Afolau Construction v SSFA [2013] WSSC 73 (17 September 2013)

SUPREME COURT OF SAMOA

Afolau Construction v Samoa Sports Authority [2013] WSSC 73

Case name: Afolau Construction v Samoa Sports Authority

Citation: [2013] WSSC 73

Decision date: 17 September 2013
Parties:
AFOLAU CONSTRUCTION LTD a duly incorporated company having its registered office at Apia (plaintiff) and THE SAMOA SPORTS FACILITIES AUTHORITIES established pursuant to section 3 of the Samoa Sports Facilities Authority Act 2007, and previously known as the South Pacific Games Authority established pursuant to the 2007 South Pacific Games Authority Act 2002 and continued under the South Pacific Games Authority Act 2007 (defendant).

Hearing date(s): 23 and 24 May 2012

File number(s):

Jurisdiction: Civil

Place of delivery: Mulinuu

Judge(s): Justice Vaai

On appeal from:

Order:
Representation:
TRS Toailoa for plaintiff
M Lui and L Vili for defendant

Catchwords:

Words and phrases:

Legislation cited:
Cases cited:
Ryledar Pty Ltd v Emphoric Pty Ltd
Australian Broadcasting Corporation v XIV^th Commonwealth Games Ltd
Air Great Lakes Pty Ltd v K. S. Easter Holdings (1985) 2 NSWLR 309, 337
Gould v Vaggelas (1985) 157 CLR 215, 236
Whitaker Re Shackleton [1875] UKLawRpCh 55; (1875) LR 10 Ch App 446, 449
Beach Petroleum NZ v Johnson (1993) 115 ALR 411, 583

Summary of decision:

IN THE SUPREME COURT OF SAMOA

HELD AT MULINUU

FILE NO:

BETWEEN:

AFOLAU CONSTRUCTION LTD, a duly incorporated company having its registered office at Apia

Plaintiff

A N D:

THE SAMOA SPORTS FACILITIES AUTHORITIES established pursuant to section 3 of the Samoa Sports Facilities Authority Act 2007, and previously known as the South Pacific Games Authority Act 2002 and continued under the South Pacific Games Authority Act 2007.

Defendant

Counsel:

T R S Toailoa for plaintiff

M Lui and L Vili for defendant

Decision: 17 September 2013

DECISION OF THE COURT

Introduction

1. In preparation for the South Pacific Games scheduled to be hosted by Samoa in August 2007 the defendant, then known as the South Pacific Games Authority, a Statutory Corporation established by Act of Parliament, invited tenders for the construction of, inter alia, a Sports Centre at the Faleata Sports Complex. When the tenders closed on the first August 2005 only four bids were received. The second lowest bid was about $600,000 higher than the plaintiff’s bid of $4,383,765. Like the other three bidders the plaintiff’s bid was valid for three months.
2. As the plaintiff’s bid was about double the amount which the defendant budgeted for the sports centre, the defendant’s board of directors instructed its Chief Executive Officer (CEO) to negotiate with the plaintiff a review of its tender price by reducing the size the sports centre. After reducing the size of the project three times and receiving corresponding reduced costing by the plaintiff, Cabinet at its meeting on the 8^th March 2006 awarded the contract to the plaintiff at the third reduced costings of $2,835,548.84.

However, at its meeting of the 5^th April 2006 Cabinet reconsidered its original decision and awarded contract to the plaintiff at its original bid price of $4,383,765 for the original scope of the project.

3. Cabinet decision was made under article 38 (1) (c) of the Constitution which provides:

“A decision of Cabinet shall take effect:

(c) If the issue involved in the decision is, in the opinion of a majority of Ministers present and voting at the meeting at which the decision is taken, of extreme urgency, on the expiry of one day after the date of the decision, unless a meeting of the Executive Council is sooner held under the provisions of Article 40;

4. By letter dated the 11^th April 2006 the defendant advised the plaintiff of cabinet’s decision as well as prompting the plaintiff to proceed with preparation to commence upon execution of the written contract. Last paragraph of the letter reads:

“Please proceed with preparations to start as soon as possible. Our office will advise when the agreement is available for signing.”

5. As the plaintiff’s original bid in August 2005 was valid for three months, the defendant’s CEO on the 6^th May 2006 wrote to the plaintiff to revalidate its bid. By the same letter it was suggested that the written contract should be executed the following week. On the 8^th May 2006 the plaintiff responded in writing, detailing a price increase of $367,101.08. Upon receipt of this letter the defendant’s CEO arranged a meeting with Toluono Feti, (Feti) the plaintiff’s managing director, on Friday the same week.
6. The subject matter of the meeting was obviously to discuss the price increase from the original the bid made nine months earlier. What was said at that meeting is crucially conflicting. The plaintiff alleged that the defendant’s CEO assured the plaintiff that due to the urgency in completing the project in time for the games the increase in costs can be submitted later but to proceed with the construction. On the contrary, the defendant’s CEO maintained he never made such an assurance. In fact he told Feti that the contract would be re-tendered if the plaintiff insisted on the price increase.
7. When in early June 2006 the plaintiff received a draft copy of the written contract, the plaintiff responded in writing by letter dated 8^th June 2006 referring specifically to the revised price variations submitted on the 9^th May 2006, assurance by the defendant’s CEO at a meeting that additional costs may be submitted later in view of the urgency of the project. Feti also wanted clause 7.2 which specified the contract price at the original bid price to be removed for discussions later.
8. The defendant’s CEO did not respond in writing but stated in evidence he did not give any assurance and the works would be re-tendered if the plaintiff insists on price increase.
9. Later in the same month the contract was executed by the cabinet minister as the chairman of the Board of Directors of the defendant and Feti and his brother for the plaintiff. Again there is a conflict of evidence as to what said prior to the execution of the contract at the office of the Minister. Feti told the court that when he raised the issue of increased costs he was requested by the Minister to sign the contract as the project was becoming a matter of great urgency but the increased costs could be submitted later for approval. But the Minister denied making any assurance to the plaintiff. He was emphatic that he told Mr Feti the project would have to be re-tendered if the plaintiff insisted on a price increase.
   
10. Before construction work began the defendant requested several variations, the major one being the re-orientation of the building which originally was to lie north to south to a west to east direction. As the land slopes downward towards the east and the requested variation required the length of the building to lie in the east to west direction major excavations and compaction of the site was required before the foundation program of the centre could commence.
11. A total of six variations orally requested by the defendant were attended to. Extra costs to the plaintiff for four of the variations have been paid in full. Plaintiff’s claim for the variation to the building re-orientation has been paid in part as was the claim for the provision of extra structural steel for the mezzanine floor.

The plaintiff’s claim

12. It is contended by the plaintiff that it signed the written contract in June 2006 as a result of assurance by the defendant that any increased costs over the original bid for the contract amount of $4,383,765 sustained by the plaintiff due to increase in costs between the time of submission of the bid and the execution of the agreement would be met by the defendant.
13. At the time the written contract was executed it was the common intention of the parties, defined well and clear by the documentary evidence and the course of negotiations which took place prior to execution the increased contract costs of materials and labour since the plaintiff’s bid was submitted, would be met by the defendant.
14. As a consequence the written contract ought to be rectified to make it accord with the common intention of the parties as it would be unconscientious for the defendant to seek to apply the contract inconsistently with what the defendant knew was the common intention of the parties at the time the written contract was entered.
    
15. As to variations, the plaintiff said the variations were requested, they were attended to and satisfactory completed and the two variations costs not fully paid should be paid by the defendant.

The Defence

16. As apparent from what was said earlier in the introductory part the defendant deny giving any assurance to the plaintiff that it will meet extra costs over and above the contract price. Indeed it specifically told the plaintiff that the project would be re-tendered if the plaintiff insisted on an increase.
17. In relation to the unpaid variation costs, the defendant contended it was justified in its decision to refuse the full payments sought.

Rectification

18. The rationale of rectification is that it is unconscientious for a party to a contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time the written contract was entered.
19. The simple issue the court has to address concerning rectification is simply whether the parties agreed that the increase in costs between August 2005 (when the plaintiff submitted its bid) and June 2006 (when the contract was signed) would be met by the defendant before the contract was executed.
20. When rectification is claimed, evidence of negotiations and all other surrounding circumstances will be received. If the matter that has come to be the subject of debate is a matter that was not raised and addressed during the negotiations, and or was not otherwise shared by the parties so that there was no subjective common intention concerning it, there is no room for rectification: Ryledar Pty Ltd v Emphoric Pty Ltd (2007) NSWCA 65; 2007 (69) NSWLR 603.
21. It is also permissible when considering rectification or contract formation to look at the subsequent conduct of the parties towards one another, including what they have said to each other after the date of the alleged contract. Australian Broadcasting Corporation v XIV^th Commonwealth Games Ltd (1988) 18 NSWLR 540, 550.
22. It is therefore just as permissible to prove that one party told the other that the otherwise apparently binding contract was not in fact to be binding as it is to prove that they agreed upon a term but then did not correctly record that agreement in their written contract. McHugh JA in Air Great Lakes Pty Ltd v K. S. Easter Holdings (1985) 2 NSWLR 309, 337 drew attention to Corbin’s observation in Contracts (S57 Vol 3 at 385) that “we need not begin excluding parol evidence until we know a contract has been made.”
23. The course of negotiations of the parties needs to be examined for purpose of argument concerning rectification as well as the issue of variation. This is particularly vital considering the significant disagreement in the evidence about the statements made at various meetings before the execution of the contract.
24. Witnesses undoubtedly did their best to give accurate evidence, but in evaluating the best evidence, it is difficult to accept reliability of evidence that purported to be based on unaided recollection and lacked independent support from the written record or inherent probabilities.
25. When this trial occurred in 2012 and concerned events that happened as long ago as 2006 and those who testified were fairly busy characters who had much to attend to besides this transaction since the events relating to this transaction had occurred, this reflects nothing more than the ordinary fallibility of human memory.
26. Oral evidence of any witness of what was said at the meetings of the parties must be identified with a contemporaneous record or features of the inherent probabilities of the situation which supported the oral evidence.

The Course of Negotiations

27. When Cabinet decided in March 2006 to grant the construction contract to the plaintiff at a reduced cost of $2,836,548 for a smaller sports center, it did so under article 38 (1) (c) of the Constitution, which is invoked in cases of extreme urgency. The plaintiff was informed two days after the cabinet decision by the CEO of the defendant and urgent preparation for immediate commencement of the project was emphasised in the letter of notification. Cabinet however reconsidered its earlier decision and decided to award the Contract to the plaintiff at the original bid price of $4,383,765. But the plaintiff’s bid price was valid only for three months when it was submitted in August 2005. In response to the defendant’s CEO’s letter of the 6^th May 2006 requesting a re-validation of the plaintiff by letter of the 9^th May the plaintiff submitted increased costs of $393,468.00 so that the original offer was not re-validated. It is common knowledge a meeting was held on the Friday the same week, but what was said at that meeting is significantly conflicting.

Whilst the plaintiff insisted that he was urged by the defendant’s CEO to proceed with construction of the center and submit extra costs later for approval, the CEO maintained he did not give such an undertaking as to increased costs. In fact he told Feti that the contract would be re-tendered if he insisted on extra costs above his bid.

28. The Legal Advisor for the defendant also testified that at the same meeting referred to in paragraph 28 above Feti for the plaintiff undertook to perform the works for the original tender price of $4,385,765. Her evidence differed and lost credibility when she said that the meeting came about because at an earlier meeting Feti agreed to perform the work at the original price and Feti agreed to write to confirm the price, but he instead wrote seeking an increase in costs to the original bid.
29. The CEO quite correctly conceded that the meeting was as a result of the plaintiff’s response to the CEO’s letter seeking confirmation of the re-validation of the bid. Despite the Legal officers references to a series of meetings, not a record or minute of any of those meetings appeared to exist. If a note of what was said at the meeting existed and the plaintiff through Feti gave the undertaking as alleged by the defendant, the plaintiff would have had an uphill battle with its claim. If a note or record of any sort of those meetings did exist, they were not produced, obviously because it would not support the defendant’s argument. It must be said however it is difficult to comprehend that a legal officer made no record of not one of the many meetings she alleged took place.
30. But the plaintiff did refer to the meeting discussed in paragraphs 27 to 30 by letter dated 8^th June 2006 which Feti wrote to the defendant when it received the written contract. With reference to increased costs which were omitted in the written contract the letter said:

“You assured us in a meeting that this may be submitted later in view of the urgency of the project and that it has already come from cabinet. Please remove this for later discussion.”

31. The defendant did not respond in writing to the allegations by the plaintiff. Neither did they make any other form of response, or a denial of the allegations in the letter.
32. In my view this evidence is critical. There are two parts to it. In the first part the plaintiff was saying that the project was a matter of urgency and must proceed which in effect aligns to the spirit of urgency reflected by the Cabinet decision and the letters by the CEO to the plaintiff conveying the decision of cabinet.

The next part is that the defendant assured the plaintiff that the increased costs would be taken care of after the completion of the project.

33. There is no documentary evidence which indicated or suggested that the plaintiff agreed to construct the project at the original bid price. Neither the Minister nor the CEO or the legal advisor had ever accused Feti either verbally or documentary of falsely recording the events of earlier meetings, neither did any of them accused Feti of not honouring what he said in the earlier meetings if he did say he will stick to his original bid.
34. Contentions by the CEO and the Minister that the works would be re-tendered have inherent weaknesses. In the first place the defendant did not have the time frame to re-tender the work. When the bids closed the plaintiff had not only the lowest bid but also the shortest time duration for completion of the project estimated at 7 months. Before the commencement of construction the defendant had already decided to realign the sports centre so that it will lie east to west instead of south to north to minimize the heat from the sun entering the building. This was no minor variation. It was time consuming, delaying construction work to September 2006, and incurring extra costs of over $160,000. Total costs of $264,531 for the variations were paid by the defendant to the plaintiff.

According to the project manager’s report to the defendant dated 24^th July 2006 the excavations, and compaction of the land to accommodate the re-orientation of the building would be time consuming with a subsequent delay on the foundation program.

In his next report dated the 25^th September 2006 he told the defendant’s CEO that the site meeting at the sports centre had been postponed to the 28^th September informing the CEO of a variation to a foundation pad which means that by the end of September 2006 the foundation work has only commenced.

35. If the CEO and the Minister were genuinely serious about re-tendering the project which would have accounted for at least another three to four months, it means the foundation work would commence about January 2007; some seven months away from the South Pacific Games.
36. In the second place the re-tendering of the project would be totally against the spirit of urgency inherent in the Cabinet directive and the notification letter sent by the CEO to the plaintiff urging the plaintiff to start preparations to commence the construction.
37. Thirdly to re-tender the project would have been impractical and illogical when considering that only four bids were received when the tenders closed and with the plaintiff being the lowest bidder at $4,383,765. The next lowest bid was $5,009,580; that is about $626,000 higher than the plaintiff’s, so that even with increased costs the plaintiff’s bid would still have been the lowest.
38. Fourthly since the completion of the project the plaintiff continued to pursue his claims not only for the increased costs but for the variations requested. These requests were in writing and references were made therein to meetings with the CEO and other staff members of the defendant. One of those letters to the CEO of the defendant dated the 26^th June 2008 says:

“We again urgently seek your progress on our overdue payments having seen you and Lufilufi 4 weeks ago with your concurrence of a letter to be given to our banks and suppliers as to the timing of payment now that the National budget is passed.

“Attached however for your further information is my summary letter to the Honourable Prime Minister dated 11 June 2008. He said this will be processed shortly. ...”

39. The plaintiff’s letter to the Prime Minister dated 11 June 2008 (exhibit E to Feti’s affidavit) thanked the Prime Minister for meeting with Feti the day before. He also summarised outstanding payments due to the plaintiff including the $393,468 increased costs and variation costs.
40. Again the defendant did not respond in writing refuting what the plaintiff in his letter said took place or was agreed to. In my respectful view the conduct of the defendant reinforces the contention by the plaintiff that it was agreed by the parties prior to the execution of the agreement that increased costs can be submitted and will be met by the defendant at the completion of the project.
41. Finally, the plaintiff’s claim for increased costs of $393,468 was reduced to $319,468 because due to the First Amended Statement of Claim the plaintiff alleged that the defendant paid the VAGST of $74. This allegation is not denied by the defendant in its Statement of Defence and Counterclaim.
42. It follows that clause 7.2 of the contract should be rectified. The rectification order should alter the contract to no greater extent than necessary to make it accord with the common intention of the parties at the time the written contract was executed.

Clause 7.2 of the Contract ought to be rectified to provide for the payment of increased costs. Clause 7.2 provides:

“The Contractor shall not be entitled under any circumstances to any payment in excess of Four Million Three Hundred and Seventy Six Thousand, Seventy Six Tala and Fifty Sene SAMOAN TALA ($4,383,765) inclusive of VAGST and all other applicable taxes (the Ceiling Amount).

43. Clause 7.2 should be rectified by deleting all the words after the word shall and inserting the words:

“be entitled to payment of the amount of $393,468 representing increase in costs between the 1^st August 2005 (when the bid was submitted) and the 6^th May 2006 (when the bid was accepted) and such amount is inclusive of VAGST.

With clause 7.2 being rectified the plaintiff is entitled to increased costs of $319,468.

Alternative cause of Action of false misrepresentation

44. If a material representation was made by the defendant which was calculated to induce the plaintiff to enter into a contract and the plaintiff entered into the contract, there arises a fair inference of fact that the plaintiff was induced to do so by the representation. The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract: Gould v Vaggelas (1985) 157 CLR 215, 236.
45. The fact that a party is prepared to, and does, enter into the transaction in question amounts to an implied representation that that party has a present intention to carry out the promises made. Thus for a person to purchase goods on credit when at the time that person has no intention of paying for the goods amounts to deceit: Ex parte Whitaker Re Shackleton [1875] UKLawRpCh 55; (1875) LR 10 Ch App 446, 449; Beach Petroleum NZ v Johnson (1993) 115 ALR 411, 583.
46. To avoid repetition of my findings of facts, the plaintiff who submitted the lowest bid to construct the sports centre at the time of urgency, was induced to enter into the written contract as a result of the defendant’s representation that additional costs above the contract price will be met by the defendant.
47. It follows the plaintiff as a result of being induced by the representation is entitled to damages of $319,468 representing the increased costs less VAGST.

Variations

48. It is common ground that six variations were orally requested by the defendant. What is in dispute is the refusal by the defendant to pay full amounts claimed by the plaintiff for two of the variations.
49. Variation number two concerned the re-orientation of the sports centre, which required excavation and compaction to the eastern side of the land which slopes downward. According to the CEO the plaintiff’s claim of $163,556.40 was far too excessive as the compaction had already been done by the defendant prior to the execution of the contract. A private Engineering Consultant whom the defendant engaged to assess the claim recommended payment of$54,518.80 only. But after further consultations between the plaintiff and Ms Rasmussen whom the defendant employed as head of Corporate Services in 2008, the defendant paid $100,961.01 leaving a balance of $62,595.39.
50. This variation was the subject of memorandum from the project manager to the CEO of the defendant dated 24^th July 2006. Part of this memorandum reads:

“The construction of this Sports Centre is on land that has been excavated to form a level building platform. In forming the platform the excavated earth has been used to build up the Eastern side of the site for the area required for the gymnasium.

“This built up area had only received moderate compaction prior to the start of the contract. This work will be time consuming with a subsequent delay on the foundation program.”

51. The memorandum by the project manager does not support the contention by the defendant’s CEO that the land compaction had been done prior to the construction. Indeed there was some compaction done but at that time the building was intended to lie North to South.
52. Ms Rasmussen told the court the assessment she made resulting in the payment of $100, 961.01 was based on receipts and other relevant informations. She did however admit under cross examination that she should have also allowed for a 15% profit margin. She also agreed that in carrying out the variation the plaintiff would have incurred overheads which she should have allowed in her calculation. She believed that 5% should have been allowed for overheads.

As for labour costs she disagreed with the suggestion that the plaintiff incurred costs for labour as the excavation and compaction was done by sub-contractors.

53. Excavation and compaction of the land required the plaintiff and the project manager to be on site on a daily basis. In his memorandum to the defendant’s CEO referred to in paragraph 50, the project manager also went on to say concerning the work on excavation and compaction:

“Site visits to this project will be on a daily basis at least until the foundations are above ground level.

The memorandum enforces the plaintiff’s contention that labour costs were incurred.

54. It follows the plaintiff is entitled to the balance of $62,595.39.
55. Variation number five was requested to provide extra structural steel for the mezzanine floor which was done and the plaintiff submitted its costs of $39,974.33. Again these costs were given to the same Engineering consultant who advised the defendant to pay the full amount. But the defendant’s CEO declined the recommendation and refused payment on the basis of another engineer’s advise that the extra steel was in the original design.

Ms Rasmussen reviewed the claim and recommended to pay $30,153.89 which was paid. She refused to pay the balance of $9,820.44 as she believed the VAGST was charged twice. But upon questioning by the Court she conceded her mistake. She also rejected the 15% mark up. She also rejected the 20% overhead cost because the plaintiff did not provide documentations.

56. Ms Rasmussen came into the picture in 2008 well after the plaintiff submitted and pursued its claim and well after the consultant recommended full payment of its claim. She conceded that VAGST was not charged twice. She did not allow the 15% mark up which she allowed in variation number two. She should have allowed overhead costs as was done for the other variations.
57. Like variation number two the plaintiff is entitled to the balance of his variation costs of $9,820.44.

Costs paid to the Engineering Consultant

58. Fees totaling $5,342.50 charged by the consultant for the referral of two variation costs claims by the defendant for assessment were deducted from the plaintiff’s entitlements.

Nothing is provided in the contract expressly or by implication for such costs by the defendant to be borne by the plaintiff.

59. The plaintiff is entitled to be reimbursed for the $5,342.50 deducted.

Counterclaim

60. This was not pursued at the hearing and is accordingly dismissed.

Result

(i) The plaintiff is entitled to judgment as follow:

• (a) Increased contract costs of $319,468 pursuant to paragraph 43.
• (b) Variation costs of $62,595.19 pursuant to paragraph 54.

(c)Variation costs of $9,820.44 pursuant to paragraph 57.

(d) Reimbursed fees of $5,342.50

(ii) Interest of 12% shall accrue on the total amounts awarded of $397,226.33 from the 20^th September 2007 to date of judgment.

(iii) The Counterclaim by the defendant is dismissed.
(iv) Plaintiff’s entitled to costs. Counsel to file memorandum if costs are not agreed to.

JUSTICE VAAI