The White Ant Co Pty Ltd v Robson

1. [1]

   MACFARLAN JA: I agree with Emmett AJA.

2. [2]

   GLEESON JA: I agree with Emmett AJA.

3. [3]

   EMMETT AJA: This appeal concerns the construction of a deed of agreement (the Deed) made between the appellant, The White Ant Co Pty Ltd (the Contractor), on the one hand, and the respondents, Mr Michael Robson and Mrs Judith Robson, on the other hand. Mr and Mrs Robson are described in the Deed as “the Homeowner” and it is convenient to refer to them in that way in these reasons. The Deed, which is not dated, was entered into by the Homeowner and the Contractor at some time after 10 February 2009 and became effective from 9 April 2009. The Deed related to termite infestation in a residence (the House) constructed by the Homeowner on a property at Woodburn, New South Wales (the Property). The Homeowner claimed that, under the Deed, the Contractor was liable to pay for the reasonable costs of the rectification of damage done to the House by termites.

4. [4]

   The Homeowner commenced proceedings against the Contractor in the District Court. After a trial in May and November 2013, on 22 December 2014 a judge of the District Court (the primary judge) directed the entry of judgment for the Homeowner against the Contractor in the sum of $56,492 and ordered the Contractor to pay the Homeowner’s costs of the proceedings. [1] The Contractor sought leave to appeal from the orders of the District Court and, on 22 May 2015, the Court granted leave to appeal, limited to two questions. On 12 June 2015, pursuant to the leave, the Contractor filed a notice of appeal relying on the following grounds:

   1. (1)

      The primary judge erred in drawing the inference that there was evidence of actual damage caused to the House by the ingress of termites; and

   2. (2)

      The primary judge erred in finding that the Contractor was liable to the Homeowner by reason of the Deed.

Background

1. [5]

   The House was built by Mr Robson, who is a licensed builder. Because the land on which the House was erected is flood-prone, it was necessary for the House to be built on a mound. A concrete slab was laid no later than August 2000 and a timber frame was erected on the concrete slab. The external cladding of the House is brick and the internal cladding is plasterboard.

2. [6]

   Because of its geographical location, the House needed to have protection from termites. Mr Robson therefore decided to install a “Termite Tite” termite barrier protection system (the System), which he had used a few times prior to building the House. Mr Terry Trapnell devised the System and incorporated Termite Tite Pty Ltd (Termite Tite) on 19 December 1996 for the purpose of marketing the System. Mr Trapnell was a director, secretary and shareholder of Termite Tite until 2002. The System was installed in the House by a contractor of Termite Tite on 2 August 2000.

3. [7]

   The Contractor was incorporated on 28 May 2002 and, in mid-2002, it acquired the intellectual property in the System from Termite Tite. Thus, it is unquestionable that the Contractor had nothing to do with the installation of the System in the House. Nevertheless, when termite infestation in the House was first discovered some time in 2006, the Contractor involved itself in what might be thought to have been a dispute between the Homeowner and Termite Tite. No doubt it did so in order to protect the reputation of the System. The Contractor accepted that it was liable under a warranty given by Termite Tite in respect of the System. However, while the Homeowner originally sued on that warranty, it was common ground that the warranty had subsequently been voided by conduct of the Homeowner.

4. [8]

   Following the discovery of termite infestation in the House in 2006, the Homeowner communicated with the Contractor. The Homeowner alleged that the damage was due to a breach in the System as a consequence of defective workmanship. In the period 2006 to 2009, the Contractor attended the House on a number of occasions and attempted to rectify the problem. Ultimately, the Contractor and the Homeowner engaged in a mediation that led them to enter into the Deed. The Deed, which was prepared by the solicitors then acting for the Homeowner, is not an instrument in respect of which the author should feel any pride. It exhibits careless and sloppy drafting. The precise language of the Deed is important and the relevant terms of the Deed, in so far as applicable to the present dispute, are set out in Appendix A to these reasons. In the course of these reasons, I shall refer to particular clauses as relevant.

5. [9]

   Recital C of the Deed records that, in the course of construction of the House, the Contractor was retained by the Homeowner to install the System. That recital is patently false, since the Contractor did not exist when the System was installed in the House. While Recital E records that the Homeowner alleged that damage to the House from termite infestation was the consequence of defective workmanship on the part of the Contractor, that assertion is also patently false, since the Contractor did not perform the installation of the System. Nevertheless, the Contractor was prepared to become involved in the question of whether any termite damage to the House was the consequence of defective workmanship on the part of Termite Tite.

6. [10]

   The relevant provisions of the Deed are cll 1, 2, 3, 4, 5 and 6 (first appearing). It will be necessary to consider in detail the language of those clauses. However, before doing so, it is necessary to say something about the claim made by the Homeowner in the District Court and the reasons of the primary judge for directing the entry of judgment against the Contractor.

Proceedings in the District Court

1. [11]

   In their further amended statement of claim (the Statement of Claim), which was filed on 21 May 2013, the second day of the hearing, the Homeowner made allegations that may be summarised as follows:

   1. (1)

      At all material times, the Homeowner was the registered proprietor of the Property;

   2. (2)

      […]

   3. (3)

      At all material times, the Contractor conducted the business of, inter alia, installing termite protection systems in residential dwellings;

   4. (4)

      In 2000, the Homeowner and Termite Tite entered into an agreement for Termite Tite to install a termite protection system in a house to be constructed by the Homeowner on the Property (the installation agreement);

   5. (5)

      On about 2 August 2000, and pursuant to the installation agreement, Termite Tite installed the System in the House as it was being constructed;

   6. (6)

      Subsequent to 2 August 2000, the Contractor assumed liability for the work performed by Termite Tite pursuant to the installation agreement;

   7. (7)

      In the period 2006-2009, the Homeowner advised the Contractor of various entries of termites into the House and the Contractor attended the Property and attempted to rectify the problem;

   8. (8)

      […]

   9. (9)

      On or about 10 February 2009, the Homeowner and the Contractor entered into the Deed for the further conduct of the treatment of the termite infestations in the House;

   10. (10)

       By reason of Recital C, it was a term of the Deed that the Contractor assumed liability for the installation of the System by Termite Tite;

   11. (11)

       (10A) It was an implied term of “the contract referred to in Recital C of the Deed” that the work would be done with due care and in a workmanlike manner;

   12. (12)

       By reason of cl 1, it was a term of the Deed that the Contractor would, within 28 days of the execution of the Deed, perform all necessary works to restrain and minimise any further termite activity in the House (the Necessary Works Term);

   13. (13)

       By reason of cl 1, it was also a term of the Deed that the Contractor would undertake an investigation to determine whether the termite infestation in the House was due to a breach of the System (the Investigation Term);

   14. (14)

       By reason of cl 6, it was a term of the Deed that, if the termite infestation in the House was caused by any negligent work or breach of the contract referred to in Recital C, the Contractor would be liable to pay to the Homeowner the reasonable cost of rectification of the House (the Liability Term);

   15. (15)

       By reason of cl 3, it was a term of the Deed that any investigation or work performed by the Contractor pursuant to the Deed would be performed in conjunction with the Homeowner’s expert, Mr John Elder, so as to allow Elders Pest Control Pty Ltd (Elders) to report independently to the Homeowner;

   16. (16)

       On or about 28 October 2009, the Contractor conducted an investigation of the House and determined that the infestation of the House was due to a breach of the System;

   17. (17)

       Following the investigation on 28 October 2009, the Contractor failed to conduct any further investigations or further works in accordance with the Deed;

   18. (18)

       The Contractor breached the Necessary Works Term in that the Contractor failed to perform any “further works” on the dwelling within 28 days of the execution of the Deed, or at all;

   19. (19)

       The Contractor breached the Investigation Term in that, apart from the investigation on 28 October 2009, the Contractor failed to perform any further investigations to determine whether the cause of the infestation was a breach of the System;

   20. (20)

       The Contractor breached the Liability Term in that it has refused to acknowledge that it is liable for the reasonable costs of rectification of the House;

   21. (21)

       The breach of the Necessary Works Term, the Investigation Term and the Liability Term have caused the Homeowner to suffer loss and damage in that, if the Contractor had properly investigated the infestations, it would have been determined that the infestations were caused by a breach of the System and the Contractor would be liable for that breach pursuant to cl 6 of the Deed;

   22. (22)

       Alternatively, and pursuant to the Liability Term, the installation work was performed negligently and in breach of contract, in that there was a failure to ensure that the joins in the System were completely covered and bonded by sufficient adhesive, and the Contractor was liable to pay the Homeowner’s reasonable costs of rectifying the House in the sum of $104,547.

2. [12]

   It is significant that in paragraphs 4 and 5 of the Statement of Claim (and contrary to Recital C of the Deed), the Homeowner alleged that the agreement to install the System was made with Termite Tite and that Termite Tite installed the System in the House. Thus, the Homeowner did not allege in the Statement of Claim that the work of installation of the System was actually carried out by the Contractor.

3. [13]

   Further, there is a tension between the allegations made in paragraphs 6 and 10 of the Statement of Claim. The first paragraph alleges that the Contractor assumed liability for the work performed by Termite Tite. It is not clear whether that assumption is different from the assumption alleged in paragraph 10, which asserts that the Contractor assumed liability for the installation by reason of Recital C of the Deed. There was in fact no evidence of any formal assumption of liability on the part of the Contractor, although it was common ground that the Contractor assumed liability for a warranty given by Termite Tite in respect of its work and attended at the House in order to rectify the termite problem. The claim under the warranty, however, was abandoned.

4. [14]

   In its defence to the Statement of Claim (the Defence), the Contractor took the following stance, as presently relevant:

   1. (1)

      […]

   2. (2)

      In relation to the allegations made in paragraph 3 of the Statement of Claim, the Contractor denied that it conducted the business of installing termite protection systems in residential dwellings;

   3. (3)

      […]

   4. (4)

      In relation to the allegations made in paragraph 6 of the Statement of Claim, the Contractor denied that it had assumed liability for the work performed by Termite Tite under the installation agreement;

   5. (5)

      […]

   6. (6)

      In relation to the allegations made in paragraph 10 of the Statement of Claim, the Contractor denied that it was a term of the Deed that it assumed liability for the installation of the System by Termite Tite;

   7. (7)

      […]

   8. (8)

      In relation to the allegations made in paragraph 10A of the Statement of Claim, the Contractor:

   9. (9)

      […]

   10. (10)

       In relation to the allegations made in paragraph 15 of the Statement of Claim, the Contractor:

   11. (11)

       In relation to the allegations made in paragraph 16 of the Statement of Claim, the Contractor did not fail to conduct any further investigations or further works in accordance with the Deed;

   12. (12)

       In relation to the allegations made in paragraph 17 of the Statement of Claim, the Contractor did not breach the Necessary Works Term in the manner pleaded;

   13. (13)

       In relation to the allegations made in paragraph 18 of the Statement of Claim, the Contractor did not breach the Investigation Term in the manner pleaded;

   14. (14)

       In relation to the allegations made in paragraph 19 of the Statement of Claim, the Contractor did not breach the Liability Term in the manner pleaded as it is not liable for the reasonable costs of rectification;

   15. (15)

       In relation to the allegations made in paragraph 20 of the Statement of Claim, the Contractor denied that the infestations were caused by a breach of the System and therefore the Contractor had not breached the Necessary Works Term, the Investigation Term or the Liability Term;

   16. (16)

       In relation to the allegations made in paragraph 21 of the Statement of Claim, the Contractor said:

5. [15]

   In their reply to the Defence, the Homeowner alleged that the Contractor was estopped from now asserting that it had not assumed liability for the work of Termite Tite pursuant to the installation agreement. They also alleged that it would be unconscionable for the Contractor to deny that it had assumed liability for the work of Termite Tite pursuant to the installation agreement and that the Contractor was therefore estopped from so denying.

6. [16]

   Having recounted the circumstances that led to the execution of the Deed, the primary judge dealt with its provisions. His Honour observed that cl 1 required the Contractor to undertake, within 28 days, all investigations to determine conclusively whether or not the termite infestation in the House was due to a breach of the System, that cl 2 required the Homeowner to co-operate and that cl 3 required the Contractor to liaise with Mr Elder. [2] His Honour then posed the question as to what happened after the Deed became operative and answered his own question: “very little”. [3]

7. [17]

   On 3 September 2009, Mr Mark Flynn, the solicitor who was acting for the Homeowner, wrote to the Contractor. Although the letter was not in evidence, it is likely that it proposed a meeting between the Homeowner and the Contractor. Mr Flynn wrote to the Contractor again on 15 October 2009, noting that the Contractor had failed to attend an inspection of the House scheduled for 30 September 2009. Eventually a meeting between Mr Elder, Mrs Robson and Mr Anthony Di Betta of the Contractor took place at the House on 28 October 2009. In his report, Mr Elder recorded that the purpose of the meeting was to carry out invasive work to the external perimeter of the House to determine the location of termite ingress and whether the barrier installed had impeded termite entry as it was designed to do. His Honour found that, at the meeting on 28 October 2009, Mr Di Betta undertook to do certain things, but did nothing until 15 April 2010. [4]

8. [18]

   On 15 April 2010, Mr Di Betta sent an email to Mr Ron Jeffrey, a licensee of the Contractor. That appears to have prompted a visit to the House on 27 April 2010 by Mr Ken Bodycote, from Mr Jeffrey’s business. However, as Mr Elder was not present, Mr and Mrs Robson refused permission for Mr Bodycote to carry out any work at the House.

9. [19]

   His Honour observed that inertia on the part of the Contractor was compounded by the tardiness of Mr Flynn, and Mr Robson accepted that the Contractor had trouble in dealing with Mr Flynn. However, while his Honour considered that the delay from 27 April 2010 until the commencement of proceedings on 29 March 2011 was wholly explicable by Mr Flynn’s inaction, Mr Flynn’s conduct did not explain all the delay or inertia from the time of execution of the Deed. The Contractor adduced no evidence as to what it did to fulfil its obligation under cl 1 of the Deed between 9 April 2009, when the Deed became operative, and 28 October 2009. His Honour concluded that the inaction between 28 October 2009 and 15 April 2010 must be laid squarely at the feet of the Contractor. His Honour therefore found that the Contractor breached its obligation under cl 1 and held that the delay was so inordinate as to be wholly unreasonable. [5]

10. [20]

    The primary judge found that there were four points of termite ingress into the House, which were identified as sites (i), (ii), (iii) and (iv). [6] His Honour held that responsibility for the termite entry at site (i) entry clearly fell on the Homeowner but found that termites had gained concealed access to the House, at sites (ii), (iii) and (iv), by penetrating the termite barrier through incompletely sealed lapped joints. [7] His Honour found that the lapped joints should have been sealed and that the installation work was done negligently. [8]

11. [21]

    The primary judge found that the Contractor did not design, manufacture, supply or install the System at the House. [9] Accordingly, his Honour concluded that the Homeowner’s only recourse against the Contractor was pursuant to the Deed. His Honour observed that the Deed recorded the agreement reached at the mediation on 10 February 2009, when it was clear that the parties wished to have their “simple agreement” reduced to writing. His Honour found that Recital C was erroneous. However, his Honour found that there was no ambiguity in Recital C and that it clearly stated that the Contractor had been retained by the Homeowner to install the System. [10] His Honour concluded that the Deed recorded what the Contractor agreed to do and that rectification of the Deed was not available to it. [11] His Honour therefore held that the Contractor was estopped by Recital C from denying that it was the installer of the System in the House. [12]

12. [22]

    The primary judge then referred to the admission in the Defence that it was an implied term of the installation contract between Termite Tite and the Homeowner that the installation of the System would be “done with due care and in a workmanlike manner”. His Honour then posed alternative questions as to whether the installation of the System was done with due care and in a workmanlike manner or whether the installation was done negligently and held that there was no distinction between those two tests. His Honour observed that he had found that damage by the ingress of termites at sites (ii), (iii) and (iv) was caused by termites passing through lapped joints that had not been sealed along the whole length of each joint. His Honour observed that the lapped joints should have been sealed along their entire length and that the installation work was done negligently. [13]

13. [23]

    The primary judge then addressed the matters alleged by the Contractor in paragraph 19 of the Defence in response to paragraph 21 of the Statement of Claim. His Honour rejected those allegations and concluded that “[a]ccordingly, there is no valid defence to the [Homeowner’s] claim and they are entitled to succeed” against the Contractor. However, his Honour did not identify “the [Homeowner’s] claim” that he considered should succeed. I shall return to that matter below.

14. [24]

    The primary judge then dealt with the allegations in the Statement of Claim concerning breach of the Necessary Works Term. His Honour observed that termite activity had ceased in late April 2008 and that, since the Deed operated from 9 April 2009, it was not necessary for the Contractor to do anything to “restrain and minimise any further termite activity”. Accordingly, his Honour found that there was no breach of the Necessary Works Term in cl 1, to commence all such necessary works to restrain and minimise any further termite activity. [14] There was no notice of contention in relation to that finding.

15. [25]

    The primary judge then turned to the allegations in the Statement of Claim concerning breach of the Investigation Term in cl 1. His Honour observed that he had already found that the Contractor breached the Investigation Term, to undertake all such investigations to determine conclusively whether or not the termite infestation in the House was due to a breach of the System. However, his Honour then observed that it was hard to see “any direct damage” flowing to the Homeowner as a result of the breach of the Investigation Term other than, perhaps, the attendance of Mr Elder at the House on 28 October 2009 and some work done by Mr Flynn prior to commencement of the proceedings in the District Court. His Honour observed that those two heads of potential damage were never quantified. [15] There was no notice of contention in relation to that observation.

16. [26]

    His Honour then observed that, while the Statement of Claim relied on cl 6 of the Deed, counsel for the Homeowner did not press any breach of cl 6 since “it was not enlivened because of the [Contractor’s] breach of the Investigation Term”. [16] His Honour had just referred to a written submission by counsel for the Homeowner in the following terms:

17. [27]

    That concession was properly made. I have already referred to the meeting on 28 October 2009, when Mr Di Betta attended at the House. In his evidence before the primary judge, Mr Di Betta said that, when he attended the House with Mr Elder on 28 October 2009, it was in furtherance of cl 1 of the Deed. He said that, by the time he sent the email of 15 April 2010, he had formed a view as to relative responsibility for termite infestation at the House. The view that he formed was that the majority of the infestation had “no level of responsibility back to us and there was a question over that point that was very difficult to come out to a clear conclusion”. (Mr Di Betta did not prepare a written report.) Thus, the basis for liability under cl 6 of the Deed was not established.

18. [28]

    The primary judge found that there was no quantified loss from any breach of cl 1. Further, as I have said, his Honour found that the Homeowner had abandoned any reliance on cl 6 of the Deed. It is therefore clear that his Honour concluded that the Contractor was liable to the Homeowner because the work of installation of the System had been carried out negligently by Termite Tite and the Contractor was estopped from denying that it had carried out the work. That is to say, his Honour’s conclusion that the Contractor was liable was not based on any of the operative provisions of the Deed. Rather, it was based on estoppels binding the Contractor as a consequence of entering into the Deed.

The Appeal

1. [29]

   The basis for his Honour’s conclusion is not supported by the Statement of Claim. Paragraph 5 of the Statement of Claim asserts that Termite Tite installed the System pursuant to the installation agreement, paragraph 10A asserts that it was an implied term of the installation agreement that the work would be done with due care and in a workmanlike manner and paragraph 6 asserts that the Contractor assumed liability for the work performed by Termite Tite on a date not known to the Homeowner. However, there was no finding, and no evidence upon which a finding could be based, that the Contractor assumed liability for the work performed by Termite Tite, other than under the terms of the Deed. That is of course to be distinguished from the inferential finding (at [8]) that the Contractor acquired the intellectual property in the System in 2002, and from the Contractor’s admission in paragraph 21 of the Defence that it assumed the obligations of Termite Tite under the warranty. Since the Homeowner’s claim under the warranty was ultimately abandoned, however, that admission goes nowhere.

2. [30]

   More importantly, the Statement of Claim does not allege that the Contractor was directly liable for breach of an implied term of the installation agreement that the work would be done with due care and in a workmanlike manner alleged in paragraph 10A. The only relevance of the allegation in paragraph 10A appears to be to support the contention that there was a breach by Termite Tite of a contractual obligation owed by it to the Homeowner. Such a breach was contemplated by cl 6, as well as cl 4 and cl 5, of the Deed.

3. [31]

   A similar allegation can be found in paragraph 21 of the Statement of Claim, which said that, “pursuant to the Liability Term of [the Deed], the installation work was performed negligently and in breach of contract”. The words “negligently and in breach of contract” are consistent with the words used in cl 6. In the Homeowner’s outline of submissions handed up on the last day of the proceedings before the primary judge, the following is stated under the heading “Breach of the Installation Contract”:

4. [32]

   However, the assertion in paragraph 9 of those submissions is not consistent either with the wording of paragraph 21 of the Statement of Claim or with the manner in which that paragraph was described when the Statement of Claim was sought to be filed in court. Counsel for the Homeowner made the following comments before the primary judge:

5. [33]

   Before this Court, counsel for the Contractor contended that the trial before the primary judge proceeded on the basis that paragraph 20 only alleged damages arising from breach of the Necessary Works Term, the Investigation Term and the Liability Term, and that paragraph 21 pleaded liability pursuant only to the Liability Term. [18] That is to say, paragraph 21 did not plead that the Contractor was liable in negligence or breach of contract on some basis other than the terms of the Deed. That contention was not disputed by counsel for the Homeowner. The conclusion, therefore, must be that the trial was conducted on the basis that there was no allegation that the Contractor had breached an implied term of the installation agreement.

6. [34]

   Further, the primary judge erred in concluding that the Contractor was liable in negligence or for breach of contract, on the basis that it was estopped from denying that it had installed the System in the House pursuant to the installation agreement. An allegation on that basis was not made in the Statement of Claim, though it was made in the Homeowner’s reply in response to an allegation in the Defence that Recital C was wrong. More importantly, since (as I have concluded) there was no separate pleaded claim based on a breach of the installation contract, a finding that the Contractor was estopped from denying that it had installed the System pursuant to the installation agreement is of little consequence. Certainly, the primary judge did not explain the effect of the estoppel that his Honour found.

7. [35]

   The only allegations in the Statement of Claim of breach by the Contractor are allegations of breaches of identified terms of the Deed. Thus, paragraph 17 alleges breach of the Necessary Works Term, which is contained in cl 1, paragraph 18 alleges breach of the Investigation Term, which is also contained in cl 1 and paragraph 19 alleges breach of the Liability Term, which is contained in cl 6. The allegations of damage in paragraph 20 are based only on breach of the Necessary Works Term, the Investigation Term, and the Liability Term. The allegations of damage in paragraph 21 are based only on breach of the Liability Term.

8. [36]

   It was not contended in written submissions made to the primary judge on behalf of the Homeowner, which are relevantly set out in Appendix B to these reasons, that the Contractor was liable on the basis that it had assumed responsibility for the work of Termite Tite, otherwise than under the terms of the Deed (save for the contention in paragraph 9 of those submissions, which I have dealt with above). There was no notice of contention on behalf of the Homeowner to the effect that the primary judge erred in concluding that there was no breach of the Necessary Works Term and that no quantified damage flowed from any breach of the Investigation Term. Further, there was no notice of contention filed on behalf of the Homeowner to the effect that the reason why cl 6 was not operative was a breach of the Investigation Term. Nevertheless, that argument was advanced on behalf of the Homeowner, without objection from the Contractor. However, for the reasons that follow, there is no substance in the contention.

9. [37]

   The critical clauses for the resolution of this appeal are cl 1 and cl 6 and (to a lesser extent) cl 3, all of which I reproduce here:

10. [38]

    First, in relation to the Investigation Term, the primary judge found that “all such investigations” as contemplated in cl 1 were not undertaken within 28 days from the date of the Deed. [19] His Honour did not find that no such investigations were undertaken, only that they were not undertaken within the specified time frame.

11. [39]

    However, whether or not the Contractor undertook relevant investigations within 28 days from the date of the Deed is, in a sense, irrelevant. There was no requirement under cl 1 for a conclusive determination to be made within 28 days, and the primary judge acknowledged that. [20] On one view, it may be that the time limit of 28 days applied only to the works necessary to restrain and minimise any further termite activity and not to the investigations, although that construction was not advanced by the parties. Whether or not the investigations were required to be undertaken within 28 days, it is clear that Mr Di Betta did not determine conclusively, following his inspection on 28 October 2009, that the termite infestation was due to a breach of the System. It was not suggested that the view that he formed (that is, that the Contractor was not responsible for the infestation) was untenable or was reached or arrived at unreasonably or in bad faith.

12. [40]

    The next issue is the effect of cl 3, and in particular the effect of a finding by Elders that is contrary to the determination made by the Contractor pursuant to cl 1. Mr Elder’s evidence was to the effect that the termite infestation in the House was in fact due to a breach of the System. On one view, all that cl 3 required the Contractor to do was to liaise with Elders, but that, given the inclusion of the word “conclusively” in cl 1, any determination by the Contractor (made reasonably and in good faith) would be conclusive notwithstanding that it might be disagreed with by Elders. On another view, if the independent report of Elders contended that the Contractor’s determination was inaccurate, then that determination could not thereby be conclusive. It is not necessary to resolve that question, because it is clear that, on either view, the Contractor did not determine conclusively that the termite infestation was due to a breach of the System.

13. [41]

    That leads to the third (and critical) disagreement of construction, being in relation to cl 6. The significance of the fact that the Contractor did not make such a conclusive determination pursuant to cl 1 is that cl 6 is not enlivened. When cl 6 refers to termite infestation being “found to be due” to negligence or breach, the reference must be understood as being to the conclusive determination referred to in cl 1. Similarly, the “finding” of the Contractor referred to in cl 3 must also be understood as a reference to the conclusive determination referred to in cl 1. There is no reference in the Deed to such a “finding” made by anyone else, so that the omission of words such as “of the contractor” in cl 6 after the word “found” cannot lead to the conclusion that the word “found” takes on a wider meaning. That is particularly so where the document being construed displays little linguistic precision. (For that same reason, it is unlikely that anything turns on the distinction between a finding that the termite infestation “is due to a breach of [the System]” in cl 1 and a finding that it “is due to any negligent work or breach of contract” in cl 6. In any event, neither party sought to place any significance on that distinction.)

14. [42]

    On the appeal, senior counsel for the Homeowner contended that, in some way, the Contractor was relying on its own breach of the Investigation Term as a basis for avoiding liability under cl 6. However, that contention must be rejected in circumstances where there was no finding that, had the relevant investigations been carried out within the time limit specified by cl 1, it would have been conclusively determined that the termite infestation was due to a breach of the System.

15. [43]

    Whether or not there was a breach of the Investigation Term under cl 1, no loss flowed from any such a breach. There was nothing to suggest that, if the investigations had been undertaken within 28 days, Mr Di Betta, or anybody else acting for the Contractor, would have come to a different conclusion from that reached by Mr Di Betta, who concluded that the infestation had “no level of responsibility back to us and there was a question over that point that was very difficult to come out to a clear conclusion”. That is to say, Mr Di Betta, acting for the Contractor, did not determine conclusively that the termite infestation was due to breach of the System. That being so, there was simply no basis for the operation of cl 6 of the Deed or any basis for imposing liability under the Deed on the Contractor.

16. [44]

    As I have said, the phrase “found to be due” in cl 6 must be understood as referring to the conclusive determination outlined in cl 1. Before the primary judge, the Homeowner’s written submissions included the following two paragraphs:

17. [45]

    However, on appeal, the Homeowner advanced an alternative construction of cl 6. It was contended that cl 6 should be construed as providing that, if the Contractor failed to perform its obligations under the Investigation Term in cl 1, and it was demonstrated by appropriate evidence that the termite infestation was due to negligent work or breach of contract, then cl 6 would be triggered. There are two obstacles in the way of such a construction in the present circumstances.

18. [46]

    The first obstacle is that that construction is quite inconsistent with the express language of cl 1 and cl 3 of the Deed. Clause 1 required the Contractor to undertake investigations to determine conclusively whether or not the termite infestation was due to a breach of the System and cl 3 required the Contractor to liaise with Elders to enable the latter to report independently and determine, for the benefit of the Homeowner, the accuracy or otherwise of a finding made by the Contractor. As I have said, it is clear that the determination referred to in cl 1 is the determination of the Contractor: when cl 6 refers to the possibility that the termite infestation “is found to be due to negligent work or breach of contract”, it refers to the conclusive determination referred to in cl 1 and the finding referred in cl 3. The use of the same language in those three clauses points to a conclusion that the “finding” referred to in each case is the same.

19. [47]

    The second obstacle is that that construction would render the rest of the Deed quite otiose. That is to say, it would allow the Homeowner to commence court proceedings alleging negligence and breach of contract on the part of the Contractor without regard to any other clause of the Deed. Indeed, because the Homeowner’s alternative construction depends on the breadth of the word “found” in cl 6 (that is, interpreted to mean “found by anyone, including a court”), it would have the result that, even if the Contractor did comply with cl 1, but reached a conclusive determination that the termite infestation was not due to a breach of the System, then the Homeowner could still commence proceedings against it. That would seem to be inconsistent with the object of the Deed, which was to set up a regime under which the Contractor (which was not otherwise liable to the Homeowner, except, initially, under the warranty) agreed to assist the Homeowner in determining the cause of the termite infestation and then to rectify it in certain circumstances.

20. [48]

    However, counsel for the Homeowner later clarified that it was not submitted that, on their alternative construction, the Homeowner could rely on cl 6 if there had been a conclusive determination pursuant to cl 1 that was unfavourable to the Homeowner. That limitation does not sit well with the broad reading advanced of the words “found to be due” in cl 6, though it would be consistent with the fact that the Contractor’s determination in cl 1 was to be made “conclusively”.

21. [49]

    In any event, there are sound commercial reasons for concluding that the question of liability of the Contractor under the Deed was dependent upon the Contractor’s itself determining whether the termite infestation in the House was due to a breach of the System. The Contractor had not installed the System in the House. On the other hand, it had a good commercial reason for protecting the reputation and goodwill of the System. Nevertheless, there was no reason why it would accept responsibility for any defect or deficiency unless it were satisfied, itself, that there was negligence or breach of contract on the part of Termite Tite. Clause 3 was to afford the Homeowner some comfort in relation to any determination made by the Contractor, in that Elders was to report on and determine the accuracy of any finding made by the Contractor.

22. [50]

    Nevertheless, while liability under cl 6 depended upon a conclusive determination by the Contractor, doubtless any determination was required to be made rationally and in good faith. As I have said, the evidence of Mr Di Betta, which does not appear to have been challenged, was that he formed the view, perhaps albeit erroneously, that the termite infestation was not due to a breach of the System. There was no suggestion that Mr Di Betta’s view was untenable.

23. [51]

    The fourth area of disagreement relates to the second part of cl 6. There can be no suggestion that any “independent building consultant” was briefed for the purposes of that clause and retained to report at the expense of the Contractor. A report dated 26 June 2012 by Mr David Oke of Northern Rivers Building Consulting Services Pty Ltd was admitted into evidence over the objection of the Contractor. Clearly, the report was commissioned for the purpose of the litigation. It has not been suggested that the Homeowner briefed Mr Oke as a building consultant or retained him to report for the purposes of cl 6. Further, there was no suggestion that the Homeowner made any request to the Contractor to brief a building consultant or retain a building consultant to report for the purposes of cl 6. That is consistent with the concession made in written submissions by counsel for the Homeowner to the primary judge that cl 6 was simply not operative.

24. [52]

    There is a question whether the words “as determined by an independent building consultant” qualify both “all reasonabl[e] indemnities” and “all reasonable cost[s] of rectification”, or only the latter of those two concepts. Although the language of that part of cl 6 is ambiguous, it would be curious if the indemnity were to be effectively at large while the costs of rectification were required to be quantified by an independent building consultant. However, it is not necessary to resolve that issue, given my earlier conclusion that cl 6 was not enlivened.

25. [53]

    Thus, the scheme and effect of the Deed appear to me to be as follows:

    1. (1)

       The Contractor must, no later than 28 days from the date of the Deed:

    2. (2)

       The Homeowner is to provide all such consents and all such assistance to facilitate the works referred to above in point (1)(a) to be performed;

    3. (3)

       The Contractor will liaise with Elders who will independently report and determine, for the benefit of the Homeowner, the accuracy or otherwise of the finding by the Contractor following the investigations referred to in point (1)(b);

    4. (4)

       If the termite infestation is due to a cause not referable to any negligence on the part of Termite Tite or any breach of any contractual obligation due by Termite Tite to the Homeowner, then:

    5. (5)

       If, following the investigation referred to in point (1)(b), the termite infestation is, after liaising with Elders, conclusively determined by the Contractor to be due to any negligent work or breach of contract on the part of Termite Tite, the Contractor will:

Revocation of Leave

1. [54]

   Leave was originally granted to the Contractor to appeal on two grounds. The first ground was that the primary judge erred in drawing an inference that there was evidence of actual damage to the House caused by the ingress of termites. The general basis on which leave was granted to agitate that question was that the primary judge reached his conclusion as to the quantum of damages by reference to Mr Oke’s report of 26 June 2012. While the Contractor objected to the tender of that report, and it was admitted over the Contractor’s objection, there were no objections to specific parts of the report.

2. [55]

   The essence of the ground intended to be raised by the Contractor was that the Homeowner did not lead any evidence as to actual damage and the primary judge made no finding as to actual damage caused by the termite infestation. In his report, Mr Oke recorded that the Homeowner had cut openings into the plasterboard wall linings at specified locations in the House and that evidence of past termite activity, comprising damage to wall timbers, was observed at all but one of those locations. Mr Oke prepared a plan indicating the known locations of termite activity and areas of the House considered to require rectification of termite damage. He then expressed the opinion that the extent of damage to the House could only be determined by removal of the wall linings from one side of each wall to the areas where past termite activity had been detected. He also expressed the opinion that a number of walls of the House would need to be demolished and reconstructed and described the rectification work that would be required. The essence of the Contractor’s complaint is that Mr Oke did not identify specific parts of the House that had actually been damaged by termites. Mr Oke simply prepared an estimate of the costs that would be incurred in carrying out the work that he described.

3. [56]

   In his reasons, the primary judge referred to the allegation in the Statement of Claim that the reasonable costs of rectification of the House amounted to $104,547, [21] on the basis of Mr Oke’s report. That figure was adjusted by the subtraction of a sum of $17,461 in respect of damage to site (i), for which his Honour found the Homeowner to be responsible. Thus, the claim at trial was for $87,086. The primary judge considered that it was appropriate to accept the work proposed by Mr Oke, but to apply a discount for vicissitudes that some of the work proposed would not be required, although it would be necessary to remove walls and, if no damage be found, to replace them. Having made some adjustments, his Honour arrived at a figure of $56,492.

4. [57]

   After hearing counsel for the Contractor on the first ground, the Court concluded that, whether or not there may be some basis for the Contractor’s complaints, no injustice would flow from the manner by which the primary judge assessed the quantum of damages, on the assumption that liability of the Contractor to the Homeowner was confirmed. The Court therefore revoked the grant of leave to appeal in so far as it related to the quantification of damages.

Conclusion

1. [58]

   It follows from the above that the appeal should be allowed. The orders of the District Court should be set aside. In lieu thereof, there should be an order that the proceedings brought by the Homeowner against the Contractor be dismissed with costs.

2. [59]

   The Contractor filed a cross-claim against the Homeowner seeking reimbursement of costs pursuant to cl 4 and cl 5 of the Deed. The primary judge dismissed that cross-claim with costs. In its notice of appeal of 12 June 2015, the Contractor sought an order that, in lieu of the judgment of the District Court, the Homeowner’s claim be dismissed and judgment be entered for the Contractor. It also sought an order that the Homeowner pay the Contractor’s costs of the Homeowner’s claim and of the cross-claim. The Contractor did not seek an order in this Court for reimbursement of costs under cl 4 or cl 5 of the Deed. In the circumstances, it is appropriate that the dismissal of the cross-claim stand and that there be no order as to the costs of the cross-claim.

3. [60]

   I therefore propose the following orders:

   1. (1)

      Revoke leave to appeal insofar as the appeal relates to the quantification of damages;

   2. (2)

      The appeal be allowed;

   3. (3)

      The orders of the District Court on 22 December 2014 be set aside;

   4. (4)

      In lieu of the orders made by the District Court, the following orders be made: