Catchwords

Assignment – novation – trust – agency – defective works – rectification

Significance

In determining whether equipment complies with a specified 'design life', the absence of specific evidence that it has been designed to achieve the design life is not critical but is a factor that will be taken into account.

The case also reaffirms the principle that the wording of a document must show a clear intention to create a trust; the court will not strain the language of the document to infer such a relationship.

Notices to rectify defects should adequately identify the defects to be rectified. This is particularly important if, at the time of giving notice, the relevant assets are not known to be defective. 

Facts

Alstom Australia Pty Limited (Alstom) was contracted to design and construct the mechanical ventilation system for the Lane Cove Tunnel Project. Alstom subcontracted the defendant, Trox (Australia) Pty Limited, (Trox) to design the necessary sound attenuators with a minimum 'design life' of 20 years and to supply the same (Trox Subcontract).

In June 2005, Alstom sold its business to the plaintiff, UGL Rail Pty Limited, (UGLR). The sales agreement required Alstom to assign or novate all 'Contracts' to UGLR or provide the benefit of those Contracts by subcontracting or otherwise (Sales Agreement). The Trox Subcontract was not assigned to UGLR until 12 March 2013.

Before the assignment took place, UGLR attempted to enforce Alstom's rights under the Trox Subcontract in respect of defective attenuators.

UGLR asserted that the sound attenuators did not have a design life of 20 years and that it was entitled, by reason of the Sales Agreement, to require Trox to rectify the sound attenuators under the Trox Subcontract. The basis of UGLR's argument was that the Sales Agreement provided that, until the assignment of the Trox Subcontract, UGLR was obliged to perform the obligations of Alstom under the Trox Subcontract, and such a provision gave rise to an agency or implied trust, entitling UGLR to exercise such rights against Trox. 

Decision

The court found that, although some of the sound attenuators were defective, UGLR had no rights against Trox regarding rectification, as UGLR was not a party to the Trox Subcontract nor did it have authority to act on Alstom's behalf in relation to it.

Whilst the Sales Agreement gave UGLR limited rights of agency in respect of performing Alstom's obligations under the Trox Subcontract, no agency existed to permit UGLR to exercise Alstom's powers or discretions under the Trox Subcontract. McDougall J was not prepared to imply a trust, as the parties had not used the language of a trust, nor was there any reason based on commercial necessity to do so, particularly as the objective under the Sales Agreement could have been achieved simply by assigning or novating the Trox Subcontract. The parties' error in forgetting to do so was no reason to imply a trust.

Even had his Honour been prepared to find that UGLR did have rights regarding rectification, the defect notices given did not adequately identify the assets which needed to be rectified. A general direction to repair, modify or replace assets cannot trigger an obligation to repair, modify or replace assets if, at the time of giving the notice, the relevant assets are not known to be defective.

Reference to a 'design life' requires the equipment to function reliably for the period of time it is designed for. The absence of any specific evidence that the equipment had been designed to function reliably for 20 years was not critical but was a factor in determining that the equipment had not achieved the minimum design life.