation while the investigation was taking place.  Mr Schultz believed that it was reasonable that CPR Property be prohibited from being a subcontractor, pending and subject to the outcome of the investigations.  The investigations that Mr Schultz had in mind in giving that evidence were the investigation by Ernst & Young, which commenced on 18 March 2004, and the investigation by Mr Fordham, which commenced on 23 March 2004.  Neither Ernst & Young nor Mr Fordham had completed an investigation before the giving of the directions under clause 16 on 24 March 2004. 

25                  Mr Schultz accepted, in cross-examination, that the written notice to Willowdene did not have a qualification that the prohibition was subject to the outcome of the investigation.  Further, Ms Trudgett accepted that the prohibition in the notice was absolute, unconditional and unqualified.  That evidence, however, is of no assistance in determining whether the conduct of the Corporation, in giving the directions under clause 16, both in writing and orally, was misleading or deceptive or likely to mislead or deceive.  Had there been evidence that Mr Schultz or Ms Trudgett were intending to mislead or deceive, evidence of that intention may have been relevant.  That is not the present case. 

26                  The effect that the directions had on the minds of Willowdene and Transfield may have some bearing on whether the directions were misleading or deceptive or likely to mislead or deceive.  Accordingly, evidence was given of communications between Mr Hine and officers of Willowdene and Transfield.

27                  On 24 March 2004, Mr Hine received a telephone call from Mr Kevin Stevenson, a director of Willowdene.  Mr Stevenson said, amongst other things:

You and your company and the blokes you have working for you have to stop work immediately on all department properties because of allegations of fraud involving a technical officer at Blacktown office.  It is not a joke – we could lose our head contract over this.  The Department have been checking and it has apparently over-estimated with tree removal and rubbish.  Denis Schultz, the Contracts manager from the Department, has been here this morning and gone through the things and has said for CPR to stop work immediately.  I will send someone to pick up the ID cards and keys.

28                  CPR Property and Mr Hine say that that evidence indicates that Mr Stevenson, on behalf of Willowdene, understood that the prohibition in the direction was permanent, in that it was not simply pending the outcome of the investigation.  However, the evidence does not support that view.  It confirms that Mr Stevenson understood that, from that time, Willowdene was not to use CPR Property as a subcontractor.  It says nothing about Mr Stevenson’s understanding as to how long that prohibition would last. 

29                  On 25 March 2004, Mr Hine received a telephone call from Mr Stuart Patterson, a senior supervisor employed by Transfield.  Mr Patterson said, amongst other things:

We will have to take those 12 jobs back that we gave you.  We have been told that you can’t do any more work for us because of an incident at Blacktown.  We will reallocate those jobs.

30                  That evidence, equally, does not support the view contended for by CPR Property and Mr Hine.  It indicates that Mr Patterson, on behalf of Transfield, understood that, from that time, Transfield was not to use CPR Property as a subcontractor.  It says nothing about Mr Patterson’s understanding as to how long such a prohibition was to last. 

31                  CPR Property and Mr Hine also refer to an exchange of emails that took place on 5 and 6 April 2004.  First was an email from the Department to Mr Patterson of 5 April 2004.  It says:

Please provide authorisation to terminate vendor and remove from subbie contact list.  If you don’t want the standard inactive letter sent, please also confirm.

The reference to “vendor” appears to be a reference to the subcontractor as a supplier of services.  On 6 April 2004, a further email was sent to Mr Patterson from the Department saying:

Shan Ruprai, new DOH quality manager, wants me to confirm that this vendor is not and will not in future be on any DOH asset for any reason.  Along with your authorization to terminate their contract, please confirm the last date they were working on a DOH property.

Some reliance was placed on the use of the word “confirm”.  It was suggested that Mr Ruprai was, in effect, saying that, by the direction under clause 16, Mr Schultz was prohibiting the use of CPR Property permanently.  Whether the email, in fact, says that is one thing.  However, it can have no bearing whatsoever on the proper construction to be given to the direction under clause 16 itself.  The exchange of emails adds nothing to the case on behalf of CPR Property and Mr Hine. 

32                  The appellants also place some reliance on a briefing note prepared by Mr Schultz on 26 March 2004, in which Mr Schultz recorded that Willowdene had been instructed not to use CPR Property, “until the results of the investigation are known.”  The note also recorded that Mr Schultz had told Transfield’s contract manager that Transfield were not to use the services of CPR Property until further notice.  The briefing note was put forward as further evidence that the terms of the direction given to Willowdene and Transfield did not accurately convey Mr Schultz’s state of mind as Principal’s Representative, namely, that the prohibition on using CPR Property was to be effective only pending the investigations. 

33                  The thrust of the complaint by CPR Property and Mr Hine is that there was nothing in the directions given to Willowdene and Transfield to indicate that Mr Schultz had in mind that, if CPR Property was cleared as a result of the investigations, the prohibitions might be withdrawn.  That possibility was not expressly adverted in the directions and accordingly, so CPR Property and Mr Hine say, the directions were misleading or deceptive.

34                  Some reliance was also placed by CPR Property and Mr Hine on what was said to be a dichotomy between a temporary ban, on the one hand, and a permanent or indefinite ban, on the other.  The notion that permanence is equivalent to indefiniteness is a difficult one.  It is one thing to say that the effect of the direction was to prohibit the use of CPR Property permanently.  It is another thing to say that CPR Property was to be prohibited for an indefinite and unspecified period of time.  It is another thing again to say that CPR Property was to be prohibited until the results of the investigation were known, albeit an indefinite time in the future.  None of them says anything about the question of whether, assuming CPR Property was cleared, the prohibition might be lifted.

35                  In the circumstances, the directions were not misleading or deceptive, or likely to mislead or deceive.  Certainly, the notice to Willowdene does not avert to the possibility that, if CPR Property were to be cleared as a result of the investigations, the prohibition would be withdrawn.  However, it does not follow from the absence of such an express statement that the direction should be taken as conveying a message that, irrespective of the outcome of the investigations, Willowdene would permanently be prohibited from using CPR Property as a subcontractor. 

36                  It has not been suggested that there was any basis for giving a prohibition in respect of CPR Property otherwise than by reason of CPR Property being unsuitable on account of its involvement in the pending investigations.  The justification for the direction given to Willowdene was that Mr Schultz regarded CPR Property as unsuitable on account of its involvement in the pending investigation by the Department into:

·                    the association of CPR Property with a Departmental employee, and

·                    certain allegations of misconduct made against that employee. 

It is clear, as a matter of construction, that the matter that rendered CPR Property unsuitable was its involvement in a pending investigation into those two matters.  If any implication is to be read into the notice, it would be that the question of unsuitability would be considered once the pending investigation had been completed.  That is entirely consistent with Mr Schultz’s state of mind, as found by the primary judge. 

37                  The giving of a direction in writing to Willowdene and the oral direction to Transfield did not constitute conduct that was misleading or deceptive on the part of the Corporation.  That is the conclusion reached by the primary judge.  The appeal must be dismissed.

Associate:

Dated:         31 March 2010