Key Points:
If a contractor intends to limit its risks regarding the extent of its obligations associated with a site or task that it intends to undertake, the extent of the obligation, however the contractor wishes to limit it, should be stated clearly, directly and unambiguously in the contract.
As a general proposition, in the absence of contractual terms to the contrary, the obligation of a contractor to perform a task which it has agreed to perform for a price is not defined by reference to whether that contractor would make a profit or a loss in performing that task for that price. As the recent Supreme Court of Queensland decision in Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2005] QSC 364 (and subsequent appeal, [2006] QCA 50) has shown, that same proposition applies in relation to whether the task can be performed "economically".
Background
Mirvac is the developer of a large scale residential and commercial development on a 17 ha riverside site in inner Brisbane that was once a gas works, council depot and railway yard. Substantial portions of the site were declared "contaminated land" within the meaning of the Environmental Protection Act 1994 (Qld) and appeared on the Environmental Management Register. With the exception of the area of a historical gas holder, Mirvac wished to remediate the site to the extent necessary to render it suitable for any land use and have the site removed from the Register.
After a tendering process, Mirvac entered into a lump sum contract based on an AS2124 -1992 ("the Contract") with Thiess to undertake the remediation work. The history of the site and its extensive contamination were made known to Thiess prior to the contract being entered into. Thiess had also been provided with a copy of a Remediation Action Plan ("RAP") and various technical reports on the contaminants.
A dispute arose between the parties as to the extent of Thiess' obligation to remediate. Thiess contended that its obligation was to remediate the site to the extent necessary to render it suitable for any land use, provided the remediation could be done economically. Mirvac was of the view that Thiess' obligation to remediate the site was absolute.
The Agreement
The Contract comprised a number of documents including the General Conditions of Contract AS2124-1992, Special Conditions of Contract, Tender Schedules and Technical Provisions. Key provisions within the Contract included:
- A warranty in the Special Conditions that provided that "the contractor warrants that: ...the Works will when completed comply with the Contract, other requirements of the RAP and the requirements of all authorities. RAP means the Remediation Action Plan as amended and approved by the Third Party Reviewer."
- "Works" was defined in the Special Conditions as being "(a) the whole of the work to be executed in accordance with the Contract, including variations provided for by Contract, which by the Contract is to be handed over to the Principal; and (b) the remediated site."
- The existence of any form of contaminant or of any contaminated material or contaminated water of any nature and in any quantity or concentration, in or on the Site, would not constitute a Latent Condition for the purposes of the Contract (SCC Clause 12).
- The "Tender Schedule: Lump Sum Price" provided (in part) that "The Contract shall be for a fixed lump sum price $ ... based on the Contractors own assessment of volumes and methodology".
- The Technical Specification provided:
- "Nothing in this Specification shall be taken to limit or alter or otherwise affect the obligation of the parties as set out in the Conditions of Contract. The Specification will always be read as being subject to the rights and obligations of the parties under the Contract.";
- "The objective of the Contract is to safely and efficiently remediate the Site in order to achieve "any land use" with the Site removed from the Queensland EPA Environmental Management Register with no management of the Site required..";
- "The contractor may adopt the methodology of the TPR approved RAP. The Principal makes no representation as to the extent of the remediation, including volumes, required to remediate the Site.
The Contractor may submit a remediation methodology which is different to that in the RAP. It is the Contractor's responsibility to obtain (at the Contractor's cost) the TPR's approval for any remediation which is different to the RAP methodology."
Significantly for the outcome of the case, the RAP was not one of the documents comprising the Contract. It was primarily the content of the RAP on which Thiess relied as evidence that the parties expressly contemplated that the remediation of the land to a standard where it was suitable for any use might not be economically achievable, with the consequence that some limitation was placed on Thiess' obligation to remediate.
In particular, the Remediation Objectives within the RAP referred to "target clean up goals" in the event the site "could not economically be remediated", and the Remediation Intent stated that "the intent of the remediation program is to clean up soil and groundwater across the entire site to a condition such that EPA will remove the site from the Environmental Management Register. Failing this, the intent is to remediate as much of the site as possible ... to achieve remediation of the site that does not require any ongoing requirements for groundwater monitoring".
Findings of the Supreme Court and the Court of Appeal
Despite identifying strong indicia in favour of Thiess' construction, the Court at first instance held that the matters favouring Mirvac's construction of the contract outweighed those favouring Thiess. It found the term "economic feasibility" to be an elusive concept and an unlikely qualifier of Thiess' obligation. Justice Muir identified several factors that supported favouring Mirvac's construction of the contractual terms, including:
- the difficulty in determining with certainty as to when a particular level of decontamination was "uneconomic"
- the Contract was for a lump sum, lending itself to the view that the contract price was set with Thiess having given regard to the risk that site conditions might be worse, and necessary remedial works might be more difficult than anticipated
- the express exclusion of any warranty or representation by Mirvac as to existing site or sub-surface conditions, and express obligation upon Thiess to make its own independent determination of the extent of treatment required at the site
- the express provision that the existence of contaminated materials was not a latent condition, and the according to Mirvac only (with no such right to Thiess), of the right to terminate for its sole convenience should contaminated material not be successfully disposed of on site
- provisions which refer to "intent", "objectives", "goals" and "preferred options" normally are not regarded as appropriate for fixing contractual obligations, particularly where they have not been given direct contractual force by a provision of the contract and were included in a document (the RAP) that the parties deliberately excluded from the contract
- although the Contract contemplated that the remediation work be done in accordance with the RAP, as varied, and the warranty was by reference to the RAP as amended and approved, this did not mean that there was also imported into the Contract, a substantial limitation on the obligations of the contractor to remediate the Site
- the Technical Specification permitted the contents of the RAP to be changed in their entirety as long as an approved substitute regime was put in place, strongly suggesting that the RAP was not intended to play a role in limiting the extent of remediation work required; and
- the fact that the parties were substantial corporations experienced at entering into contracts of this kind.
Thiess appealed, but the Court of Appeal again favoured Mirvac's position for reasons which included:
- there were numerous provisions in the contract that were plain and unambiguous as to the absolute obligation upon Thiess to remediate the site, and these clear obligations could not be qualified, overborne or eroded by what might be drawn from "informal" references to "vague" terms in the RAP, which was not part of the contract
- the RAP, which predated the tender process and was not a contractual document, was directed at the EPA and Mirvac, and its references to what could be economically effected spoke from Mirvac's perspective
- there was an express power under the contract given to Mirvac to terminate the contract for its sole convenience. It was significant that a similar corresponding right was not given to Thiess
- the methodology set out in the RAP was not binding on Thiess. Thiess' task was to achieve the required degree of remediation, by whatever method it chose, for the price stipulated in the contract
- the essence of the case was one where the work that had to be done to comply with the contract in making the site free of contaminants was a great deal more difficult and expensive than was originally contemplated. The clear provisions of SCC Clause 12 made it impossible to imply in favour of Thiess any term which would relieve it from the obligation to do the further work and incur the additional cost required to bring the site to the uncontaminated standard; and
- while a contract must be construed so as to make commercial sense, one could not ignore express contractual obligations merely because of circumstances which have eventuated that make the obligation more onerous than was initially perceived.
Conclusion
This case demonstrates that if a contractor intends to limit its risks regarding the extent of its obligations associated with a site or task that it intends to undertake, the extent of the obligation, however the contractor wishes to limit it, should be stated clearly, directly and unambiguously in the contract.
Thanks to Candice Jacobs and Ming Lee for their help in writing this article.
For further information, please contact Frazer Moss.
