Pan Orient Shipping v Basell Australia [2007] VSC 215
In the Admiralty List of the Supreme Court of Victoria, Byrne J held that a lump sum transport contract was not converted into a contract to reimburse the contractor's subcontract costs, whether by construction, implied term, later agreement or estoppel by convention, so that any price adjustment still in dispute depended on the contract's terms, notably its variation clause [14], [18], [54], [61].
What the court decided
Basell, through its agent Sheddon Uhde, engaged the plaintiff, which traded as AFS Projects and Logistics, to carry a large splitter column by road and sea from Coffs Harbour to its plant at Geelong [1], [2], [4], [9]. The contract sum was $611,880 but the transportation cost about $2.8 million, and AFS sued Basell for a balance of about $1.2 million [2]. Basell sought to recover the $1.1 million it had paid to AFS's sea carrier [2].
His Honour rejected the argument that the road and sea freight items in the price schedule, properly construed, would vary with AFS's costs, because the document provided for a lump sum price and admitted no contrary construction [14]. The evidence did not warrant a finding that a term from industry practice was included, and none was contended for [13]. His Honour accepted that such pricing is commonly adjusted for matters like standby and demurrage, though Mr O'Connor conceded not always [16]. He was not persuaded that the practice was known to Basell or its agent or so notorious that knowledge of it should be imputed [15]. An implied term adjusting the price for changes in AFS's costs failed because Basell held no such assumption and the BP Refinery criteria were not met [17], [18].
AFS also alleged an agreement, arising from conduct, for full reimbursement of its subcontract charges plus a reasonable management fee [23]. Sheddon Uhde's email of 29 September said the sea freight lump sum would become $485,000 [41]. Viewed objectively, the documents and oral communications did not show an abandonment of the lump sum character of the contract; the amount changed but the lump sum remained [47]. His Honour therefore rejected the claim that the contract was transformed by agreement, in whole or in part, into a reimbursable one [54].
On estoppel by convention, his Honour said the parties must actually have shared the assumption, supported by "mutually manifest conduct" [56]. The parties, "or perhaps the party asserting the estoppel", must also have shifted their position in reliance on it [56]. Basell and its agent did not hold the assumption and neither party manifested it; his Honour also doubted that the parties had shifted their ground in reliance on it [57], [58], [60]. The estoppel failed, leaving any modification still in dispute to the contract's terms, notably Article 6 [61].
Article 6 did not define "variation", so his Honour gave it the usual meaning of a change in the scope or manner of performance [62]. The fabricator's claim failed as contract work and, alternatively, for want of proof of the charges [67], [68]. For the haulier's increased costs, a Sheddon Uhde instruction to proceed, read with the preceding emails, amounted to acceptance of a variation and of the varied price [71]. There was no issue between AFS and Basell that Sheddon Uhde was authorised to agree it [71]. His Honour allowed variations totalling $230,126.35 [77].
Basell's direct payment to Austral to release the cargo relieved AFS of part of its liability, and counsel for AFS accepted that credit was due if the contract was not fully reimbursable [78], [79]. The set-off and counterclaim should succeed for $1.1 million [80]. The adjusted price, including GST and an Austral price adjustment, came to $908,694.35 [94]. Payments to AFS and Austral exceeded it by $724,805.65, shown in brackets as the balance due, a net position favouring Basell [94].
As between Basell and Sheddon Uhde, the $47,880 increase in the haulier's price covered rotation of the splitter and other matters [86]. That work was within the scope of works under the AFS contract [87], [88]. It was not a variation within the meaning of Article 6 [89]. Of the haulier's variations, his Honour found $155,210 was a proper variation [91]. He reached no final conclusion on the remaining third party issues without further argument [93]. He said he would hear counsel on the orders [95].
Why it matters
An industry practice of adjusting transport prices did not displace clear lump sum terms where it was neither known to the other party nor notorious. Flexible administration under time pressure, including agreed changes to one lump sum, may objectively remain consistent with a lump sum structure. As between contractor and principal, an agent's acceptance of a priced proposal bound the principal, even for work later held within scope as between principal and agent [71], [89].
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.