Auspacific Construction Co Pty Ltd v Attorney-General [1997] KICA 6; Civil Appeal 01 of 1996 (25 March 1997)

IN THE COURT OF APPEAL OF KIRIBATI

CIVIL JURISDICTION

CIVIL APPEAL NO. 1 OF 1996

BETWEEN:

AUSPACIFIC CONSTRUCTION CO. PTY LTD
Appellant

AND:

THE ATTORNEY GENERAL
ON BEHALF OF THE GOVERNMENT OF KIRIBATI
Respondent

te of e of Hearing: 18 March 1997
Delivery of Judgment: 25 March 1997

Mr B Berina for the Appellant
Mr D Sim for the Respondent

JUDGMENT OF THE COURT
(Gibbs V.P., Connolly and Ryan JJ.A)

This action for damages for breach of contract was brought by the appellant company (Auspacific) against the Attorney General on behalf of the Government of Kiribati

On 26 May 1994 Auspacific submitted a tender for the design and construction of a prison project, at a total price of $1,601,000 fixed for 30 days. The tender was submitted in response to a published document, headed "Invitation for Expressions of Interest and Bidding", which contained the statement that "This Expression of Intention and any Expression of Interest will become binding only on a bidder and the Government after a formal Memorandum of Agreement has been agreed and executed by both the successful bidder and the Government". Mr Townsend, the managing director of Auspacific, said that he did not see the Invitation. The learned Chief Justice, from whose decision this appeal is brought, found that Mr Townsend was an unreliable witness, and, on the basis of other evidence, said that he was satisfied that Mr Townsend would have seen the terms of the Invitation.

Of course, disbelief of Mr Townsend is not enough to prove the contrary of his denial, and in our view it is unnecessary to consider whether the other evidence does support the finding that Mr Townsend must have been aware of the contents of the Invitation. The words of the Invitation which we have quoted on their face do no more than preclude the possibility of acceptance of an argument that the Invitation was an offer that might be accepted merely by an Expression of Interest. True it is that the Invitation reveals an expectation on the part of the Government that a formal agreement would be executed by the successful bidder and the Government, but that does not answer the question whether as a result of subsequent dealings between the parties an agreement came into being although no formal agreement was signed by both parties.

The tender of 26 May 1994 contained three clauses which it is necessary to mention:

"the method of payment shall be by progress payment under agreement between Auspacific and the government";

"The work is to commence within 14 days of an official government certificate or order"; and

"An MOU is to be agreed upon and formalised by the interested parties prior to work commencement". (As the heading to this clause reveals, MOU means Memorandum of Understanding).

On 29 July 1994 the Secretary for Finance and Economic Planning wrote to Mr Townsend, saying that the Tender and Awards Committee had considered the tender and had accepted his offer. The letter went on to say: "A Copy of the Agreement will be sent soon for your perusal and signing if you are agreeable to the conditions and terms specified".

Sometime in October a Form of Agreement was received by Mr Townsend. It was, in form, an agreement between Police and Prisons Division, under the Office of Te Beretitenti ("the Employer") of the first part, and Auspacific ("the Contractor") of the second part. The Form of Agreement provided for the signatures of both the Employer and the Contractor. It recited that the Employer has "by Letter of Acceptance dated ........................... 1994 accepted a bid by the Contractor", but the date of the Letter of Acceptance is left blank. Clauses 2 and 3 provided as follows:

"2. which are incorporated herein and made part hereof:

a. the Letter of Acceptance

b. the Conditions of Contract

c. the Scope of Services and Specifications

d. the List of Sub-contractors, and

e. the drawings and plans for the execution of (c) above

3. The aforecited documents shall be taken complementary and mutually part of one another, but in case of ambiguities and discrepancies, precedence shall be taken in the order set out above".

Attached to the form of agreement were what were described as "Conditions of Contract - General Conditions". The final page of these Conditions concludes with clause 18 which is obviously incomplete - it ends in the middle of a sentence. Apparently one or more pages was omitted, probably by oversight.

Three of these Conditions assumed some importance in argument. They are as follows:

Clause 4.1 (c):

"For the due performance of the Contract, the Tender will include an undertaking by the Contractor to obtain a bond or guarantee of a reputable bank recognised by the government of Kiribati, in a sum of 10 percent of the agreed Contract Price stated in the Form of Agreement and Letter of Acceptance. The cost of obtaining such bond or guarantee shall be at the expense in all respects of the Contractor".

Clause 7(a):

"The Contractor shall commence the works on site within the period named in the duly signed Form of Agreement after receipt of Letter of Acceptance and shall proceed without delay from date of effectivity, except otherwise ordered by the Employer or be wholly beyond the control of the Contractor".

Clause 13(a):

"Unless otherwise provided, payments shall be made at the following schedules

Payment 1 - 40% when Agreement signed

Payment 2 - 30% once horizontals and verticals completed

Payment 3 - 20% once all claddings and furnishings completed

Payment 4 - 5% when the project is handed over to the - Employer

Payment 5 - 5% upon issuance of Final Completion Certificate from the Chief Engineer and Acceptance by the Employer in the Completion of the works".

At this stage Mr Townsend apparently was of the opinion that there would be no binding contract until the Form of Agreement had been signed by a representative of the Government as well as by himself. On 4 November 1994 he wrote to the Ministry of Finance and Economic Planning a letter which commenced as follows:

"Thank you for accepting my offer for the above mentioned project as per your Letter of Acceptance dated 29th of July '94. I am also agreeable to the terms and conditions presented to me by your Ministry in conjunction with the Attorney General's Office as an acceptable Form of Agreement.

I realise there has been delays in formalising the Form of Agreement due to the administrative factors associated with the change in Government".

The letter went on to deal with the commitments Auspacific had made to do the tendered work, and the effect of delay, and concluded:

"I hope we can negate any further delays and get on with our work and honour our commitment to a good project, on time and at the original costs".

On 18 November 1994 Mr Townsend again wrote to the Ministry, saying that Auspacific had suspended further works in Australia relating to the contract, and that "when the Conditions of Contract are signed all associated works and supply will continue in accordance with the Government's acceptance of Auspacific's offer to carry out the contract". The letter enclosed an invoice claiming $209,570 for preparatory work and associated fees. It appears from this letter, and from the reply sent by the Attorney-General's Department, and a later letter dated 5 December 1994 from Mr Townsend to Te Beretitenti, that at this stage no issue had been raised concerning the performance bond. Rather, Mr Townsend was waiting for the Government to sign the agreement, which apparently would not be done until Cabinet approval was given.

On about 9 December 1994 Mr Townsend signed the Form of Agreement and gave it to the Chief Planning Officer, saying that he was sick of waiting for them to get their papers together. At some earlier date he had pencilled in some alterations to the agreement and handed it back to the Chief Planning Officer. The alterations were mainly corrections to errors of typing, spelling and punctuation, but they did also include matters of some substance. It does not clearly appear whether the agreement signed by Mr Townsend was the altered copy, although it is suggested that it was not. It did not have attached a list of sub-contractors, because, it was submitted, there were none. Whether it included the other documents described in Clause 2 of the Form of Agreement is arguable, but it is not necessary to resolve the argument.

At about the same time a new issue arose. The Chief Planning Officer told Mr Townsend that the Government intended to proceed with the project but raised a question regarding the bond or guarantee referred to in clause 4.1 (c) of the Conditions. The evidence is obscure, but it appears that Mr Townsend said that the bond would be given within 30 days of the first payment under the contract, and the Chief Planning Officer did not agree that this was the effect of the agreement. On 20 December 1994 Mr Townsend wrote to the Secretary of the Ministry of Finance a letter which included the following:

"Thank you for informing me of the Government's intention to proceed with the above mentioned project.

It has been brought to my attention the Government wishes to change it's pre-tender information and advice on terms and conditions to the tender.

Any changes to the pre-tender information given to the Company will be accepted by the Company as the Government not wishing to honour it's previous commitment.

The Company has authorised legal proceedings against the Government and the only way for these legal proceedings to be suspended is for the Government to honour it's previous intention and commitment to the Company within two (2) days".

The change referred to was what Mr Townsend regarded as an alteration of the condition regarding the time for giving the bond or guarantee. He had in fact been making, and continued thereafter to make, efforts to secure from a bank the requisite bond or guarantee, but he did not succeed in doing so.

There was some further correspondence, to which it is unnecessary to refer, and on 31 January 1995 the present proceedings were commenced. The statement of claim alleges that the parties entered into an agreement on or about 29 July 1994, and into a further agreement on or about 4 November 1994 and claimed $4,022,212 as damages for breaches of express and implied terms of "the agreement". An alternative argument, presented to us on the appeal, was that there was a breach of an agreement made on 9 December 1994, when Mr Townsend signed the Form of Agreement.

The learned Chief Justice found that for various reasons no concluded agreement was made.

One question argued before us was as to the effect of clause 4.1(c) regarding the performance bond. The learned Chief Justice concluded that the Contractor was bound to obtain the bond before the contractual obligations of the Government arose.

Clause 4.1(c) is most difficult to construe. It requires the tender to include an undertaking, but the tender would be in existence before the obligations created by clause 4.1 (c) arose. The amount of the bond which, by the tender, the Contractor undertakes to obtain, is a percentage of an amount stated in the Form of Agreement and Letter of Acceptance, neither of which would exist when the tender was made. The clause does not require the Contractor to give a bond, but rather to undertake to obtain one. It is not said when, according to the undertaking, the bond should be given, and it would indeed be curious if the bond was to be given after the signing of the agreement, since on the signing of the agreement the Contractor would be entitled to 40 per cent of the purchase price, whereas the bond was to be for only ten per cent of that price.

It is difficult to escape the conclusion that the clause is meaningless, and we have no doubt that care will be taken to avoid its use in subsequent contracts. However, for the reasons we are about to give, we need not discuss this matter further.

The critical question is whether at any time the parties passed beyond the realm of negotiation and reached a binding agreement. As has been mentioned, it was submitted that agreement was reached on one of three dates. The first was 29 July 1994 when the tender was accepted. Clearly at that time there was no agreement. The tender contemplated an agreement fixing the method of payment, and the agreement upon, and formulation of, a memorandum of understanding. The letter of 29 July 1994 did not refer to those matters, but stated that a copy of the "Agreement" would be sent soon for Auspacific's perusal and signing. The letter contemplated that "the Agreement", that is the agreement concerning which the parties were in negotiation, would not be binding before Auspacific had considered its terms and signed it.

The appellant then submits that a contract became binding on 4 November 1994, when Mr Townsend wrote saying that he was agreeable to the terms and conditions presented to him. However those terms and conditions were contained in a formal document which made provision for signature by both parties. The delivery to Auspacific of the Form of Agreement was not an offer which could be accepted by the mere intimation by the party to whom it was delivered that its terms were acceptable. It was a step in the negotiations, and it indicated that the execution of the Agreement by both parties was necessary to constitute a binding contract.

Thirdly there is the contention, not raised by the pleadings, but made to us, that a contact came into existence on 9 December 1994, when Mr Townsend signed the Form of Agreement on behalf of Auspacific.

The argument was that the letter of 29 July 1994 indicated that it was the intention of the Government that the delivery of the Form of Agreement to Auspacific would amount to an offer which could be accepted if Auspacific alone signed the Form. The argument relies on the words of the letter of 29 July 1994 - "A copy of the Agreement will be sent soon for your perusal and signing .....". That is a statement of intention rather than an offer. It would depart from commercial reality to regard the words as an offer. Either party might have suggested variations to the Agreement sent for perusal, and when the Agreement sent was a formal document which on its face made provision for the signature of both parties, it could not have been intended that the signature by one party alone would constitute a binding agreement.

Clearly this is a case in which the intention of the parties was not to make a concluded bargain at all, unless and until they executed a formal contract - a case of the third kind referred to in Masters v Cameron [1954] HCA 72; (1954) 91 C.L.R. 353 at 360.

Alternatively, and as a last resort, it was submitted that Auspacific was entitled to recover some or all of the amount of $131,960 (to which the amount of $209,570 claimed by the invoice sent with the letter of 18 November 1994 had been reduced) which, it was claimed, that company had expended by way of preparatory expenses. The argument here was that the Auspacific had obliged itself, by the combined effect of its tender of 26 May 1994 and clause 7(a) of the General Conditions, to commence work within 14 days, and that the Government must have known that to comply with this obligation Auspacific would have to do preparatory work, procure equipment and incur fees before the agreement became binding. This it was said estopped the Government from denying the existence of a contract under which Auspacific was obliged to do preparatory work. This argument cannot be sustained. The Government did not at any time do or say anything which could have led Auspacific reasonably to believe that a binding contract would exist before the Form of Agreement was signed. Indeed the proper conclusion from the evidence is that Mr Townsend did not have any such belief. If he incurred preparatory expenses, he did so taking the chance that Auspacific might get the contract. The Government did not in fact know what, if any, preparatory work was done, or fees incurred, for the purposes of the expected contract. The case has none of the elements sufficient to raise an estoppel of the kind discussed in Waltons Stores v Maher (1988) 164 C.L.R. 387.

Mr Berina has put every possible argument on behalf of the appellant, but the appeal cannot succeed.

The appeal is dismissed with costs.