Dillingham, the claimant, contracted with the New South Wales Government to deepen Newcastle harbour. When work began, the claimant did not attain the anticipated rate of progress because the blasting operations designed to break up the harbour floor were unsuccessful. Other methods of working had to be adopted with consequent delay and expense. There were disused coal mine workings under the harbour and the claimant concluded that these were the reason for the ineffectiveness of the blasting. The government had known of the workings all along.
The claimant sued the government claiming damages for breach of warranty and negligent misrepresentation inducing entry into the contract. With respect to the latter, they alleged that the New South Wales Government owed and was in breach of a duty to take reasonable care in providing details relevant to the condition of the work site, a duty which obliged the government to disclose the presence of the coal mine workings. Justice Hardie, in the New South Wales Supreme Court, found for the government in respect of both the contract and duty of care claims. In rejecting the contractor’s claim, Justice Hardie stated that a party who has contracted to carry out building work on or under land is duty bound to satisfy themselves of the nature and characteristics of the land both on the surface and below it.
This decision in retrospect seems quite a harsh decision but the general rule is that a contracting party is not subject to a duty of disclosure and that mere silence cannot amount to misrepresentation. Contrast this with the civil law requirements of “good faith” where such failure to disclose would more likely have been unacceptable.
Now some 50 years later and the standard construction contracts, such as the FIDIC Blue Book Form of Contract for Dredging and Reclamation Works (Second edition) and other contracts in the FIDIC suite, require that an employer shall have made available to the contractor for his information, prior to base date, all relevant data in the employer’s possession on sub-surface conditions at the site. The NEC contract goes further by including site information in the contract itself and referring to publicly available information or other information that an experienced contractor could reasonably have expected to have or obtain.
It is worth contrasting the decision in Dillingham with Morrison-Knudsen International Co Inc v Commonwealth. Morrison-Knudsen was an action by a contractor against the employer for negligence. The contractor claimed that basic information supplied by the employer at pretender stage “as to the soil and its contents at the site of the proposed work was false, inaccurate and misleading… the clays at the site, contrary to that information, contained large quantities of cobbles.”
It was decided that a factual misrepresentation made during pre-contractual negotiations by one party and relied on by the other may give rise to liability under the Misrepresentation Act 1967. In an appropriate case, such liability could attach to inaccurate information about ground conditions.
As Chief Justice Barwick stated: “The basic information in the site information document appears to have been the result of much highly technical effort on the part of [the employer]. It was information which the [contractors] had neither the time nor the opportunity to obtain for themselves. It might even be doubted whether they could be expected to obtain it by their own efforts as a potential or actual tenderer. But it was indispensable information if a judgment were to be formed as to the extent of the work to be done…”
So two cases on sub-surface conditions but with radically differing outcomes. In both these cases, it was all dependent on what was pleaded before the court. When comparing the present situation with 50 years ago, the good news is it is now standard practice to have a provision that all relevant data in the employer’s possession is given to the contractor.
However, in the past 20 years or more, the author has seen the rise of sinister “disclaimer” and “non-reliance” clauses, mostly in common law contracts where liability for the accuracy of any information provided is disowned by the employer. These disclaimer clauses are rarely tested in the courts and the results vary widely depending on the disclaimer wording.
Mid-1970s – UK cases
Later in the 1970s, there were two cases that followed: Bacal Construction (Midlands) Ltd v Northampton Development Corporation (1975) and Howard Marine and Dredging Co Ltd v A Ogden and Sons (Excavations) Ltd (1978).
In the former case, Bacal the contractor, had been provided with a soil survey when tendering. A letter from the quantity surveyor then required the soil conditions disclosed to be assumed by the contractor in relation to six foundation blocks it was required to design and price. No indication was given as to the presence of tufa, a spongy soft material, and the foundations had to be redesigned. The Court of Appeal agreed with the decision of the trial judge that the employer had warranted that the soil information was accurate.
The Bacal case does not sit easily with the idea that there is no implied warranty given by the employer in relation to tender information. Where the employer instructs the contractor to design and build on the basis that it must assume soil information is correct, an implied warranty by the employer has been found to exist. This is presumably why the employer’s legal advisors seek to include disclaimer clauses in the contract.
It highlights the distinction between an employer who says certain soil conditions are assumed and leaves it to the contractor to investigate the actual conditions, and an employer who requires the contractor to assume certain conditions when submitting a tender or producing a design. This remains an item of contention almost 50 years later as wording is often used that states the contractor at time of tender has to “investigate” the site when all that can be done is to “inspect” the site. Care should be taken when such investigation wording is used as the implications are potentially very significant.
Howard Marine and Dredging Co Ltd v A Ogden and Sons has become a landmark decision and is quoted in many legal textbooks and commentaries. Ogden Ltd wanted to hire some barges from Howard Marine in order to dispose of excavated clay at sea. Mr O’Loughlin, Howard Marine Ltd’s employee, told Mr Redpath, Ogden Ltd’s employee that their German built barges could carry 1600 tonnes (deadweight, rather than cubic capacity). This was based on the Lloyd’s Register for barges. Unfortunately, and highly unusually, the Lloyd’s Register was actually incorrect. The true capacity was not 1600 but 1055 tonnes. Mr O’Loughlin was aware that the German shipping documents stated the correct figure of 1055 tonnes. But he preferred the Lloyd’s Register. The charter party contract for the hire of the vessel stated Ogden Ltd’s acceptance of the barges confirmed they were in every way satisfied. When the barges proved to be insufficient for the task, Ogden Ltd refused to pay the full price. Howard Marine Ltd terminated the agreement and sought payment of all the outstanding payments.
Howard Marine Ltd stated they had reasonable grounds to believe their false statement, because the Lloyd’s Register was the “bible”. The Court of Appeal (Lord Denning MR, Bridge LJ and Shaw LJ) all held there was no breach of warranty, but decided by a majority that Howard Marine Ltd was liable for breach of duty under Misrepresentation Act 1967 s 2(1).
1980s – Australia and UK cases
The Westham Dredging Company Pty Ltd v Woodside Petroleum Development Pty Ltd (1983) is an interesting and unique case to Australia. It was brought under section 52 of the Trade Practices Act 1974 (Cth) which states that corporations are prohibited from engaging in “unconscionable” and “misleading or deceptive” conduct. This legislation is unique in that the statutory provisions are not limited to consumer transactions but extend to cover the pre-contractual and contractual relationships entered into between commercial parties themselves.
Westham, the claimant, argued that the site investigation was insufficient in that it did not fully describe the actual soil conditions so was misleading. Judge St John found that the Trade Practices Act was concerned with protecting consumers and that it was not possible to extend the operation of the Act to protect commercial interests. Provisions of the Act were to be read down by reference to the heading “Consumer Protection”. This decision in Westham was subsequently overruled by the Full Federal Court in Bevanere Pty Ltd v Lubidineuse on the basis that Judge St John’s views were inconsistent with the binding authority provided by the High Court in Hornsby.