Forestry Commission (NSW) v Stefanetto

133 CLR 507
8 ALR 297

---

(Judgment by: Jacobs J)

Between: Forestry Commission (NSW)
And: Stefanetto

Court:

Judges: Barwick CJ
Mason J

Jacobs J

Subject References:
Contract

Hearing date: 17 November 1975
Judgment date: 19 February 1976

Sydney

---

Judgment by:
Jacobs J

I agree with the conclusion of Needham J. that the reference in cl. 43.3 to "any materials, constructional plant and other things on or about the site which are owned by the contractor" is a reference to such things when owned by the contractor "in a legal sense", by which I understand him to mean owned at law. Chattels held under lease or hire, including hire purchase, are not so owned.

The second question, as Needham J. observed, is of greater difficulty. Clause 43.3 provides:

"43.3. ENGAGEMENT OF OTHERS.

If the Principal elects to exercise the power conferred on him by sub-paragraph (a) of the third paragraph of sub-cl. 43.1 he may complete the whole or any part of the work remaining to be completed and for that purpose may let a contract or contracts for the work remaining to be completed or, as the case may be, for any part of that work or may employ any person or persons other than the Contractor to carry out that work or, as the case may be, the part of that work. The Principal may take possession of and permit other persons to use any materials, Constructional Plant and other things on or about the site which are owned by the Contractor and as are requisite and necessary for the purposes of any such contract or any such employment. The Contractor shall have no right to any compensation or allowance for any action taken by the Principal pursuant to this subclause, other than a right to require the Principal to maintain in good working order the Constructional Plant referred to in the preceding paragraph. On completion of the work all Constructional Plant and the surplus of the materials and other things so taken possession of will be handed over to the Contractor, but without payment or allowances for the fair wear and tear they may have sustained in the meantime PROVIDED HOWEVER, that if there is a deficiency as referred to in sub-cl. 43.4 and if the Contractor fails to make good that deficiency, the Principal may retain in his possession the said Constructional Plant, materials and other things until the deficiency is made good pursuant to the provisions of sub-cl. 43.4."

What is claimed is that the provision that the appellant "may take possession of and permit other persons to use any materials, constructional plant and other things on or about the site which are owned by the contractor and as are requisite and necessary..." constitutes a penalty and as such is void. It appears to me that this provision is not in itself a provision for any penalty. There could be no objection to such a contractual provision for use of the plant and materials provided compensation or allowance were made: cf. Ranger v. Great Western Railway Co. (1854) 5 HLC 72 (10 ER 824). It is the immediately following provision that the respondent should have no right to any compensation or allowance for any action taken by the appellant pursuant to the earlier provision which may create a situation where equity would relieve against such a forfeiture of the right to ownership of materials and to possession of the plant without compensation or allowance.

The primary argument on behalf of the appellant is that no question either of penalty or relief against forfeiture arises because on the true construction of the contract the respondent is entitled, as the appellant has exercised the power to take over the work pursuant to cl. 43.1(a) rather than to cancel pursuant to cl. 43.1(b), to receive the whole of the contract price when the works have been completed by or on behalf of the appellant. Included in that contract price, it is claimed, will be compensation for the use of the respondent's plant because if he had completed the work he would have used the plant and his compensation for that use would have been part of the contract price. I cannot accept this argument. The contract no doubt remains on foot so far as rights are thereby conferred upon the appellant, but it does not follow that the respondent, who is admittedly in breach of contract, is entitled to payment or credit thereunder for work not executed by him. The completion of the works by the appellant was not a contractual substitution of a different mode of performance thereof by the respondent. The argument is not consistent with cl. 41 whereby payment to the respondent was to be made against certificates and the latter were to be certificates of work "carried out in performance of the contract" (cl. 41.1) and "executed by the contractor" (cl. 41.6). The final certificate under cl. 41.8 is only to be issued "when all work under the contract has been finally and satisfactorily executed and the contractor has fulfilled all his other obligations under the contract".

On a not dissimilar contract the same argument was presented in Simpson v. Trim Town Commissioners (1898) 32 Ir LT 129. FitzGibbon L.J. in delivering the judgment of the Court of Appeal in Ireland said that the argument had been presented "with such marked ability that we almost regret to be obliged to pronounce it fallacious". With much the same regret I reach the same conclusion on the present contract. The words of FitzGibbon L.J. are applicable to this contract:

"The contractor having broken his contract, was out of it altogether, except as regards what was or might be due under interim certificates and his liability for delay, and what might be due if the work was completed" (1898) 32 Ir LT, at p 130.

So there is no comfort for the appellant in this, its primary, argument. But a second argument was presented. It is submitted that cl. 43.3 is a clause which confers on the appellant a contractual right in aid of the early completion of the contract whereby delays that would otherwise take place may be reduced, delays which would arise if the appellant or a new contractor could not use the plant and materials already on the site. The existence of the right, it is argued, is something which is likely in the ordinary course to reduce the damages otherwise payable by the respondent.

In my view these submissions are correct so far as I have stated them. The appellant would go further and submit that therefore no question of relief against forfeiture or penalty can ever arise. I am not satisfied that this is correct. The provision for use of the plant is a contractual provision in aid of the appellant getting the work completed. As such, it cannot be impugned. Equity may relieve against the forfeiture without compensation or allowance of the respondent's right to possession of the plant during the period of completion of the works but it does not follow that the only relief which equity may grant is the avoiding of the appellant's right to the use of the plant during the period of completion of the works. It cannot be determined whether equity will relieve against such a forfeiture until it is known whether the forfeiture in fact results in an impermissible burden or penalty having been imposed on the respondent. There could only be such a burden or penalty if the works are completed for a smaller outlay than would have been payable by the appellant to the respondent if he had completed the work. If they are not, then there could be no occasion for equity to interfere.

The additional cost of the works to the appellant payable by the respondent under cl. 43.3 would have been reduced by the fact that the appellant had used the plant and materials instead of incurring the cost of obtaining other plant and materials. In the possible but hardly probable event that the works should be completed for a sum less than the original contract price, the question would arise, and only then would arise, whether equity would treat the provision in cl. 43.3, that no compensation or allowance should be made, as impermissibly penal and would interfere by declaring that provision void and would require upon a final account that compensation or allowance for the use of the plant and materials be made by the appellant to the respondent. It may be that equity would not allow the appellant to make a profit from the respondent's breach of contract. A court of equity can mould its relief so that the substantial purpose of its doctrine of relief against forfeiture and penalties is achieved. It can leave the contractual right to use the plant and materials unaffected and can avoid that part and that part only of the agreement between the parties which is, or may be, open to challenge under the equitable doctrine. Whether or not there is substance in the challenge is at this stage hypothetical.

I would therefore allow the appeal in respect of this issue. Otherwise I would dismiss the appeal.