Kubor Earthmoving (PNG) Pty Ltd v The State [1985] PGNC 2; N514 (26 September 1985)

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W.S. NO. 755 OF 1983
BETWEEN: KUBOR EARTHMOVING (PNG) PTY. LIMITED WINSTONE QUARRIES LIMITED
PLAINTIFFS
AND:
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
DEFENDANT

SERVICE OF NOTICE ON ENGINEER UNDER CONSTRUCTION CONTRACT - ENGINEER’S FAILURE TO NOMINATE NEW ADDRESS FOR SERVICE - ALTERNATE ADDRESS SUPPLIED BY ENGINEER EMPLOYER (THE DEFENDANT) - HELD SUFFICIENT SERVICE ON ENGINEER WHERE REGISTERED POST UTILISED TO POST OFFICE BOX.

ENGINEER’S CERTIFICATE - A REFUSAL OR DELAY IN ISSUING FINAL CERTIFICATE - DOES NOT PREVENT CONTRACTOR INSTITUTING CIVIL PROCEEDINGS.

ENGINEER AS ARBITRATOR - NECESSITY TO APPEAR OBJECTIVE AND MEDIATORY - APPEARANCE OF BIAS - MAY VITIATE ANY FINAL CERTIFICATE.

CONTRACT PRICE - ASCERTAINMENT - 10% ALLOWANCE FOR CONTINGENCIES ALLOWED FOR IN TENDER PRICE - ACTUAL COST OF CONSTRUCTION LIKEWISE SUBJECT TO 10% CONTINGENCY CALCULATION WHERE LESS THAN TENDER PRICE.

Kellet v. New Mills Urban District Council (1900) 2 Hudson’s B.C. (4th ed.) 298

Trollope & Colls Ltd. v. N.W. Metropolitan Original Hospital Board (1973) 2 All E.R. 260

The facts which I find on the evidence so far led for the purpose of this preliminary point are: Messrs. Vallentine, Laurie and Davies were the Engineers appointed by the defendant under para.(1)(c) Part I of the General Conditions of Contract and again mentioned in Part II of that contract at the top of p.29. Secondly, that early in 1982, the representatives of Messrs. Vallentine, Laurie and Davies left Kundiawa. One letter at least, was returned unclaimed, possibly in May of that year, to the plaintiff company’s representative, Mr. Avery; and certainly, the letter of the 22nd of July, which has been tendered before me as attached to Exhibit “B”. Thirdly as a result of this difficulty in contacting the Engineer, the plaintiff, not unnaturally wrote a letter to the defendant asking for a specific address. One had not been nominated under Part II of the General Conditions I’ve already referred to. This letter of request was also written on the same date I’ve mentioned a little earlier, the 22nd of July 1982. Fourthly, the defendant replied to that request and headed its letter amongst other things: Contract TC-28-30-507/8 which in fact is Exhibit “E” tendered before me yesterday. They stated in their letter that the address for Vallentine, Laurie and Davies was P.O.Box 111 Miranda, New South Wales. Fifthly, Mr. Warner on behalf of the plaintiff-company has given evidence that a courier service was utilised to bring a letter across to him in Sydney from New Zealand on the 10th September 1982. When he opened the courier envelope, inside was another envelope addressed to Vallentine, Laurie and Davies. I have no doubt as Mr. Warner tells me in the box that the importance of this letter was impressed upon him. Indeed the very means adopted to get this letter to the Engineer under the contract would itself impress the memory. The envelope bearing the address Vallentine, Laurie and Davies, Post Office Box 111 Miranda, New South Wales, was taken by Mr. Warner out to the Miranda Post Office. Miranda, I might add is an outer suburb of Sydney in the general area of Sutherland. This he did on the following Monday, that is the 13th September and arrived at the Post Office somewhere about 3.45 in the afternoon. He registered the letter in the normal way, handing it across the counter, getting a receipt for it, and he inquired as to when delivery into the Post Office Box of that letter could be expected. He was advised “before the close of business” that afternoon.

Six, I find also, that the letter was retained by the Post Master at the Miranda Post Office for collection by Vallentine, Laurie and Davies and a card was placed into the Vallentine, Laurie and Davies Box No. 111. I also find as Point No. 7, that on the 17th September, the letter was uplifted and signed for by one Laurie. I think it is a fair inference that that particular Laurie was either the Mr. Laurie or related to the Mr. Laurie who is mentioned in the partnership of Vallentine, Laurie and Davies. Just when the card was uplifted is not quite clear, but I suppose it would be again a fair inference to assume that the card was uplifted on the same day as the letter was collected. However, in the upshot that does not really matter as far as I am concerned. In Papua New Guinea we do have a special legislative place reserved for post office box collections being a means of service of official documents. Both counsel have referred me to s.5(3) of the Interpretation Act Ch. No. 2 and both counsel have been careful to point out to me that this section of course does not concern itself with ordinary commercial contracts but is one which is directed to documents which are authorised or required to be served by post under some statutory instrument. However, I do appreciate the argument by analogy, and I think the arguments put forward by both counsel using this piece of legislation as analogy have been most helpful for me to see the true position.

Under the contract it is undisputed that the final account had to be with the Engineer by the 15th September. Mr. Reeve says that it was not with the Engineer until the 17th September. Mr. Chapman says, in the ordinary course of post, it was with the Engineer on the 13th or the latest the 14th September. Mr. Reeve’s argument I think may be fairly summed up as follows: the contract requires the document to be with the Engineer by the 15th. If it is not, then the time has lapsed and the plaintiff is in default. If the plaintiff chooses to pursue a course which could and in fact did, create a delay of the letter getting into the hands of the Engineer, the cost shall be on the head of the plaintiff. The contract clause says the claim must be with the Engineer, not with the Post Office, at the relevant time. The delay here of course is between the date on which it left the Post Office and the date on which the card was picked up from the Post Office box resulting in the letter finally being claimed from the postal counter. On the balance of probabilities I would find that the letter was in fact uplifted on the day the person cleared the card from the box.

Now I think it is important for me to bear in mind that the post office box number was given to the plaintiff by the defendant itself in a direct response to the plaintiff’s request for that particular address - no other address but that address. It is clear from the correspondence, especially the reference to the particular contract in that correspondence, that the purpose of getting this address was in order to render the final account under that contract - because it is clear that a postal address is required under Clause 68 of the General Conditions of Contract Part I. Sub-para.(2) of Clause 68 reads as follows:

“All notices to be given to the employer or to the Engineer under the terms of the contract shall be served by sending by post or delivering the same to the respective addresses nominated for that purpose in Part II of these conditions.”

Mr. Chapman does not put his argument as high as the response to the plaintiff’s letter amounting to a nomination under Clause 68 sub-para.(2) of the contract and I think he does not put it so high for the very understandable reason that at no stage did it purport to be an address given under that clause. It was an address given in response to the plaintiff’s request. But that was the address which the defence gave. It was to that address that the plaintiff directed the notice by the safest and fastest possible way bar one in the circumstances, that is, posting it at the actual post office itself where the letter box was located. Now I said bar one because I suppose it might be faster if it had not been registered. But after all it is not mere speed that need be the only criteria here. Speed and sureness of delivery are surely matters which I must take into account when I am being asked to determine whether the parties have acted reasonably under the contract which binds them.

I notice in looking into the development of principles surrounding the use of postal facilities in the law of contract, that it is something which has been developed for the purpose of convenience and indeed business necessity (Chitty’s Contracts, General Principles, 25th ed. para.68). The rule concerning postal service of course is one which was developed under the law of contract in relation to offer and acceptance. But I would not think anyone would contest the development of the law in that area as not also equally applicable to the area of service of notice by post where the requirement is stipulated in a contract. I note Chitty (supra) has this to say:

“It should not, however, be thought that the rule will be mechanically applied to all situations which it might, by a process of apparently logical deduction, be thought to govern. It has been said that the rule will not be applied where it would lead to ‘manifest inconvenience and absurdity’ so that the question of its application to a further group of cases discussed below depends on practical considerations and on the balance of convenience.”

Now its those closing words which I consider particularly apt to the present circumstances. I will repeat them again, “practical considerations and balance of convenience”. And that after all is what the development of the law in this area is all about. It is not there as some unbending, unmalleable thing. It is something which has been developed for the purpose of assisting the legal relationships between businessmen. It is a commercial convenience which the law has developed in order to support the smooth functioning of business and not to encourage semantics or hair-splitting.

What is the intention in this contract? The intention is surely to get the document to the notice of the party who is required to be notified. The plaintiff, in my view, has done everything possible to achieve this. The postal box is one that one would have expected to have been cleared in the ordinary course of business on the 14th or 15th. The fact that it was not cleared on that date does not matter so far as the legal principles are concerned.

Perhaps the essential factor here is, what Mr. Chapman has termed, the time of submission of the letter to the postal service and not as Mr. Reeve has claimed, the time of receipt. I believe that Mr. Chapman is correct here, although I prefer to go back to the Clause 68(2) as it appears in the General Conditions of Contract stipulates that, in this instance in particular, all notices shall be “served by sending by post. Now what does this “served by sending by post” mean? Once again Chitty’s standard text sets out the matter both succinctly and lucidly. At para.66, the learned author says this:

“A letter is ‘posted’ for this purpose when it is put in the control of the Post Office or of one of its employees authorised to receive letters.”

In my view, that is clearly what happened in this case. The document was put in the control of the post office. One could expect nothing more needed to be done. And it was put in the control of the post office on the 13th September, some two days before the final date and therefore complied with the requirements of Clause 68. The date on which it was actually uplifted by the recipient is not a matter which need concern me. That of course, was done at the discretion of the recipient and had nothing to do with the plaintiff. The plaintiff’s requirement is to get the document in a position where it could be uplifted by the recipient had the recipient been so minded. It has nothing to do with the plaintiff if the recipient chose to spend the intervening days pursuing his own devices instead of clearing out his mail box.

Following the normal tender practice, by a letter of acceptance dated 15th April 1980 and a formal written agreement with the defendant of the 23rd January 1981 the plaintiffs, as a joint venture of two New Zealand companies commenced the repair, upgrading and sealing of that part of the Highlands Highway which lies between Garniger and Chuave. The work commenced in mid-1981. On all occasions before the State Solicitor became embroiled in the proceedings, the State was represented by the Department of Works and Supply. The Engineer appointed by the defendant to supervise the performance of the contract was the firm of consulting Engineers, Messrs. Vallentine, Laurie and Davies (hereinafter referred to simply as the “Engineer”) through their accredited representative at the site. In the early part of the works this was a Mr. Vail, and then a Mr. Hawkins took over until shortly after the 8th February 1982. The representative of the plaintiffs on site was a Mr. Keith Gordon Avery, who is presently the personal assistant to the managing director of Winstone Quarries Ltd., and was, and still remains, the general manager of the joint venture. He has given sworn testimony before me. No representative of the Engineer was on the site from the departure of Mr. Hawkins earlier in February 1982 until the conclusion of the maintenance period on the 15th June. Prior to his departure, Mr. Hawkins made out and signed the necessary final maintenance certificate to be countersigned by an officer in the defendant’s employ on the 15th June if all was well. This was ultimately done (Exh. “L”). The postal address of the Engineer on site was P.O. Box 34 Kundiawa.

The method of payment by the defendant in return for performance under the contract was by having the Engineer vet and sign a progress statement tendered by the plaintiff each month to cover the work just completed apart from any other factor. Such a scheme had the obvious advantage of keeping up a cash-flow. There were twenty such progress claims covering the work performed. The final progress claim was numbered 20 and dated 21-1-82 (Exh. “H-1”). It is in exactly the same format as the previous 19 progress statements (e.g. compare Exh. “34”, “35” and “36”) and does not carry any wording which would indicate that a further progress statement may not be expected. In fact it was the last progress statement to be tendered and received.

On the 28th January 1982 Mr. Hawkins as Engineer wrote to the plaintiffs in the following terms (Exh. “H3”):

Please find attached a copy of the Engineer’s Certificate for the December 81 - January 82 Progress Claim No. 20 for the Contract No. 28 - 30 507/508, which is final.”

Neither Mr. Vail nor Mr. Hawkins has been called. I do not know whether either one had a copy of the terms of the contract in his possession It is theoretically possible that when Mr. Hawkins used the phrase “which is final” in his letter he meant simply that it was the final or last of the monthly progress claims (which was quite true), or whether it was meant to imply that no further claims for payment were expected to be received and that the Claim No. 20 was to be treated as the ultimate and terminal claim. As it turned out, the defendant learned very much later following discovery and production of documents before the trial, that the Engineer’s representative did regard the plaintiffs as having received fully all payments due to them as evidenced in his Final Report to the defendant dated 17th February 1982 (now Exh. “Z”). The plaintiffs endeavoured to dispel any ambiguity by writing to the Engineer on the 8th February 1982 (Exh. “J”) to the effect that Claim No. 20 was not final but was a Progress Claim only. It was not, nor was it intended to be, a final account. They pointed to Clause 60(4) of the contract which briefly summarised, “permits the contractors to render a final account for all sums considered due up to the date of the Maintenance Certificate”. No reply was received to this letter. It is perhaps interesting to note that the original has not been produced by the defendant, although I must say it was not called for. Although it was addressed to the Engineer one would have thought that such agent would have forwarded the letter to the principal in due course. Several days after despatching this letter, Mr. Avery had a discussion with Mr. Hawkins in which the latter indicated he was about to depart permanently for Kuala Lumpur.

“60(4) Not later than three months after the date of the Maintenance Certificate the Contractor shall submit to the Engineer a statement of final account and supporting documentation showing in detail the value in accordance with the Contract of the Work done in accordance with the Contract together with all further sums which the Contractor considers to be due to him under the Contract up to the date of the Maintenance Certificate. Within three months after receipt of this final account and of all information reasonably required for its verification the Engineer shall issue a final certificate stating the amount which in his opinion is finally due under the Contract up to the date of the Maintenance Certificate and after giving credit to the Employer for all amounts previously paid by the Employer and for all sums to which the Employer is entitled under the Contract up to the date of the Maintenance Certificate the balance if any due from the Employer to the Contractor or from the Contractor to the Employer as the case may be. Such balance shall subject to Clause 47 be paid to or by the Contractor as the case may require within 30 days of the date of the certificate.

One would be forgiven for believing that so far all is quite plain sailing. The clause is in quite clear language. The times mentioned are easily ascertainable. The contract obviously contemplates the possibility of claims after the final progress statement. The Maintenance Certificate here carried the date 15 June 1982, thus requiring service on the Engineer of any final claim no later than the 15 September 1982.

The first real difficulty for the plaintiffs now emerged. Mr. Avery knew that the Engineer no longer had a representative at Kundiawa but nevertheless in the absence of any other address, sent an inquiry dated the 22nd July 1982 to the Kundiawa box number requesting confirmation of an appropriate address to which the final claim could be forwarded. On the same date Mr. Avery also wrote to the defendant’s department (Department of Works and Supply, Exh. “B”), enclosing a copy of the letter which he had sent to the Engineer and asking the defendant the address to which the “preliminary final claim” should be sent. (I would add here that Mr. Avery explained to the court that the reason why the phrase “preliminary final claim” was used was because they anticipated there would be discussions between themselves and the Engineer about the matters contained threin and that there could well be a number of adjustments before a final claim was settled.)

On the 11th August 1982 the plaintiff was advised by the defendant by letter (Exh. “A”) that “you are requested to forward your preliminary final claim to Vallentine Laure and Davies, P.O. Box 111 Miranda, N.S.W. Australia”. This, the plaintiffs did, by arranging for one of their representatives (Mr. Warner) to personally deliver the claim to the postal officer at Miranda Post Office for registered transmission to P.O. Box 111. A copy of the final claim has been received into evidence as Exh. “O”. This incident was the subject of an earlier interlocutory judgment. Having now completed the evidence on the whole of the trial I find nothing has arisen to cause me to alter my findings of fact or conclusions in relation to this area of evidence and I therefore incorporate the interlocutory judgment into this main judgment.

By way of completeness here I express my disagreement with the defence submission that any invitation by the Engineer made in his letter of the 18th November 1981 (Exh. “AY3”) “to be given full details of any other claims you intend to make a soon as possible” could in any way affect the application of Clause 60(4) vis-a-vis the plaintiffs and defendant. It is merely a request for some earlier notification of what claims are likely. Indeed a prior notification covering a number of matters including those required to be mentioned under Clause 52(2) of the contract was sent to the Engineer at the Kundiawa address on the 31st May 1982 (Exh. “K”); but that was after the plaintiffs had been able to sit down and assess their position in the final “wash-up”.

Mr. Avery had written direct to Mr. Hawkins in Kuala Lumpur, by sending him a copy of a letter to the Engineer also dated the 26th July 1982 signalling the lodgment of a preliminary claim (Exh. “M-1”). Mr. Hawkins wrote back and gave an address for Mr. Laurie in Monaco. I do not believe it is necessary at this stage to traverse all that transpired after this. The upshot was, by telex of the 26th January 1983 (Exh. “T”), the Engineer advised the plaintiffs that:

(2) ;ټ that inat in any cany case Valne, L and s haded tohe Engineers to the contract.

It is importanortant to t to take take some some note note of the wording used by the Engineer as stacause it expresseresses a cs a clear attitude of mind. The wording which I refer is as follows: “The agreement under which Vallentine Laurie and Davies undertook the construction, supervision and contract administration of the above contract was terminated at the end of February 1982 following the completion of construction and we presently hold no brief from the client to participate further.” I say it is of some importance because the Engineer has not expressed any concern for the provisions in the contract which may apply in respect of him and his principal quite apart from the relationship between him and the plaintiffs after the end of 1982. It also expresses by clear inference that no further payments need to be made.

The possibility of dealing with any claims under Clause 60(4) was not the only matter which might have required attention from the Engineer. There was also the problem of issuing a Final Certificate under the same Clause. Such a Certificate is required to be issued within three months of receipt of the Final Claim.

In my view, Exh. “O” is a final claim within the meaning of Clause 60(4) and it was duly and properly served on the Engineer in Miranda, New South Wales, within time. No final certificate was issued by the Engineer on or before the 15th December 1982. Indeed I find from the wording of the telexes tendered and especially from Exh. “T” that the Engineer had no intention of issuing a final certificate because he regarded his task as complete and himself functus officio. Whether he was or was not, is a matter of course, between the Engineer and the defendant. The plaintiffs are not directly concerned with any dispute which may arise between them. Nor do I believe a contractor has to await a resolution of any such dispute before he can institute legal proceedings to recover what he believes is rightfully his. The problem presented by the dispute is one for the defendant to solve not the plaintiff. If the Engineer will not complete his task in accordance with the arrangements made between him and the employer, the employer must make alternate arrangements.

Indeed there was an attempt at some alternate arrangements, for on the 22nd of February, 1983, Mr. Avery and Mr. Euscher of the defendant’s department of Works and Supply had a telephone conversation in which the defendant asserted that Messrs. Vallentine, Laurie and Davies was still the Engineer. Nevertheless, it was suggested that a final account should be forwarded to the defendant-department (Exh. “AK”). Further telexes and telephone conversations were exchanged leading to a further suggestion by the defendant of various alternatives, including a discussion in Port Moresby (Exh. “AO”). Mr. Avery then arrived here on the 5th May 1983. During discussions with Mr. Euscher it was made clear to Mr. Avery that the State would in no way entertain a certification of the 10% contingency claim. It was said that any such final certificate certifying such claim would not be acceptable to the department, that is the State. Apart from this aspect, the main discussion centered around the issuance of a final certificate and the position of Vallentine, Laurie and Davies. Eventually, the Engineer did issue a “Final Certificate” on the 14th June 1983 stating an entitlement to a “final payment for K nil in accordance with provisions of Clause 60(4)” (Exh. “AQ-2”).

To say that this certificate was rung out of a reluctant Engineer would perhaps be an understatement. It came just five months after Vallentine, Laurie and Davies had denied any involvement and one month after Mr. Euscher and Mr. Avery had conducted somewhat in determinate discussions in Port Moresby. A considerable number of telexes, letters and phone calls had supervened. On the 20th June 1983, the defendant forwarded the “Final Certificate” to the plaintiffs and added insult to injury by restating “our position as not being able to make any payment in the absence of such certificate” (Exh. “AR”).

I propose to deal with the legal problems involved from a two-fold point of view. Firstly, there is the position where the contractor requests a certificate to be issued and the Engineer fails to do so. Secondly, there is the position where an Engineer eventually does issue a final certificate but at the time he may be described as biased for one reason or another.

Under Clause 1 of the contract “Engineer” is defined inter alia as “the Engineer designated as such in Part II”. By Part II Clause 1(c) the Engineer is nominated as Vallentine, Laurie and Davies. This was a condition of the contract accepted by the plaintiffs and the relationship between the defendant and the Engineer was, as I have said, no more in the plaintiffs’ control or concern than that of any other person who had entered into a separate contractual obligations with the State. The relationship that did concern the plaintiff directly, however, was that between themselves and the defendant via the Engineer.

Clause 60(9) as set out in Supplementary Notice No. 2 emphasises the distinction between certification for ordinary monthly payments and the certification which involves the final account. Counsel says that the wording of this sub-clause is to make “time of the essence”, but I do not believe that this is such a term. Nor can I accept counsel’s argument that there is anything contained in the relevant clauses which amounts to an express contractual prohibition. There certainly is, however, an express obligation to be honoured, a breach of which would allow the contractor to approach the courts if he is going to be left waiting for some time. It is not difficult to locate authorities in the area. Mr. Chapman has drawn my attention to Kellet v. New Mills Urban District Council (1900) 2 Hudson’s B.C.(4th ed.) 298). The person required to certify in that case delayed in so doing. It was held that the plaintiff could recover without a certificate being issued for the certificate had been wrongly and reasonably delayed in the issue. At p.301 of the report, Phillimorer, J. says:

“...I think that they knew here not merely that their man was not certifying, but he was going through the process of pretended inquiry, which was almost worse than his refusing to inquire; and I think that they were bound in those circumstances to have taken some very decided action on their part. I may add, that it does not at all follow that the plaintiff is as well off if they do appoint another surveyor, because he may get his money but get it only after very much greater delay. One of the grounds of complaint is the delay. One of the great grounds is that he does not get his money when he ought to get it;...”

I agree that the employer “cannot merely stand-by with his arms folded”. If the Engineer refuses to act then the builder may take his claim to the courts. As the learned authors in 4 Hals.(4th ed.) para.1217 put it:

“The certifier abuses his powers if he persistently refuses to certify or if he expressly refuses to come to a decision on a matter over which he has jurisdiction by virtue of the contract and in these circumstances the contractor can recover without a certificate.”

In Hickman & Co. v. Roberts (1913) A.C. 229 the architect-certifier delayed issue of the certificate until after the proceedings had been commenced. There are two important points relevant to the matter before me which emerge from this case:

(1) empe yer oould not assert tert that the issue of a certificate was a condition precedent to the institution of the action; and

(2) 䃘 otuccesuccesy argh arghat the certificateicate when when it e it eventuventually ally did issue was conclusive as to the amount of claim.

At p.233 Lorebu.C. makes two relevant comments. Like the Engineegineer in r in this matter, the architect believed that it was necessary to obtain instructions “before he discharge his duties under the contract”. Such a view was mistaken. His Lordship goes on to make a further point that “the employers seem to have been trifling with a just claim for a long time, and that they would be properly punished by having to pay the costs of this action, as well as whatever may hereafter to be adjudged to be due from them”. I must say here, I don’t think this is really a question of “trifling”. I think there has arisen between the parties a genuine dispute as to the meaning of the contract - as to what is due under the contract. However, the amount of time spent in attempting a resolution before the plaintiff commenced action was quite unacceptable to any reasonable contractor.

Mr. Chapman has also relied on MacFarland, J. in Perini Corp. v. Commonwealth of Australia (1969) 2 N.S.W.R. 530 to show that even though a time limit is not set down in the contract in which the certification must be performed, it Must yet be done within “a reasonable time”. In my view, if there is an obligation to perform some act, then there is at the very least an implied concommitant obligation to perform it within a reasonable time. If as in the present case there is an obligation to certify within a period of three months, then in the event of a failure so to do, the contractor must surely be allowed to pursue other means of imposing payment such as court proceedings within a reasonable time and provided reasonable negotiations have been undertaken.

In my opinion, the late issue of a document purporting to be a final certificate does not prevent the plaintiffs in this action from coming to the court nor does it prevent such plaintiffs from having such certificate either set aside or declared void according to the appropriate circumstances. Furthermore, it does not prevent the plaintiffs from applying to the court for proper payment in accordance with the terms of the contract.

In the present case, however, a certificate has been issued albeit well out of time but before proceedings were instituted on the 11th october 1983. The plaintiffs say such certificate is void because the Engineer was no longer of an open mind. He could not approach his task with the objectivity required of a person in such a position because (a) he had already treated Claim No. 20 as the final claim for payment; (b) he sought “instructions” from the employer, whereas, he should have been making an independent and objective assessment of both his own position and that of the Plaintiff; (c) the firm nominated as Engineer already regarded itself as functus officio and no longer interested in the issue; (d) the defendant-employer had already indicated to the plaintiffs prior to certification that they would not agree to any certificate which validated a payment of the 10% contingency claim. The real relevance of this point however is not so much from the point of view of the defendant’s stand (for that merely indicates an intention to breach the contract at some future time), but the statement to the plaintiffs that if the 10% contingency claim was certified then the defendant would look to the Engineer for payment of the interest accruing thereon.

Whilst it is true there is no evidence to show that the defendant transmitted this view to the Engineer it does cast an ugly shadow on the apparent continued objectivity of the Engineer whose pocket could now be affected by his own decision. Financial involvement has long been a bar to judicial function. Although we are not dealing with a judicial officer, Lord Hewart’s reminder that Justice “should manifestly and undoubtedly be seen to be done” (R v. Sussex Justices ex parte McCarthy [1923] EWHC KB 1; (1924) 1 K.B. 256 at 259) is still pertinent. Lord Denning at p.599 of Metropolitan Properties (F.G.C.) Ltd. v. Lennon [1968] EWCA Civ 5; (1969) 1 Q.B. 577 when discussing certain actions of a person who acted as chairman of a rent-assessment committee put it this way:

“The Court looks at the impression which would be given to other people. Even if he was as impartial as could be, nevertheless, if right-minded person who think that, in the circumstances, there was a real likelihood of bias on his part, then he should not sit. And if he does sit his decision cannot stand...”

“But I cannot bring myself to hold that a decision may properly be allowed to stand even though there is a reasonable suspicion of bias on the part of one or more members of the adjudicating body.”

It could not be suggested that a chairman of a rent-assessment committee was acting in a judicial capacity although he clearly had a quasi-judicial function in that inter alia he must act, and be seen to act, fairly. Whilst it is true that Lord Esher, M.R. in McDonald v. Mayor of Workington (1893) 2 Hudson’s.B.C. (4th ed.) 228 at 230 is not prepared to go to the extent of describing a surveyor whose task was the same as the Engineer in the present case before me, an arbitrator but rather “an independent person”, the Lords felt no such reservation in the decision I have earlier referred to in Hickman & Co. v. Roberts (supra). At p.233 Lord Loreburn, L.C. adopts the tests set down by Lord Moulton: “he is no longer fit to be a judge, because he had been acting in the interests of one of the parties, and by their direction. That taints the whole of his acts and makes them invalid, whatever subsequent matter his decision is directed to.” Lord Ashbourne stresses that the arbitrator must preserve an “attitude of judicial independence” (p.234), whilst Lord Alderston pointed out that the “architect had forgotten his duty to act strictly judicially through the whole course of the proceedings” (p.235).

In the Nickman case Lord Atkinson, in addition to stressing the judicial aspect of the duties of an engineer/arbitrator, emphasises the fact that for such to cease to act as a free agent is to “forfeit his independence as an arbitrator... the fair presumption from the entirely unexplained delay in giving his final certificate is that he continued to be under the influence of the building owners”. I think that in the absence of evidence from the Engineer, it is a fair inference to draw that the intimation by the defendant that should the arbitrator find in favour of the plaintiff for the 10% claim, then interest on that sum would have to be paid by the Engineer company and not the defendant, was transmitted to the Engineer at some stage before the issue of the final certificate.

The relevance of the requirement to act judicially, to act with independence, to avoid delay created by the owners in the set of circumstances before me is patently obvious. The defendant had refused to accept that any further payment was due and made no approach to the Engineer for a final certificate under Clause 60(4) of the contract despite the fact that it knew the plaintiffs intended to serve a final claim on the Engineer at the Miranda address within the prescribed time. The Engineer believed he had done all that was required to be done and originally that his association with the defendant and the project had terminated. Subsequently, he refused to issue the final certificate even after he had consulted the defendant as to whether he should or should not do so - hardly the act of an independent party. In Exh. “AD-1” of the 28th December 1982, the Engineer says he “would be most grateful for your instructions” whilst such instructions are still being awaited on the 2nd of February (Exh. “AD-3”). As early as 3rd June 1983 the plaintiffs had expressed to the defendant by letter (Exh. “AH”) its dissatisfaction with the Engineer’s independence and ability to act judicially, but even in December 1982, the plaintiffs had expressed its misgivings direct to the Engineer (Exh. “R”). I have no great difficulty in appreciating both the reasons and the justification for the plaintiffs’ trepidation in this area. In my view, the appearance of impartiality in the Engineer was well and truly chopped to pieces long before the issue of the Engineer’s final certificate (Exh. “AQ-2”). It is not a necessary part of the plaintiffs’ case, that in fact the Engineer was biased. I do not believe that such matter has to be proved. It is sufficient in my view to establish adequate grounds for believing there may reasonably be a lack of independence, exacerbated by a preconceived approach to the matter, adverse to the interest of the builder. These grounds have been made out.

Counsel to the plaintiff has put his case on a two-fold basis; either the Engineer is disqualified because of the earlier refusal and subsequent late issue of the final certificate or is disqualified because of his apparent bias and lack of independence. I prefer the latter approach. I do not believe it is necessary to decide the first alternative. The action of the Engineer both before and on issuing the final certificate was quite unacceptable conduct on the point of an arbitrator acting even semi-judicially. The certificate itself is tainted with that impropriety. It thereby becomes a worthless piece of paper, and has no binding effect on the plaintiff. If authorities were needed to support such a conclusion, those submitted by counsel are more than sufficient - (Pawley v. Turnbull [1861] EngR 520; (1861) 3 Giff. 70 66 ER 327), Sir John Stuart V-C, at pp. 82-3, Hickman & Co. v. Roberts, (1913) A.C. 229, HL(E), per Lord Shaw of Dunfermline, at p.270, and Dixon v. South Australian Railways Commissioner, [1923] HCA 45; (1923) 34 CLR 71, per Isaacs J. at pp. 94-5).

The end result therefore must be treated as one where no certificate has been issued. The plaintiffs have a final claim which has not in effect been considered and assessed. They are entitled to come to this court and argue their claim. The court will now stand in the position of the Engineer, with the additional powers of course which are corollary to entering judgment. I shall now proceed on this course.

The plaintiff’s first claim is for an amount of K365,341.17 being a 10% element for physical contingencies. It seems to be accepted by both sides that I have before me for consideration not a “lump sum” contract but a “measure and value” contract, though Mr. Chapman has framed his submissions for the plaintiff to cover both possibilities.

This is also the approach favoured by Mr. Smellie, Q.C. a counsel retained by the plaintiff to give a written opinion to accompany the Final Claim, Exh. “O”. I have found this opinion most helpful. I do not propose to canvass the various matters raised therein or by counsel before me. Suffice it to say I am content to find that the contract is a “measure and value” contract with the consequences which flow therefrom. One consequence is that Clauses 55 to 58 of the contract become particularly significant especially the definition of “Provisional Sum” contained in Clause 58. By definition, the present claim for 10% cannot come within the terms of this clause and is not dependent therefore for any approval sought or required under that clause from the Engineer. I agree that, (1) the 10% claim is not a sum included in the contract; (2) it is not a designated sum within the bill of quantities; and (3) the mere fact that the 10% contingency claim and the provisional sum both have a common area of physical contingencies is not fatal to the claim because (i) all three elements go to make up a “Provisional Sum” defined in Clause 58; and (ii) under the 10% claim there is no need to establish a relationship with actual physical contingencies encountered during the duration of the contract. Of course it is obvious that such contingencies will be there, and discoverable, but the idea behind the allowances is to give a genuine mark-up to cover what has always gone wrong in the past and will continue to do so in the future, without the necessity of listing them item by item. Consequently, there should be no loading of individual tender rates.

It is clear enough from the exhibits that certain misconceptions about this 10% contingency figure arose right at the very start. The situation was not improved by the fact that the Engineer has physically removed himself from the site by February 1982, and quite a number of months transpired before the defendant and the Engineer resumed any real contact. By a letter dated the 28th January 1982 to the plaintiff (Exh. “H-3”) the Engineer acknowledged receipt of “Progress Claim No. 20 of the Contract...which is final”. One would have though that what is described as final here was the series of progress claims, for indeed No. 20 was to be the last of the Progress Claims. However, the plaintiffs were concerned that the Engineer might be regarding the Progress Claim No.20 as the last of all claims to be lodged and pointed out in their letter to the Engineer dated 8th February 1982 (Exh. “J”), that they intended to furnish a final claim under Clause 60(4) of the contract not later than three months after the date of the Maintenance Certificate. As it turned out a number of people took the view that no further claim could properly be lodged by the plaintiff. Why anyone should assume that the plaintiff had waived its right to put in a final account within the terms of Clause 60(4), I do not know. It is equally clear however that at least one senior officer in the Department of Works and Supply had some misgivings on the matter. The plaintiff also pointed out that if the Department of Works and Supply were incorrect in their interpretation then it could involve the State in a considerable amount of additional funds because of the interest clause contained in the contract. It is clear from the Engineer’s “Final Report” that he was of the view that no further payments were required to be met. This Final Report was dated 17th February 1982 although the maintenance period did not expire till the 15th June 1982 and therefore the Certificate could not issue until after that date. Certainly, the Department had taken the view by the 21st April that no further funds fell to be paid under this particular contract as there is a notation from someone within the Department on Exh. “AA”, being a letter of the 28th April 1982 from the plaintiffs to the defendant that “final account has been paid...” Further on the 6th May 1982 the defendant wrote to th American Home Assurance Company and advised that the contract had been completed “and all claims had been finalised” (Exh. “AB”).

Clause 60(4) has already been set out at p.9 of this judgment. The contractual basis for the claim is, I think clear enough. The Agreement by Clause 4 provides that the defendant “covenant to pay to the Contractor...the Contract Price”. The latter term is defined in para.1 sub-para.(1)(g) as “the sum named in the letter of acceptance”, subject to certain additions or deductions provided for. The sum set out in the Letter of Acceptance dated 15th April 1980 is the company tender amount of K4,804,944-10. This sum is derived from p.5 of the actual tendered document submitted by the plaintiff on the 30th November 1979, which sets out a summary of the schedule of rates of all sections of the works made up of a number of sub-totals including sub-total (A) and (B):-

width" valign="top">

288,906-50

	Sub-Total A	Sub-Total B
&#160v>	K3,790,338-00	K2,889,065-00
Add: 10% of sub-total A B respectively for physical contingencies
	379,033-080

To these two sub-tsub-totals is added a further 20% under Cl70 of the Agreement in rela relation to sub-total “D” thus arriving at the final tender figure. The actual contract price itself, however, cannot be ascertained until the contract is concluded. The fact that it is yet to be measured in no way detracts from the right contained in the tender to claim for the 10% contingencies. That claim is in addition to the original estimates as modified by the actual permitted claims with such deductions and additions as may be allowed. Until the final claim is settled and filed, such overall figure cannot be ascertained. Once it has, then the 10% for contingencies is added. In my view, the contract in its “express terms are perfectly clear and free from ambiguity... there is no choice to be made between possible meanings.” (Lord Pearson in Trollope & Colls Ltd. v. N.W.Metropolitan Original Hospital Board (1973) 2 All E.R. 260 at 268a.

One can search throughout the entire set of documents without being able to discover any other area where the contract sum for payment (with suitable additions or subtractions as required) can be found. It follows from what I have said above that the ascertainment of such 10% figure could best be made when all accounts had been submitted including the final account. The obvious place to make such claim is at the same time as the final account is rendered or as in the present instance, by making it a part of the final account. This approach was settled between the parties when Mr. Avery of the plaintiff-company was told by the Engineer’s representative, Mr. Vail, that the 10% for contingencies should not be included in the monthly certificates. The actual phrase which I accept as being used by Mr. Vail is that it should be “a final wash-up matter”. No evidence to the contrary has been tendered by the defence. I uphold the submission.

The figures for this total are derived from the moneys actually received on claims numbered 1 to 20 processed by way of monthly statements plus the additional claims 1-6 which have been raised in the final account, and now fall for determination before me if I overrrule the plaintiff’s objection. The amounts in the statement of claim is made up of a 10% contingency based on sub-total A of the final contract sum that is the amount already received (K3,468,414-70 (Sheet 1 of Exh. “H1”)) less Variations 1-7 to which sum should also be added the amount of Claims 1-6 either in toto or in a reduced amount according to my findings.

“The plaintiffs accept that the quantum of ten percent will vary according to the total of the measured quantities. If the total of the measured quantities turns out to be less than the total of the tendered amount of sections 1-6 of the Schedule of Rates and Quantities, the plaintiffs accept the quantum of the ten percent claim would be that much less, proportionately less. It is only ten percent of the measured quantities of sections 1-6, and that of course we accept.”

It has been argued quite strenuously by Mr. Reeve that what the plaintiff is trying to do here is circumvent Clause 12 of the contract which reads in part:

“If, however, during the execution of the works the contractor shall encounter physical conditions, other than climatic conditions on the site, or artificial obstructions, which conditions or obstructions could, in his opinion, not have been reasonably foreseen by an experienced contractor, the contractor shall forthwith give notice thereof to the Engineer’s representative and if, in the opinion of the Engineer, such conditions or artificial obstructions could not have been reasonably foreseen by an experienced contractor, then the Engineer shall certify, and the employer shall pay the additional costs to which the contractor shall have been put by reason of such conditions, including the proper and reasonable costs:

(a) ـ of comp complying with any instruction which the Engineer may issue to the contractor in connection therewith, and

(b) of any proper and rmale pps app by they the Engineer which the contractor may taay take inke in the absence of specific instructions from the Engineer,

I mu>I must cost concede that this clause has worried me. The fact remains however that I have before me two provisions both of which must be given meaning and both of which must stand unless there is an unresolvable conflict. I believe that there is no such conflict with the contingency provision on page 5 of Vol.2 of the Contract because Clause 12 deals with specific instances should they arise on the site. It is convenient to my mind that the contractor should be paid for extra expenditure which he has put to by the removal of unexpected obstructions which no reasonable contractor could have foreseen. The general contingency provision however is is there, and cannot be covering the same thing as Clause 12, for Clause 12 payments are only payable under certain conditions and circumstances whereas the 10% contingency part of the total contract sum is simply a blanket amount which is part of the mark-up of the contract and does not depend, as does Clause 12, on the actual existence of physical conditions or artificial obstructions.

I am satisfied that the plaintiffs have made out the legal basis for application of this 10% contingency claim. I uphold the submission.

The product of sub-total A and sub-total B in the tender document which was the subject of the letter of acceptance has been given the title “Contingencies” but I think it could well have been given any one of a number of names to cover that part of the contract which encourages the applicant to keep his tender cost down as low as possible but cover himself for reasonable human error in his judgment etc. by allowing the addition of 10% to the tender price. So if the contract tenders for 4,000 sq.m. of stone pitching, it is not necessarily a contingency that the Engineer decides that the amount of stone pitching should be increased to 10,000 sq.m. Of course it is a variation of the terms of the contract which must be performed in order for the job to be properly done. But just like the original tender price given for 4,000 sq.m. it must also be subject to the 10% contingency amount to give us the product of the tender price plus the 10% as appearing in the original tender document. Otherwise it would mean that 4,000 sq. m. was paid at the tender price, that the actual price plus 10% whereas the remaining 6,000 sq. m. would only be paid the tender price less 10%.

Of course the 10% contingency will not be paid on the tendered amount but on the actual amount received. The figure tendered was K4,381,195-88. I have said the amount received on Claims 1-20 was K3,468,414-70. From this should be deducted the sum of K10,025-99 being Variation Numbered 1-7 conceded by the plaintiff. Before I can proceed any further however it is necessary for me to determine what amounts, if any, I should allow on Claims 1-6. Once I arrive at such figure it may then be added to the product of monies received less variations (K3,458,414-70) in order to achieve a proper figure upon which to base the 10% calculation. It now remains to be seen therefore what should be done with these six claims.

The Court went on to consider these claims and arrived at certain conclusions. It then went on to consider the matter of interest and on the material presented to the Court arrived at an interest rates as follows:

Claim 1	K 81,250-00
Claim 2	3,500-00
Claim 3	33,684-00
Claim 4	-
Claim 5	14,280-00
Claim 6	20,514-00
TOTAL	K153,228-00

In order to arrive at the correct figure for the 10% contingency claim, I must add the sum of K153,228-00 to the varied amounts actually received. Thus:

Money received	K3,468,414-70
Less Variations 1-7	10,025-99
TOTAL	3,458,388-71
Plus total of Claims 1-6	153,228-00
TOTAL	K3,611,616-71

Claims 1-6	K 153,228-00
10% Contingency	361,161-67
TOTAL	K 514,389-67

Interest on K514,389-67 from 15th Jan. 1983
at 13% for 4 ½ months	K 25,0
at 12% for 6 months	30,863-40
at 11% for 21 months (1/9/85)	99,020-04
at 11% for 25 days (to 26/9/85)	3,875-50
TOTAL	K 158,835-46

I therefore order judgment for the plaintiff in the amount of K514,389-67 together with interest in the sum of K158,835-46 totalling K673,225-13 plus costs.

National Court of Papua New Guinea

Kubor Earthmoving (PNG) Pty Ltd v The State [1985] PGNC 2; N514 (26 September 1985)