ACM REMOVALS LTD v SOUTHERN DEMOLITION AND SALVAGE LTD [2019] NZHC 124

ACM REMOVALS LTD v SOUTHERN DEMOLITION AND SALVAGE LTD [2019] NZHC 124 [12 February2019]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2016-409-909[2019] NZHC 124BETWEEN ACM REMOVALS LIMITEDPlaintiffAND SOUTHERN DEMOLITION ANDSALVAGE LIMITEDDefendantHearing: 16-19 April 201830 July–1 August 2018Appearances: CJR Baird and SRJ Hamilton for PlaintiffA N Riches and V A Nichols for DefendantJudgment: 12 February 2019JUDGMENT OF MANDER JContentsBackground .......................................................................................................... [4]The 1 October quotation [9]The 9 November quotation [15]The 12 November quotation [19]The parties' competing contentions as to the composition of the asbestosremoval contract [22]Work commences [24]The contract breaks down [27]ACM Removals' claim ...................................................................................... [30]The issues to be determined ............................................................................. [33]The principles of contractual interpretation .................................................. [35]What were the terms of the contract between ACM Removals andSouthern Demolition? ....................................................................................... [41]The October quotation and the interaction between Ms Manderson andMr McPherson [41]Mr Blackie becomes involved and the revised price [49]The November meeting [54]The relevance of the November meeting to Southern Demolition's case [65]The 9 and 12 November quotation documents [69]Did the asbestos removal contract extend to the basement? [73]Did the removal contact include the standard terms and conditions? [77]The scope of the contract .................................................................................. [95]The Optimum Report [95]The effect of cl 3 in the context of the contract [112]Did ACM Removals discharge its obligations under the contract? ............ [121]Testing and review of the work 45The "I" beams [129]The basement and the lift shafts [136]The pillars [141]Were the contracted works completed? [143]Variations ......................................................................................................... [150]The quantum meruit claim ............................................................................. [158]Tax invoice 5186- Lift shaft clearing and removal of asbestos [163]Invoice 5187- Removal and disposal of asbestos from 17 pillars [176]Invoice 5189 – Mr Nicholson's work [184]Liquidated damages ........................................................................................ [192]The rule against penalties [195]The competing contentions [206]Decision [215]Results ..........................................................................................................[222](a)Costs ................................................................................................................. [223][1] This case concerns a dispute arising from a contract to remove asbestos froma building that was damaged in the Canterbury earthquakes. The defendant, SouthernDemolition and Salvage Ltd (Southern Demolition), was engaged to demolish the oldBNZ Building situated in Christchurch's Cathedral Square (the BNZ Building). Todemolish the building, it was necessary to remove and dispose of asbestos. SouthernDemolition entered into a contract with the plaintiff, ACM Removals Ltd (ACMRemovals), to carry out that task (the asbestos removal contract).[2] ACM Removals seeks payment of outstanding sums it claims it is owed bySouthern Demolition under the asbestos removal contract, and for further work itcompleted that it maintains fell outside the scope of the contract. Additionally, ACMRemovals claims liquidated damages under a term of that contract.[3] Southern Demolition denies liability. It maintains that ACM Removals failedto remove all the asbestos it was obliged to extract from the building and abandonedthe site without completing its contractual obligations.1 Southern Demolition allegesthat all the work undertaken by ACM Removals fell within the scope of the fixed priceagreement and that no variations were agreed prior to ACM Removals ceasing work.Southern Demolition denies liability to pay liquidated damages, and that, in any event,the clause of the contract relied upon by ACM Removals is an unenforceable penaltyprovision.Background[4] In 2013, demolition work was commenced by the original owner of the BNZBuilding. This resulted in the discovery of asbestos. Work was not able to proceeduntil the asbestos was removed. In late 2014, a prospective purchaser of the partiallydeconstructed building commissioned Optimum Projects Ltd (Optimum) to carry outan asbestos survey and provide a report about the asbestos contamination.1 Southern Demolition filed a counterclaim to recover the cost it incurred to complete the asbestosremoval work. By a minute of 7 March 2017, Associate Judge Matthews directed that SouthernDemolition's counterclaim was to be tried separately from ACM Removals claim on the basis thatif Southern Demolition is held to be liable to ACM Removals for breach of contract, itscounterclaim will fall away. If Southern Demolition is not liable to ACM Removals, thecounterclaim is to be determined at a future separate trial. ACM Removals Ltd v SouthernDemolition and Salvage Ltd HC Christchurch CIV-2016-409-909, 7 March 2017.[5] The report was prepared on the basis of the purchaser's intention to remediatethe building rather than demolish it. A range of samples were taken from the interiorof the building, of which a number tested positive for the presence of asbestos. Theprospective purchaser did not buy the building. However, the report in a modifiedform (the Optimum Report) would later be provided to the parties and forms part ofthe contract between them. It is a key document in this proceeding.[6] Around mid-2015, the BNZ Building was sold. Its new owner decided todemolish both the BNZ Building and a neighbouring building, situated in HerefordStreet (the Hereford Street building). The owners appointed Cequent Projects Ltd(Cequent) to manage the property and, in particular, to complete the demolition of thebuilding.[7] The Optimum Report was provided to contractors tendering for the demolitionwork. However, before it was issued a number of amendments were made to theoriginal report. These amendments essentially reflected that the original report hadbeen produced for the purpose of remediating the building, whereas the building wasnow to be demolished. The parties have conflicting views as to the significance of thechanged purpose for which the Optimum Report was utilised. An asbestos report forthe Hereford Street building was also provided to prospective demolition contractorsat the same time as the amended Optimum Report.[8] On 21 September 2015, the tender documentation was received by SouthernDemolition. That same day, it contacted Bricon Asbestos Ltd (Bricon), as ACMRemovals was then known, and invited it to quote for the task of removing asbestosfrom the BNZ Building and from the neighbouring Hereford Street property. TheOptimum Report was provided to the asbestos removal company for that purpose.Southern Demolition had engaged Bricon on a number of projects in the past and hada good working relationship with that asbestos removal contractor. Bricon changedits name to ACM Removals Ltd on 8 October 2015. Nothing turns on that change andthe plaintiff company throughout this judgment is referred to by that name.The 1 October quotation[9] After reviewing the Optimum Report and attending a site meeting on23 September, the Operations Manager for ACM Removals, Ms Manderson,submitted a quote to Southern Demolition for $235,690 (plus GST) to remove asbestosfrom the BNZ Building (the 1 October quotation). The description of the work"allowed to be carried out" was:Removal and disposal of asbestos and contamination of waste as per the reportsupplied by Optimum Projects dated 14-8-15.[10] The quotation was made subject to ACM Removals' standard terms andconditions, which were included in the quotation document, and relevantly providedas follows:Work scope being:1 [ACM Removals] agree to carry out the "work" on thisproperty/building. This work is, as we understand from you the maincontractor/client, as written and/or stated in the contract documentssupplied.Comments, Qualifications and Exclusions:...3 All practicable steps shall be taken to remove the visible asbestos.Due to the nature of sprayed on or some other forms of asbestos, thiscannot be given a 100 per cent guarantee of removal....12 Should we become aware of any relevant circumstances or facts onthis project that was not known to us prior to tendering, we willconsult with you, the main contractor/client, and make ourrecommendations, plus discuss any cost implications? [sic] Oncewritten agreement is received, should this apply, the work will becarried out....19 If a debt recovery agency has to be employed all payments will incurcosts "plus" a penalty charge of $30. Plus a daily charge of 0.125 percent of the contract value.A quotation for the Hereford Street building was provided at the same time.[11] In addition to ACM Removals' quote, Southern Demolition also received aprice from another contractor. That contractor quoted $680,000 (plus GST) to removethe asbestos from the BNZ Building. Mr McPherson, who was the OperationsManager for Southern Demolition, was concerned about the large discrepancybetween the two quotes. On 14 October, he inquired from Ms Manderson whetherACM Removals had properly understood the extent of the required work and, inparticular, questioned her as to whether she had allowed for the removal of all asbestosfrom the BNZ Building.[12] The content of Ms Manderson's and Mr McPherson's subsequent conversationwas the subject of evidence and is discussed later in this judgment. However, SouthernDemolition placed weight on an email sent by Ms Manderson after the conversationwith Mr McPherson which stated:As per our conversation, we have allowed to remove all asbestos from thebasement to the top level. Unless there is asbestos discovered in the buildingfoundations when it is coming down, we believe we have covered everythingelse in the way of asbestos.[Emphasis added][13] It is Southern Demolition's case that, based upon what it considered was thereassurance provided by Ms Manderson as to the scope of the work covered by theprice, it accepted the 1 October quote for the removal of asbestos from the BNZBuilding.[14] The owner of ACM Removals, Mr Blackie, had been away on leave at the timeMs Manderson prepared the quotation for the BNZ Building. He had not attended thesite meeting on 23 September. On his return, he reviewed the quotation and becameconcerned that the price was far too low to complete the required work. AfterMr Blackie had attended the site himself, he informed Mr McPherson that the projectcould not be completed for the quoted price. He was particularly concerned about theasbestos removal work required to be undertaken in the lift shafts, which were piledfull of debris. Mr Blackie advised that if ACM Removals was not able to resubmit itsquote it would have to withdraw from the project.The 9 November quotation[15] On 9 November, ACM Removals submitted a new quote (the 9 Novemberquotation). The scope of the works was described as follows:Removal and disposal of asbestos as identified in the Optimum Report andafter further clarification with Alan Albertson. NOTE: This only includesground floor to level four.[16] The price now quoted was $461,329.66 (plus GST). That total price wasbroken down into two parts. A price of $252,821.26 (plus GST) was provided for the"Main area", and for the "Lift Shaft areas" a price of $208,508.40 (plus GST) wasquoted. The 9 November offer included ACM Removals' standard terms andconditions, including clauses 1, 3, 12 and 19, as previously set out at [10].[17] In a preamble to the 9 November quote, the reason for the revised price isexplained in the following way:Upon our 2nd site visit for the asbestos removal from the BNZ Bank, whichwas attended by the director, for the first time, we have had discussions withAlan Albertson, from Optimum Projects, regarding the report that he issued,to get a full understanding of what is required. It was also noted by Alan thatthe basement was not included in his original scope, therefore it has not beenincluded in our price. Due to this we have needed to resubmit our quote asthe report was/is not a full representation of the extent of the removal.[18] On 28 October, Southern Demolition received from Cequent a letter of intentto appoint it to complete the demolition of the BNZ and Hereford Street buildingsbased upon its tender for that work. However, that tender had been based on theoriginal 1 October quote. Because of ACM Removals' revised 9 November quote, ameeting was convened with Mr Blair of Cequent and representatives of SouthernDemolition and ACM Removals to discuss the revised costings for the BNZdemolition. The meeting took place on either 11 or 12 November (the Novembermeeting). While there is dispute as to what occurred at that meeting and its outcome,its indisputable purpose was to assess whether the increased price contained in the9 November quote could be agreed.The 12 November quotation[19] The conflicting accounts of the parties as to what was said and agreed at themeeting are discussed later in this judgment. It is sufficient for the present narrativeto note that the meeting resulted in ACM Removals creating a third quotationdocument (the 12 November quotation). This document was provided to SouthernDemolition, together with a breakdown of the costings relating to the "main floorareas" and the "lift shafts bnz" to support the price increase. The 12 Novemberquotation followed the same format as the earlier two quotations. However, its contentwas different. The preamble now read:Upon our 2nd site visit for the asbestos removal from the BNZ Bank, whichwas attended by the director, for the first time, we have had discussions withAlan Abertson from Optimum Projects, regarding the report that he issued, toget a full understanding of what is required. Due to this we have needed toresubmit our quote as the report was/is not a full representation of the extentof the removal.[20] It is noteworthy that the words included in the 9 November quote, "it was alsonoted by Alan, that the basement was not included in his original scope, therefore ithas not been included in our price", was removed from the 12 November quotation.The description of the work to be carried out was also changed:Description of the work allowed to be carried out:Removal and disposal of asbestos as identified in the Optimum Report andafter further clarification with Alan Albertson.The words contained in the 9 November quotation, "NOTE: This only includesground floor to level four" were excluded.[21] The 23 clauses set out in the 9 November quotation were not reproduced in the12 November quotation document. After the description of the work "allowed to becarried out" a series of bullet points were listed. These are distinguishable from theordinary terms and conditions previously included in the 1 October and 9 Novemberquotations, in that they were specific to the asbestos removal work to be carried out atthat BNZ Building site and to that particular project. One of the bullet points relatedto a matter that had been discussed and agreed at the prior meeting between the partiesand Cequent. That term provided that any asbestos 20 m2 or less that was discoveredduring the process of removal would be removed without any extra cost.The parties' competing contentions as to the composition of the asbestos removalcontract[22] The status and effect of the 12 November quotation is an essential issue in thisproceeding. ACM Removals' case is that the 12 November quotation document wasproduced by it and provided to Southern Demolition to supplement the 9 Novemberquotation, and that together the two documents form the contract between them. The12 November quotation recorded or formalised the matters that had been discussedand agreed at the November meeting but did not replace the 9 November quotationwhich included ACM Removals' standard terms and conditions. The contractcomprised those two documents.[23] Southern Demolition does not accept that interpretation. It maintains the 12November quotation superseded the 9 November quotation. The removal of the termsand conditions of the earlier quotes, it submitted, was the product of the Novembermeeting, which reflected its need to be assured that all the necessary asbestos requiredto be removed had been included in that quotation.Work commences[24] On the same day Southern Demolition received the 12 November quotationfrom ACM Removals, it submitted a revised demolition tender to Cequent for both theBNZ and Hereford Street buildings, and work commenced later that month. ACMRemovals was directed to submit payment claims based on a percentage of the contractvalue at the end of each month for the work completed. Any variations for whichadditional payment was sought beyond the fixed price were also to form part of themonthly payment claim.[25] The first payment claim for the BNZ Building was made at the end of January2016 and further claims were made in February and March. Each of those claims werefor 25 per cent of the contract price. By 30 April, 75 per cent of the contract price forthe BNZ Building had been claimed. Each of these claims were approved and theinvoices generated as a result of those approvals paid.[26] During this period ACM Removals underwent a change of ownership.Mr Blackie sold the business in December 2015. His scheduled last day of work was31 December, although he continued with the company for a short period into 2016,carrying out a "handover role". In January 2016, Mr Barton was appointed theGeneral Manager of ACM Removals and he became responsible for managing thecontract with Southern Demolition.The contract breaks down[27] Two further claims for the balance of the contract price were made. On 30April, a 10 per cent payment claim in the sum of $46,133 (plus GST) was made and afinal 15 per cent payment claim in the sum of $69,199.45 (plus GST) was sent on31 May. By that time, ACM Removals considered it had completed all the work itwas obliged to undertake. These claims were declined by Southern Demolition and itrefused to pay invoices subsequently issued by ACM Removals. Southern Demolitionadvised ACM Removals that it did not consider it had completed the asbestos removalwork required of it under the contract.[28] On 3 June, Southern Demolition formally demanded ACM Removals toresume work and gave notice that the contract would be cancelled unless the work wascompleted. ACM Removals maintained it had completed the contract in accordancewith its contractual obligations and, on that basis, it had concluded its work at the BNZsite. On 21 June, ACM Removals issued a number of additional invoices to SouthernDemolition which it claimed were variations for work it had undertaken that wasoutside the scope of the contract.[29] On 24 June, Southern Demolition issued payment schedules in response to theinvoices and moved to cancel the contract on the basis of ACM Removals' allegedrepudiation by refusing to complete the removal of asbestos. It engaged a substitutesubcontractor to identify and remove the remaining asbestos. That work wascompleted at a cost of $495,040 (plus GST).2ACM Removals' claim[30] ACM Removals claims that Southern Demolition breached the asbestosremoval contract by failing to pay the April and May 2016 invoices for the remaining25 per cent of the contract price and to pay the three invoices issued for variationsrepresenting work additional to the contracted scope of works. ACM Removals seeksspecial damages in the amount of $218,327.45 (plus GST) under this cause of action.[31] ACM Removals also seeks liquidated damages pursuant to cl 19 of the standardterms and conditions which it maintains form part of the asbestos removal contract.That clause provided that if a debt recovery agency has to be employed all paymentswill incur costs "plus" a penalty charge of $30, plus a daily charge of 0.125 per centof the contract value. Based on the contract price of $461,329.66 (plus GST), ACMRemovals claimed the sum of $454,264.60 based upon a calculation up until the firstday of the trial, (0.125 x $461,329.66 (plus GST) = $663.16 (the daily charge) x 685days = $454,264.60).[32] In the alternative to the contractual claim for payment of the variation sums, asecond cause of action was brought under the doctrine of quantum meruit. ACMRemovals claims that if the variations are held not to have been validly claimed underthe terms of the contract, the work it completed which fell outside the scope of thecontract was to the benefit of Southern Demolition for which it should becompensated. ACM Removals seeks damages under this alternative cause of actionin the sum of $102,995 (plus GST). That figure represents the sum of the variationinvoices submitted for work completed in the basement lift shafts and on internalpillars, and includes the cost of an assessment of the completed work by a third party.32 Southern Demolition has counterclaimed for this amount. By a minute of 7 March 2017, AssociateJudge Matthews ordered the counterclaim to be heard separately, with the present proceedingbeing limited to the determination of liability only. ACM Removals Ltd v Southern Demolitionand Salvage Ltd HC Christchurch CIV-2016-409-909, 7 March 2017.3 ACM Removals opened on the basis that its quantum meruit claim related to the work completedin the basement and on the pillars. However, its pleading and Mr Baird's closing submissionsincluded the costs of the third party under this heading.The issues to be determined[33] The essential dispute between the parties concerns the definition and scope ofthe asbestos removal contract and whether ACM Removals completed the contractualworks. ACM Removals' claim for breach of contract turns on the following questions:(a) What were the terms of the contract between ACM Removals andSouthern Demolition? In particular, was the contract limited to the12 November quotation, or did it comprise both that document and the9 November quotation which included ACM Removals' standard termsand conditions?(b) What was the scope of the works ACM Removals was required tocomplete to discharge its obligations under the contract?(c) Did ACM Removals discharge its obligations and complete theasbestos removal work required of it under the contract?(d) Was ACM Removals entitled to claim for variations?[34] The proceeding gives rise to two further issues:(a) In the event of a finding that Southern Demolition was not liable underthe asbestos removal contract to pay the claimed variations, is ACMRemovals entitled to receive compensation for the work it completedpursuant to its quantum meruit claim?(b) If the asbestos removal contract included the terms and conditions ofthe 9 November quotation, are liquidated damages payable under cl 19,or is it an unenforceable penalty provision?The principles of contractual interpretation[35] A key issue is whether the 12 November quotation exhaustively andexclusively recorded the contract between the parties. While each party sought toemphasise particular aspects of the approach to be taken to the interpretation of the 12November document, they were in broad agreement as to the principles to be applied.[36] It is well established that the proper approach to contractual interpretation isan objective one, the aim being to ascertain the meaning which the document wouldconvey to a reasonable person.4 However, a contextual approach is also required. Areasonable person is one who is informed by all the background knowledge whichwould reasonably have been available to the parties in the situation in which they wereat the time of the contract.5[37] In Vector Gas Ltd v Bay of Plenty Energy Ltd, Tipping J stated the approach inthe following way:6[19] ... The necessary inquiry therefore concerns what a reasonable andproperly informed third party would consider the parties intended the wordsof their contract to mean. The court embodies that person. To be properlyinformed, the court must be aware of the commercial or other context in whichthe contract was made and of all the facts and circumstances known to andlikely to be operating on the parties' minds.[38] In Firm PI 1 v Zurich Australian Insurance Ltd, Arnold J (with whom McGrathand Glazebrook JJ agreed) observed that this objective meaning of the document istaken to be that which the parties intended.7 The context provided by the contract asa whole and any relevant background will inform this meaning.[39] Mr Riches, on behalf of Southern Demolition, stressed that the objectiveapproach to contractual interpretation requires the focus to be on the agreementreached in its final form as representing the ultimate consensus of the parties.8However, while it is correct that evidence is not relevant if it does no more than seekto establish what a party subjectively intended, the Court is required to be aware of the4 Firm PI 1 v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60], citingLord Hoffman in Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998]1 WLR 896 at 912; Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR444 at [19].5 Firm PI 1 v Zurich Australian Insurance Ltd, above n 4, at [60], citing Lord Hoffman in Investors'Compensation Scheme Ltd v West Bromwich Building Society, above n 4, at 912.6 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 4, at [19].7 Firm PI 1 v Zurich Australian Insurance Ltd, above n 4, at [60], citing Attorney-General of Belizev Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1998 at [16], per Lord Hoffman deliveringthe judgment of the Privy Council.8 Citing Tipping J in Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 4, at [20].commercial or other context in which the contract was made and of all the facts andcircumstances known to and likely to operate on the parties' minds.9 In that regard,Arnold J in Firm PI 1 v Zurich Australian Insurance Ltd observed:10[61] The requirement that the reasonable person have all the backgroundknowledge known or reasonably available to the parties is a reflection of thefact that contractual language, like all language, must be interpreted within itsoverall context, broadly viewed. Contextual interpretation of contracts has asignificant history in New Zealand, although for many years it was restrictedto situations of ambiguity. More recently, however, it has been confirmed thata purposive or contextual interpretation is not dependent on their being anambiguity in the contractual language.[40] I turn now to the identification of the terms of the asbestos removal contractand whether the 12 November quotation represented the final and exclusive iterationof the contract or supplemented, rather than replaced, the earlier 9 Novemberquotation.What were the terms of the contract between ACM Removals and SouthernDemolition?The October quotation and the interaction between Ms Manderson andMr McPherson[41] Over the course of October and November 2015, ACM Removals providedthree quotations to Southern Demolition for the purpose of obtaining the contract toremove asbestos from the BNZ Building. The first 1 October quotation was submittedby Ms Manderson, in the absence of Mr Blackie. It significantly underestimated thework and associated cost required to satisfactorily complete the project. MsManderson and Mr McPherson gave evidence regarding their discussion about thework the 1 October price covered.[42] Ms Manderson said that she informed Mr McPherson that the quote allowedfor the removal of all asbestos that had been identified in the Optimum Report. Shefurther stated that she would not have said that the 1 October quotation was to removeall asbestos from the BNZ Building because she did not know there was asbestos inthe building beyond that identified in the Optimum Report. She referred to ACM9 At [19].10 Firm PI 1 v Zurich Australian Insurance Ltd, above n 4, at [61].Removals' standard conditions, and in particular to cl 3: that all practicable stepswould be taken to remove visible asbestos.[43] Ms Manderson contended that telling Mr McPherson that the quotation was toremove all asbestos from the building, regardless of whether it was identified in theOptimum Report, would have been inconsistent with cl 3. However, at least on itsface, Ms Manderson's evidence appears to be contradicted by her subsequent email toMr McPherson in response to his inquiry of the same day. In that email Ms Mandersonstated that ACM Removals had "allowed to remove all asbestos from the basement tothe top level. Unless there is asbestos discovered in the building foundations when itis coming down, we believe we have covered everything in the way of asbestos."[44] For his part, Mr McPherson acknowledged that he had no specific recollectionof his 14 October telephone discussion with Ms Manderson. He relied upon the emailof the same date which Southern Demolition maintained gave the necessaryreassurance that the work covered by ACM Removals' 1 October quote met itsrequirements. Based on that understanding, Southern Demolition proceeded toprovide its tender to Cequent for the demolition of the BNZ Building. On 28 October,Cequent advised of its intention to appoint Southern Demolition to complete the work"subject to agreement of final contract terms".[45] Because of the subsequent involvement of Mr Blackie and the provision of the9 and 12 November quotations, the interaction between Mr McPherson andMs Manderson relating to the 1 October quotation was largely overtaken bysubsequent events. It is common ground between the parties that whatever the termsof the contract between them, the 1 October quote did not form part of their contract.However, it is worthwhile making two observations at this stage regarding this earlierinteraction between the parties.[46] Firstly, ACM Removals placed much emphasis on the Optimum Report havingbeen prepared for a client that was only contemplating the remediation of the building,and that the utility of the report was limited because of its original purpose. Linked tothat feature of the report was the claimed state of knowledge of ACM Removals'representatives of the purpose of removing asbestos and whether the building was tobe demolished. A number of witnesses, including Ms Manderson, gave evidenceregarding their understanding of the situation at the time, and their ignorance of theplanned demolition of the BNZ Building until the following year.[47] I did not find that evidence entirely convincing but ultimately it was of littlerelevance. It is apparent from Ms Manderson's 14 October email, when she referredto the building "coming down", that she was aware the building was to be demolished,although her evidence was that she viewed it as a partial demolition because of advicereceived from an employee of Southern Demolition that the basement was to remainas a carpark. This potentially had some relevance in terms of the extent of the workrequired to be undertaken in the basement. However, Ms Manderson's understandingof the position and her knowledge of the extent of the demolition as at 14 Octoberbecame irrelevant in light of the subsequent involvement of Mr Blackie and hisrenegotiation of the contract in the following month. This was premised on the BNZBuilding being completely demolished.[48] Secondly, both parties accepted that the contracted scope of works for theremoval of asbestos was governed by the Optimum Report. To the extentMs Manderson's evidence was premised on an apparent conflict between herself andMr McPherson as to whether the contract covered all the asbestos or all the asbestosidentified in the Optimum Report, that is no longer an issue between the parties in thisproceeding.Mr Blackie becomes involved and the revised price[49] When Mr Blackie arrived back in New Zealand from overseas, he sought torenegotiate the contract and visited the site accompanied by Southern Demolitionrepresentatives. Mr Blackie's chief concern was that the removal work required in thelift shafts may not have been included in the price set out in the 1 October quote. Hefound the lift shafts, which extended to the basement, to have been piled full of debris.To progress the situation, it appears there was some agreement to provide Mr Blackiewith the opportunity to submit a new price. By this time Southern Demolition hadalready submitted its demolition tender to Cequent, which in turn had notified it of itsintention to appoint the company as its contractor. Mr Blackie's advice that he couldnot undertake the asbestos removal work at the current price presented a significantimpediment to progressing the project.[50] ACM Removals, under its previous name of Bricon, had a long and generallypositive commercial relationship with Southern Demolition. They had in the pastsuccessfully tendered to extract asbestos from buildings to be demolished by SouthernDemolition. It is apparent therefore that, at the time, there was a good workingrelationship between the companies and they had not previously been in seriousdispute regarding asbestos removal work. It is unsurprising therefore that in thecircumstances ACM Removals was permitted the opportunity to submit a new pricein an effort to progress the project, the arrangements for which had already been agreedin principle between Southern Demolition and Cequent. Although, as with all quotes,whether it would be accepted remained an outstanding issue.[51] Mr Blackie was concerned that the 1 October price of $235,690 (plus GST)was too low to complete the work described in the quotation as the "Removal anddisposal of asbestos and contamination of waste as per the report supplied by OptimumProjects dated 14-8-2015". When he reviewed the quotation with Ms Manderson, sheinformed him that she had priced the job on the basis that the asbestos in the basementwas not to be removed. Her explanation for doing that was because Mr Albertson, oneof the authors of the Optimum Report, had told her that he had not been able to accessthe basement to carry out testing in that area. She also referred in her explanation toMr Blackie of having been advised that the building was not to be demolished in itsentirety and would only be "coming down" to ground level, with the existing basementbeing retained for car parking.[52] In his evidence, Mr Blackie acknowledged that it appeared SouthernDemolition had always expected the asbestos in the basement to be removed.However, he maintained, at least until the November meeting, that he had proceededon the basis that asbestos was not required to be removed from the basement and that,as matters had stood after the 1 October quotation, ACM Removals was only boundto remove all asbestos from the ground floor and above for the price quoted byMs Manderson.[53] Mr Blackie's understanding of the position was reflected in the 9 Novemberquotation, which expressly stated that because the basement had not been included inMr Albertson's work for the purpose of the Optimum Report, it had not been includedin ACM Removals' price. The 9 November quotation specifically stated under thedescription of the work that it only included "ground floor to level four".The November meeting[54] After receipt of Mr Blackie's 9 November quotation, a meeting was convenedat the offices of Cequent. The price had nearly doubled and the revised quotationmade it explicit that it did not include the basement. The meeting was attended byMr Blackie and Ms Manderson, and Messrs Blair and McPherson, and the owner anddirector of Southern Demolition, Mr Edge. It is unclear whether the meeting occurredon 11 or 12 November. Most of the evidence was premised on the meeting havingbeen held on 12 November, but email communications and Mr Blair's recollectionpoint to it having more likely occurred on 11 November.[55] There is a significant divergence between the parties' respective witnesses asto what occurred at this meeting. The meeting clearly took place for the purpose ofdeciding whether the proposed increase in price would be accepted. That increase, ifagreed, would ultimately have to be met by Cequent's client, the owner of the building,because Southern Demolition's tender to demolish the BNZ Building had been basedon ACM Removals' initial 1 October quote. While Southern Demolition had receivednotice of Cequent's intention to appoint it as the main contractor, that remained subjectto confirmation of contractual terms.[56] Mr Blair's evidence was that at the meeting he informed Mr Blackie andMs Manderson that he wanted to ensure that all asbestos was removed from thebuilding in order for it to be demolished. Clause 3 of the standard terms and conditionswhich had been included with the 9 November quote provided that all practicablesteps would be taken to remove the visible asbestos. It also provided that because ofthe nature of some forms of asbestos a 100 per cent guarantee of total removal couldnot be given. Mr Blair was concerned about the effect of cl 3, and his evidence wasthat he told Mr Blackie and Ms Manderson that he wanted that clause removed toensure that the contract covered all asbestos necessary to complete the demolition.[57] Mr Edge's evidence was that Mr Blair, as the agent for the owner of thebuilding who would ultimately have to pay the cost of the asbestos extraction tocomplete the building's demolition, was only prepared to allow an increase in the priceon the condition that the additional clauses (the standard terms and conditions) wereremoved. Mr McPherson's evidence was to similar effect; that cl 3 was not acceptablebecause it was inconsistent with the scope of the required works to remove all asbestosto allow the building to be demolished.[58] However, Mr Blackie's evidence was that he had no recollection of anydiscussion regarding cl 3 at that meeting. If there had been such a discussion he wouldnot, as a prudent asbestos removal contractor, guaranteed 100 per cent removal of allasbestos from the BNZ Building. He explained that asbestos is often hidden withinbuilding elements and encased by sprayed on concrete. That was why ACM Removalsalways included such a disclaimer and made provision for variations in its contracts.Mr Blackie's evidence was that he would not have agreed to the removal of cl 3because, in his words, it would be "commercial suicide" for him to have done so.Under cross-examination Mr Blackie denied being told to remove clauses from thecontract. Ms Manderson's evidence was that she did not believe that ACM Removalswas asked for the clauses to be removed.[59] There is an irreconcilable difference in the evidence regarding the discussionthat took place at the November meeting. It is Southern Demolition's case that at thismeeting Mr Blair agreed to increase the contract price but only on the condition thatthe contract was varied to ensure all asbestos was removed to permit the building tobe demolished. The need for such an assurance was reflected in Mr Blair's evidencewhen, in reference to the objective of the meeting in the wake of ACM Removals'price having increased so significantly, he said it was "just to be very clear witheveryone we're not, we're not going to entertain having another crack at furtherasbestos down the line having already incurred another couple of hundred thousanddollar cost already". I accept that was Mr Blair's objective at the meeting. If his clientwas to absorb the increased cost of the asbestos removal which had almost doubled asa result of the revised quote, he wanted some assurance there would be no furtherincrease in the cost to remove asbestos in order for the building to be demolished.[60] While Mr Blair's principal had no contractual relationship with ACMRemovals, Mr Blair's evidence was that he had concerns about the consistency of cl 3with the requirement that ACM Removals remove all asbestos for the purpose of thedemolition work. And, although he acknowledged that the effect of cl 3 wouldultimately be Southern Demolition's problem as the contract was between it and oneof its subcontractors, the reality was that final acceptance of that Southern Demolitiontender (which would reflect the actual cost of the asbestos removal work) wasdependent on Mr Blair's client accepting ACM Removals' increased price.[61] Southern Demolition and Mr Blair's concern was reflected in the modificationto ACM Removals' entitlement to claim variations under the contract. One of thebullet points included in the 12 November quotation provided that any asbestos 20 m2or less discovered during the process of removal was to be removed by ACMRemovals without any extra cost. This additional term was agreed at the Novembermeeting.[62] While agreement was reached that ACM Removals would have to absorbcertain costs should undiscovered asbestos be located during the process of removal,it is not clear that any agreement was reached regarding the exclusion of ACMRemovals' standard terms and conditions, and in particular cl 3. The followingpassage from Mr Blair's evidence, in my view, most likely reflects the position:Q Mr Blair, we were talking about the meeting at Cequent's offices, 12November, before. Nowhere in your evidence do you explicitly saythat there was any agreement by Mr Blackie and Ms Manderson toremove clauses 1 to 20 from their 9 November quotation, do you?A No.Q Because they didn't agree to that at the meeting, did they, otherwiseyou would have said so, wouldn't you?A I can't recall exactly what was discussed at the meeting other thangeneral topics so I can't-Q Do you accept what I say, if there had been a firm agreement youwould have said so in your evidence, wouldn't you?A If it was asked and discussed, yes it would have been.Q It is not in your evidence because it wasn't discussed and agreementwasn't reached on it, was it?A I believe it was discussed but I don't know if I asked for an agreementor – it was just, I'm pretty sure.Q So you couldn't contradict Mr Blackie and Ms Manderson in yourevidence robustly when they said, "we did not reach an agreement atthe 12 November meeting to remove the standard conditions 1 to 20from our quotation"?A No, I couldn't contradict that.[63] Based on the evidence of the November meeting, I am satisfied there wasdiscussion about cl 3 and its potential impact on ACM Removals' obligations toremove asbestos identified in the Optimum Report. However, it is not clear that anyactual agreement was reached between the parties to omit ACM Removals' standardterms and conditions, and in particular cl 3, from the asbestos removal contract. Iconsider there was an obvious focus in the discussion on ensuring the significantlyincreased price contained in the 9 November quotation provided for thecomprehensive removal of all the asbestos necessary to allow the building to bedemolished. However, beyond the agreed allowance for the removal of an amount ofundisclosed asbestos without additional cost and, as I will discuss shortly, work to becompleted in the basement, it is not clear what else was actually agreed.[64] I consider it likely that the parties may have misapprehended each other'sunderstanding of the consensus they thought had been achieved regarding cl 3.Perhaps unsurprisingly, in the absence of any formal record, minutes or written noteof the meeting and the lapse of time, none of the witnesses were able to give detailedevidence of what was actually said or how matters were concluded. Because of theunsatisfactory state of the evidence, I am therefore unable to conclude on the oralevidence that agreement was reached at the meeting to exclude ACM Removals'standard terms and conditions, and in particular cl 3. While it may have been Mr Edgeand Mr McPherson's understanding from the discussion that this had been achieved, Iconsider Mr Blair's equivocalness as to whether any such agreement was reached istelling.The relevance of the November meeting to Southern Demolition's case[65] Mr Baird, on behalf of ACM Removals, was critical of the failure by SouthernDemolition to formally plead its contention that an agreement had been achieved atthe November meeting to remove the standard clauses. Mr Baird submitted that, inlight of its failure to do so, it was not open to Southern Demolition to run its case onthe basis of such an agreement in the absence of that reliance having been specificallypleaded in its statement of defence.[66] As is apparent from my factual finding, I have not found it proved that such anagreement was reached at the meeting. However, I accept Mr Riches' submission thatit was legitimate for Southern Demolition, in support of its argument that the9 November quotation alone constituted the totality of the asbestos removal contract,to adduce evidence regarding what took place at the November meeting and, inparticular, to support its case that as a result the subsequent 12 November quotationdeliberately excluded the terms and conditions contained in the previous 9 Novemberquotation. Mr Riches made it clear in his closing submissions that SouthernDemolition was not relying upon a combination of a written contract in the form ofthe 12 November quotation supplemented by an oral contract to exclude the standardconditions. Southern Demolition's case was that the 12 November quotationconstituted the asbestos removal contract in full and should be treated as the wholecontract.[67] Southern Demolition does not therefore rely upon proof of an oral agreementhaving been reached at the November meeting to exclude ACM Removals' usual termsand conditions. It points to and relies upon the 12 November quotation documentitself which does not include those conditions. Not only is the absence of the termsand conditions in it, in particular cl 3, consistent with its understanding of the outcomeof the meeting, but more importantly, in Mr Riches' submission, the 12 Novemberdocument must be viewed as representing the contract between the parties, and it doesnot include those terms and conditions. Mr Riches submitted that it was not necessary,nor should the contracting parties' intentions be sourced from any other evidence,other than the content of that document.[68] The situation is to be distinguished from where the written document was neverintended to be the whole contract, but was intended to be supplemented by oralagreement.11 To the contrary, as previously observed, Southern Demolition's case isthat the 12 November quotation is a comprehensive record of the agreement betweenthe parties which was intended to be exhaustive of their contractual obligations. The12 November document no longer excludes the basement, it does not list the terms andconditions which had been included in the two earlier quotations, and it provided anew term governing the cost of variations.The 9 and 12 November quotation documents[69] Following the November meeting, ACM Removals emailed to SouthernDemolition the 12 November quotation. The format of the document was almostidentical to that used for the 9 November quotation. It was set out on ACM Removals'letterhead (as were the earlier quotations) and reads as follows:CONTRACT BETWEEN ACM Removals Ltd (The Contractor)AND Southern Demolition (The Client)This Quotation is submitted under the Construction Contracts Act 2002Upon our 2nd site visit for the asbestos removal from the BNZ Bank, whichwas attended by the director, for the first time, we have had discussion's [sic]with Alan Albertson, from Optimum Projects, regarding the report that heissued, to get a full understanding of what's required. Due to this we haveneeded to resubmit our quote as the report was/is not a full representation ofthe extent of the removal.Re:_BNZ BuildingWe have pleasure in submitting our price for this project, based on theinformation available and from our site visit and/or documents supplied. Wemake our offer to carry out the following work:Description of the Work Allowed to be Carried Out;Removal and disposal of asbestos as identified in the Optimum report andafter further clarification with Alan Albertson.• Any asbestos 20m2 or less that is discovered during the process ofremoval, shall be removed, without any extra costs.11 See for example, Walker Property Investments (Brighton) Ltd v Walker (1947) 177 LT 204;Couchman v Hill [1947] KB 554, [1947] 1 All ER 103 (CA); and other examples cited in Burrows,Finn and Todd on the Law of Contract of New Zealand (6th ed, Lexis Nexis, Wellington, 2018);A M Bisley and Co Ltd v Thompson [1982] 2 NZLR 696 (CA).• Samples shall be taken from the lift shaft, upon removal and acomposite sample shall be sent away for analysation. This is anallowance of four samples per lift shaft. This will be forqualitative and quantitative purposes.• There shall be 2 teams working on the site, one for the lift shaftareas and one for the remaining areas.• Samples have been taken for analysation and due to this webelieve there is no more asbestos in the building.• ACM Removals have rung ECan and spoken to Paul Dahl0277038736 (senior compliance officer) and he has stated "thereis no set % of contamination in regards to building rubble, thisonly applies to soil. There is a long lengthy process to screen hardfill or crushed concrete only, but it is a process that has to beapproved by both ECan and Worksafe and is closely monitoredby both"• Have spoken to Rob Abraas from Worksafe he has stated there isno other way that [sic] to dispose of the waste in the lift shaft,other than as asbestos waste.• Having spoken to Alan Albertson, this only applies to hail sitesand is only in regards to soil, not building rubble• Clarification on the compliance signs confirmed with Worksafe,and it is as per the guidelines and regulations.Based on the above, our price for this project will be:$461,329.33 +gst(Four hundred and sixty one thousand, three hundred and twenty ninedollars, sixty six cents.) Plus GSTThe difference from the previous price being $227,426.92[70] The statement, which appeared in the 9 November quotation (as reproduced at[17]) that the basement was not included in the price was removed from the12 November document. The quotation then proceeds in the same terms as the9 November quotation. The work to be carried out is described as the "[r]emoval anddisposal of asbestos identified in the Optimum Report after further clarification withAlan Albertson". However, deleted from the 12 November description is thestipulation that appeared in the previous quote, set out at [15], that the work onlyincluded ground floor to level four.[71] Thereafter the two documents are significantly different. The 9 Novemberquotation listed eight clauses, all of which referred to generic arrangements regardingthe practical undertaking of the work. Under the heading "Comments, qualificationsand exclusions" there followed 23 standard terms and conditions, of which cl 3 isone.12 In contradistinction, the 12 November document did not include these clauses.It only listed a series of bullet points specific to the task of removing asbestos fromthe BNZ Building. Those bullet points included the taking of samples from the liftshafts, inquiries with ECan regarding contaminated building rubble, and the disposalof waste from the lift shafts.[72] Each quotation concludes that "based on the above, our price for the projectwill be $461,329.66 + gst". The 12 November quote provides a figure which is33 cents less, but nothing turns on that minor discrepancy. The parties accept the pricewas the same. Potentially of greater relevance is that under the stipulated price, the12 November quotation specifically noted "the difference from the previous pricebeing $227,426.92". The 9 November quotation does not include that remark. It endsby expressing thanks for the opportunity to submit the quotation and states, "we lookforward to hearing from you ...". The 12 November quotation does not include thosewords.Did the asbestos removal contract extend to the basement?[73] The difference between the parties' cases as to whether the asbestos removalcontract comprised the amalgam of the 9 November quotation and the 12 Novemberquotation, or was limited to the 12 November quotation alone, distils to what thereasonable person equipped with all the background knowledge reasonably availableto the parties in the situation at the time of the contract would consider the partiesintended the 12 November quotation to mean. Whether the document stood alone asthe asbestos removal contract or whether, taking into account the commercial context12 There were 20 terms and conditions contained in the 1 October quote. In the intervening periodbetween the provision of that quote and the 9 November quotation ACM Removals updated itsterms and conditions.in which the contract was made and all the facts and circumstances known to and likelyto be operating on the parties' minds, the document only supplemented the previous 9November quotation.[74] On the face of the two documents, it is apparent that the limitation containedin the 9 November quotation regarding the scope of works being confined to levelsground to four no longer applied. The basement was no longer expressly excluded.Nor could there be any doubt that the lift shafts, which Mr Blackie was so concernedhad not been taken into account by Ms Manderson in the original 1 October quotation,were now part of the contract, down to and including the basement. That conclusionis not only consistent with the removal of the previous limitation on the quotation'sapplication to the basement but with other contextual evidence.[75] The rubble in the lift shafts, which Mr Blackie discovered when carrying outhis site inspection, was provided by him as the predominant reason for the need toincrease the 1 October price. It is axiomatic that Southern Demolition and Cequentwould only be prepared to entertain such an increase if this work was included.Furthermore, the bullet points listed in the 12 November quotation itself expresslyreferenced the contaminated building rubble, and the disposal of waste from the liftshafts. These considerations leave me in no doubt that the asbestos removal contractincluded that work.[76] Mr Blackie under cross-examination denied he was told at the Novembermeeting that the limitation in the contract to work on the ground to fourth floors hadto be removed. Insofar as Mr Blackie's answer is to be interpreted as contesting thatthe asbestos removal contract no longer excluded the work in basement, I do not accepthis evidence on that point. It is clear from the changes made by ACM Removals to itsquotation that work in the basement was no longer excluded. That change logicallymust have resulted from what had been negotiated at the November meeting.Did the removal contact include the standard terms and conditions?[77] As I have earlier concluded, I consider the representatives of the parties whoattended the November meeting discussed issues regarding the scope of the asbestosremoval work and the potential difficulties raised by cl 3, which were viewed byMessrs Blair, Edge and McPherson as a possible obstacle to achieving the necessarylevel of asbestos clearance for demolition. However, while some understanding waslikely reached regarding the need for the asbestos removal works to be sufficientlycomprehensive and efficacious, it appears no clear consensus was achieved to removethe disputed term. Mr Blair was not prepared to contest ACM Removals' evidencethat it did not agree to the removal of its standard terms and conditions. However, asSouthern Demolition emphasised, these standard conditions upon which ACMRemovals relies were absent from the 12 November document.[78] Notwithstanding my acceptance of Southern Demolition's evidence that it didnot want those terms and conditions included in the asbestos removal contract, andtheir non-appearance in the 12 November quotation, I consider the balance of theevidence objectively leads to the conclusion that the terms and conditions set out inthe 9 November quotation remained part of the contract. In reviewing that evidence,I have been careful to ensure that such evidence assists my objective assessment as towhether the contract included the earlier terms and conditions. Evidence as to whatACM Removals subjectively intended is not relevant.[79] Ms Manderson was the author of the 12 November quotation. Her evidencewas that she did not use ACM Removals' "standard quotation template" when shecreated this document. She did this deliberately because she had already sent SouthernDemolition the terms and conditions in the earlier 9 November quotation.Ms Manderson noted in support of this that the 12 November quotation was notpaginated whereas the 1 October and 9 November quotations were. Her evidence wasthat the 9 November quotation had been created in a separate document. It was nottherefore a case of ACM Removals editing a document for the purposes of it beingsubstituted for the earlier quotation.[80] I doubt whether Ms Manderson's evidence about how she created thedocument assists ACM Removals because this was information only known to her atthe time. The 12 November document, as I have already observed, takes the sameform as the earlier quotations. The initial wording of the document is identical to the9 November quotation, and other than the changes to reflect that the contract no longerexcluded the basement, on its face, it appears to be a further iteration of the earlierquotation. Of greater significance is a small but important piece of evidenceMs Manderson gave that she did not include the standard terms and conditions againin the 12 November quotation because, at the time she was preparing that document,Mr McPherson told her that he didn't need to see those again. There was no challengeto Ms Manderson's evidence on this point, nor did Mr McPherson contestMs Manderson's evidence that he made this representation to her at that time.[81] Ms Manderson's evidence was that in supplying the 12 November quotationshe was responding to a request by Mr McPherson for information to explain the priceincrease of over $220,000 and to confirm what she referred to as the "extras" that hadbeen discussed at the November meeting. These were said to include the removal ofany unidentified asbestos less than 20 m2 at no further cost and sampling of the liftshaft. Ms Manderson explained that the 12 November quotation was, as she describedit, "a consolidation" of the earlier November quotation and that the two documentswere to be read together.13[82] Mr Baird made a number of submissions in support of ACM Removals' casethat the 12 November quotation supplemented the earlier 9 November quote and didnot replace it. He submitted that even if it was accepted, as I have, that MessrsMcPherson, Blair and Edge had raised with Ms Manderson or Mr Blackie that theconditions in issue be removed, there was no agreement to their removal. I haveaccepted that there was no consensus ad idem. However, that finding will not assistACM Removals in its argument that the asbestos removal contract comprised both the9 and 12 November quotations if the 12 November document, when measured againstthe facts and circumstances known to have been, or likely to have been, operating onthe parties' minds, would objectively lead to the conclusion that it constituted thecontract in its own right, standing alone.[83] In support of ACM Removals' position, Mr Blackie observed in his evidencethat even if there had been discussion at the 12 November meeting about the removal13 The email in respect of which the 12 November quotation and the other documents, including thebreakdown of the two sub-costings for the "main floor areas" and the "lift shafts bnz" wereincluded as attachments, was sent to Mr McPherson in the very early hours of 12 November. It islikely therefore that Mr Blair's understanding that the "12 November meeting" in fact occurredon 11 November is correct as all parties are agreed that the 12 November quote and theaccompanying documents were sent after the meeting had been completed.of cl 3, he could not have agreed to such a course. He stated that no prudent andcompetent asbestos removal contractor could possibly guarantee 100 per cent removalof all asbestos from a building, and in particular not at the time of quoting for a job,because asbestos is often hidden within building elements and encased within"sprayed-on concrete". Mr Blackie noted that persons engaged to inspect buildingsfor asbestos and prepare reports regarding its presence could similarly never guaranteethat they had identified all of the asbestos in the building. Neither ACM Removalsnor any other asbestos removal contractor would guarantee that it could remove100 per cent of the asbestos.[84] Mr Blackie explained that this was why ACM Removals always included astandard term like cl 3 and made allowance to claim for variations for unidentifiedasbestos in its standard conditions. Furthermore, asbestos removal work is anuninsurable risk, and it was submitted that ACM Removals would always seek toprotect itself from exposure to liability, like any other prudent asbestos removalcontractor, by including in its standard terms and conditions that no guarantee couldbe given of 100 per cent removal. I accept these are persuasive reasons why, as amatter of standard practice, an asbestos removal contractor would always include sucha disclaimer.[85] ACM Removals further submitted that the scope of the works described in the12 November quotation was not inconsistent with cl 3. The quotation did not requirethe removal of all asbestos from the BNZ Building. The description of the workcovered by the quotation was for the removal and disposal of asbestos as identified inthe Optimum Report, and both parties are agreed that this document set the parametersof the work required to be carried out by the contract. Similarly, it was argued that theadditional 20 m2 clause documented in the 12 November quotation was consistent withthe retention of cl 3, as it acknowledged the possibility of the presence of undiscoveredasbestos at the time the contract was entered into.[86] Mr Baird submitted that there was no evidence that Southern Demolition hadever complained about ACM Removals' standard terms and conditions previously, nordid it complain about the presence of those contractual terms, including cl 3, in relationto the Hereford Street contract that was entered into at the same time. Furthermore, atthe time of the initial 1 October quotation, no attempt was made to remove thosestandard conditions, nor objection raised to their inclusion, by Southern Demolition.However, that submission tends to overlook the fact that ACM Removals was seekingto renegotiate a price for the removal of asbestos which had already been accepted bySouthern Demolition and submitted by it to Cequent as part of its demolition tender.[87] As canvassed earlier in this judgment, the objective of Mr Blair and therepresentatives of Southern Demolition was to obtain some assurance that if they wereto allow ACM Removals to effectively double its price, the revised scope of workswould adequately cover the removal of the asbestos necessary to permit demolition.The standard terms and conditions, and in particular cl 3, were viewed as animpediment to obtaining that objective. However, having made that observation, Iaccept the commercial sense of including such terms in an asbestos removal contractis a persuasive factor when objectively assessing whether such a clause remained partof the contract notwithstanding its absence from the 12 November quotation.[88] Mr Baird made a number of submissions based upon the evidence of MrMcPherson who referred to there having been agreement to remove cls 1-20 of thestandard terms and conditions when there were in fact 23 such terms included in the9 November quote. Changes to ACM Removals' standard terms and conditionsbetween the time of the first quotation on 1 October and the 9 November quotationmeant that they had increased to 23 clauses. Cross-examination of Mr McPhersonincluded questioning as to why only cls 1 to 20 had been referred to in his brief ofevidence as being the subject of the alleged agreement at the November meeting. Thisled Mr McPherson to speculate that the additional three clauses may not have beenrequested to be removed, and submissions were made that had there been agreement,one would have expected the remaining three clauses to have appeared in the 12November quote.[89] I do not consider this evidence has probative value. Mr McPherson wasobviously mistaken as to the number of standard terms and conditions. I consider anyconcessions or explanations put forward based upon Mr McPherson's mistakenpremise as to the number of the terms and conditions does not assist. In any event,those considerations relate to the question of whether an agreement had been reachedat the 12 November meeting, about which I have already concluded no consensus wasachieved.[90] As earlier indicated, it is my objective assessment that on balance it is morelikely the asbestos removal contract did include the standard terms and conditions setout in the earlier quotation of 9 November 2015. My essential reasoning in coming tothat conclusion is that I do not consider that Mr Blackie would have allowed hiscompany to enter into an asbestos removal contract simply on the basis of the termsof the 12 November quotation. Furthermore, it cannot objectively have been theparties' intention to have their contractual relationship governed by such a limiteddocument. To illustrate this point, it is necessary to set out the terms and conditionslisted in the 9 November quotation but not repeated in the 12 November quotation.They read as follows:1. ACM Removals Removals Ltd agree to carry out the "work" on thisproperty/buiding. This works is as we understand from you the maincontractor/client as written and/or as stated in the contract documentsupplied.2. We may have a requirement for access to town pressure water supply pluselectricity for the duration of our time on site. This is to be supplied byyou at no cost to ourselves, as this has not been allowed for in our quotedprice.3. This work area (unless contaminated) is to be cleared of all debris thatmay impede our progress. This prior to ACM Removals crewscommencing on site, allowing us to carry out our work in a productiveand expedient manner. This also will ensure cross contamination will beless likely to occur.4. Once we commence our work, access to this site or building will bedenied without prior notification. Any person allowed entry on to site, isto be fully kitted out with the required safety equipment.5. There will be a requirement for discussion on "some project" sites,regarding the understood work scope. This is to discuss the specificrequirements and to have full agreement prior to commencing the work.6. To remove all material from site for safe disposal as per the relevantregulations.7. All restricted removal work will be carried out by out trained crewmembers/leading hand/foreman, under the supervision of a C.O.C holder.8. Once an air clearance has been received, the polythene masking, will beremoved and disposed of as asbestos waste.Comments, Qualifications and Exclusions:1. We understand our quoted price is directly to you, being the maincontractor/client. This quote cannot be transferred to or be subject topayment by another contractor/client.2. All work will be carried out under the asbestos regulations and the currentcode of practise.3. All practicable steps shall be taken to remove the visible asbestos. Dueto the nature of sprayed on or some other forms of asbestos, this cannotbe given a 100% guarantee of total removal.4. There is no "defect" period with asbestos removal. Therefore, we do notaccept "Retentions" being withheld when invoice payments are made.5. You the main contractor/client shall be responsible for any costs andarrangements, in regard to all permits, approval or authorisations requiredfor this work to proceed. This is not allowed for in our price.6. We will comply with all statues [sic], regulations and by-laws for whichwe would "normally" be responsible for.7. Once we have received the contract acceptance in writing we willcommence work without undue delay.8. The principal is responsible for any air monitoring and clearanceprocedures, after the removal process has been completed. ACMRemovals will not take any responsibility for this nor will they beliable for costs incurred.9. Liquidated damages and/or extra charges will not be accepted unlessprior discussions has [sic] been held and agreement reached.10. Due to the nature of all removal work, damages will occur. This isespecially relevant for "Re-occupation" properties. Internal stipple-texture ceiling linings, for removal work in particular, "will" result inrepairs having to be carried out to painted-plastered-wall paperedsurfaces and/or floor coverings. This cannot be avoided and noallowance has been allowed in regard to these costs in our price below.All costs for replacement or repairs are at your, the main contractor/clientor property owners expense.11. At no time will ACM Removals Ltd, accept any claims for costs,without prior agreement and/or approval in writing from anapproved ACM Removals representative.12. Should we become aware of any relevant circumstances or facts on thisproject that was not known prior to tendering, we will consult with you,the main contractor/client and make our recommendations, plus discussany cost implications? Once written agreement is received, should thisapply, the work will be carried out.13. Any other variation requests and/or site instructions generally willrequire pricing and agreement in writing before any such work is to becarried out. This includes for un-foreseeable lack of access, obstructionsstand down costs, due to circumstances beyond our control, or where thecompany's materials – masking, are damaged on site by other parties orany other un-controllable event.14. We have based our price on our crew members, working a standard week,this is nine (x9) hours ordinary time Monday to Fridays. Should yourequire longer hours or weekend work to be carried out, this will be avariation to our quoted price below and therefore we would requirediscussion as to recover [sic] of any extra costs incurred.15. Our prices are based on today's labour rates, GST and material costs. Anyescalation in costs during our contract period shall be reasonablyclaimable; with the required confirmation of these varied costs.16. This letter and any subsequent correspondence, shall form part of anycontract between ACM Removals and you the main contractor/client.17. Our price is submitted, based on the payment terms and conditions as laidout in the Construction Contracts Act 2002. This clause can only bevaried by written agreement between you the main contractor/client andourselves ACM Removals Asbestos Ltd:18. We at ACM Removals Asbestos Ltd, expect payment to be made on orbefore the 20th of the month following the date of our invoice.19. If a debt recovery agency has to be employed all payments will incurcosts "plus" a penalty charge of $30.00. Plus a daily charge of 0.125%of the contract value.20. All lead paint will need to have a TCLP test carried out by HillsLaboratories prior to being disposed of.21. The disposal of the lead paint is based on Kate Valley acceptance limit of5g/m3 and not exceeding this limit. Anything exceeding this shall haveto be treated and another TCLP test carried out as well as a new pricesubmitted.22. Any skim coat that may contain asbestos, shall be skimmed back toconcrete only. This is based on the original concrete being a smoot pour.This does not allow for any scabbling nor does it allow for roughconcrete.23. PLEASE NOTE: If our quote is to remove stipple/texture, it isstipple/texture only and does not include the jointing compound orbedding coat. This will be at an extra cost.[91] These terms are to be compared with the bullet points listed in the12 November quotation, set out earlier at [69], which are entirely specific to the BNZproject. It is reasonable to presume the topics with which the clauses are concernedwould ordinarily be the subject of stipulated terms and form part of a contract betweena demolition contractor and an asbestos removal subcontractor. There is no evidenceof concerns being raised by the parties when considering the increased quotation priceabout these terms and conditions, other than cl 3. That concern was specific, relatingas it did to the potential qualification it may place upon ACM Removals' contractualobligations to remove asbestos and the need to ensure that all asbestos was removedfor the purpose of the demolition for the revised price.[92] Related to that issue was the question of cost implications arising fromunforeseen developments and, in particular, the removal of unknown asbestos whichmay need to be the subject of a variation as provided for in cl 12. However, I did notunderstand it to be Southern Demolition's case that the absence of the standard termsand conditions reflected any prior agreement to exclude variations, only to modify thethreshold for when they could be claimed by the introduction of the 20 m2 term. Apartfrom cl 3, and arguably cl 12, there is no evidence of Southern Demolition or Mr Blairhaving objected to the other standard terms and conditions. Their focus was on theneed to ensure the asbestos removal contract they entered into would be adequate toensure removal of asbestos from the BNZ Building for the greatly increased price.[93] That need is reflected in the first bullet point of the 12 November quotation,that if asbestos 20 m2 or less was discovered during the process of removal, it wouldbe removed without additional cost. That stipulation qualified clause 12 of thestandard terms and is illustrative of how the 12 November quote sought to reflect theissues that had been discussed at the 12 November meeting and to record the positionsreached in respect of those matters. Similarly, the contract no longer excluded thebasement, and recorded specific matters relating to the particular works that had alsobeen discussed at that meeting.[94] When the content of the 12 November quotation is viewed in the context of theway events unfolded, and which culminated in the November meeting, I consider thatdocument was intended to reflect and record the modifications to the 9 Novemberquotation and the matters of clarification and confirmation which Mr Blair andSouthern Demolition had sought and been agreed. The 12 November documenttogether with the breakdown of the revised costings of the asbestos removal work wasto be used to obtain agreement to the increased cost of Southern Demolition's tender.Against that background, I do not consider it can be inferred that the standard termsand conditions as set out in the 9 November quotation were to be excluded becausethey were not reproduced in the 12 November document.The scope of the contractThe Optimum Report[95] The description of the work that ACM Removals was contracted to perform isset out in the final quotation of 12 November as being the "Removal and disposal ofasbestos as identified in the Optimum report and after further clarification with AlanAlbertson". In late 2014, Messrs Godden and Albertson of Optimum were engagedby a prospective purchaser contemplating the possible remediation of the BNZBuilding to prepare a report on asbestos contamination in the building.[96] ACM Removals placed significant weight on the fact that the Optimum Reportwas prepared for the purpose of the possible remediation of the building rather thanits demolition. This was the position taken by ACM Removals when the disputebetween the parties initally arose. In a letter of 14 June 2016 sent by ACM Removalscounsel, it was stated that it was important to recognise that the Optimum Report hadbeen prepared for the purposes of building remediation and was not a demolitionreport. The suggested significance of that observation was that the report was aimedat only identifying unencapsulated asbestos. I do not consider such a stance by ACMRemovals is tenable.[97] It was clear to Mr Blackie, at least by November 2015, that the BNZ Buildingwas to be demolished, and he knew that the Optimum Report was being utilised forthe purpose of identifying to a prospective asbestos removal contractor the asbestosthat would need to be removed to carry out the demolition of the building. It iscommon ground between the parties that the asbestos to be removed was that identifiedin the Optimum Report. The fact that the original purpose for which the OptimumReport was initially prepared, to consider remediation, is irrelevant.[98] Mr Godden's evidence was that the report was prepared to identify whereasbestos was in the building, and that he would not omit asbestos from the reportsimply because it was being prepared for a client that was considering remediation.Relying on cl 3, ACM Removals' argument was that the asbestos covered by thecontract was limited only to visible asbestos identified in the Optimum Report.However, the asbestos survey undertaken for the purposes of preparing the OptimumReport did not limit itself to visible asbestos, nor did it restrict itself to theidentification of asbestos that was considered to be practicable to access.[99] The Optimum Report that Mr Godden authored was based upon samples takenby Mr Albertson and tested by a laboratory, Dowdell and Associates Ltd (Dowdell).Mr Albertson and Dowdell were also to be involved in testing carried out towards theend of ACM Removals' work in 2016. In December 2014 and January 2015, MrAlbertson took 16 static air samples from the BNZ Building and 68 "hard" samplesfrom the physical elements of the building. Based upon the results of the testing ofthese samples, Optimum summarised its findings in its report as follows:The results would indicate that, given the extent of sampling carried out, thefollowing areas were clear of contamination:• Wall coverings and plasterboards throughout.• Various paint works, basement, stairs, office floors.• Coatings in the safe rooms.• Windows and insulation on the surrounds (internally)• Plaster and coatings on the non-penetrating steel pillars.• Plant, pipework, machinery in the basement.• Grouting on the external slate tiles.All air samples returned "Clear" results.The main areas of concern showing positive results with asbestos detected are:• The public lifts.• The service/heating corridor.• The dumb waiter.• The staff lift.• The main electrical corridor.• Pillars that penetrate the floors through to level four.• The electrical room in the basement.• Debris around ceiling wall joins.• The top side of all steel beams where they meet the floor slab.Initial findings would indicate that the potential exists to establishmethodologies to effectively contain or remove the asbestos located as perdetailed above from the site.In the event that there is a preference to retain some or all of the existingstructure, it is recommended that a RFP process by (sic) established withnominated asbestos removal contractors to establish removal and isolationmethodologies and associated costs.Later in the report, Mr Godden noted that the samples were taken across the "sixfloors" of the building "to ensure there was a good indicative coverage" and that carewas taken "to ensure any apparent differences in construction/fitout were sampled".[100] The client for which the report was prepared did not pursue its interest in theBNZ Building. In July 2015, Mr Blair's principal purchased the building. The newowner provided him with a copy of the asbestos report prepared by Optimum. InAugust 2015, he contacted Mr Godden and, in a subsequent email, Mr Goddenconfirmed to Mr Blair that the report was prepared for the purpose of buildingremediation, was in draft, and intended to serve as a discussion document with theoriginal client, and potentially for a specialist contractor looking to prepare amethodology for that purpose. It was also noted that if demolition was beingundertaken there were other tests and measurements which had not been consideredin the existing report, including, for example, in relation to piles and soil.[101] Mr Blair subsequently added some text to the front page of the originalOptimum Report which read as follows:The report was originally produced for the purpose of building remediation.It was issued as a discussion document.This report has been cleared for issue with this tender by the original owner.The original owner and the principal do not guarantee the accuracy of thisinformation. We also refer you to the disclaimer below from Optimum, thewriter of this report.It is highly recommended that a specialist contractor/subcontractor be used forthe demolition and even an independent body might be used formonitoring/clearance and certification.It is pointed out that asbestos testing of the soil was not undertaken.It may be worth parties contacting Optimum for further information but thisis not a requirement of the tender.[102] Mr Blair also edited the disclaimer in the original Optimum Report, deletingthe words that "all the material published in this report is for the benefit of therecipients stated above only". This was no doubt because the Optimum Report wasnow being used to obtain tenders from demolition contractors and comprised part ofthe "tender process". Mr Blair also deleted an extract from the body of the reportwhich referred to the preparation of "high level financial feasibilities" to betterdetermine whether it was economic to redevelop the building, because he consideredthat passage was irrelevant since there was now no intention to redevelop the buildingwhich was to be demolished. Another passage premised on the redevelopment of thebuilding was also deleted by Mr Blair.[103] Mr Baird was critical of the way Mr Blair had edited the report without thechanges having been referred to Messrs Albertson or Godden before being sent toprospective demolition contractors. However, there was no editing of parts of thereport that related to the identification of asbestos in the building, and Mr Blair madeit clear at the front of the report that it had originally been produced for the purpose ofbuilding remediation. Clearly, the report was prepared for that purpose, andMs Manderson and Mr Blackie were aware of that feature. Importantly, Mr Blackiewas aware that the Optimum Report was being used for the purpose of identifyingasbestos to be removed for the purpose of the demolition of the building.[104] Mr Godden's evidence was that, while the Optimum Report was prepared forthe purpose of the possible remediation of the BNZ Building, it was a question for theclient whether it was feasible to do so, nor was it his company's responsibility toestablish the efficacy of the removal or isolation methodologies and the associatedcosts for the purpose of carrying out a remediation exercise. However, Mr Goddenaccepted that it was Optimum's responsibility to identify where the asbestos was, andthat it did not omit asbestos from its report simply because the client was looking atpossibly remediating the building. Mr Godden confirmed that whether the buildingwas being demolished or remediated, it was his company's task to identify the asbestospresent within the building.[105] Mr Godden's evidence was that even before the testing was undertaken it wasobvious from an initial inspection that some of the asbestos was hidden orencapsulated, and that he was aware the building contained encapsulated asbestos.The report described the methodology adopted when taking samples from variouslocations within the building. It stated:Taking into account the construction and layout of the building, the rationalebehind the chosen locations for the samples was as follows:• Confirm the makeup of steel pillars that pass from ground to fourthfloor.• Confirm waste in public and staff lift shafts that travel from basementto top floor.• Confirm the state of all service shafts that travel within the building.• Provide an overview of plant in the basement.• Provide an overview of the interfloor tie-ins and ceiling beams.• Remaining testing to cover individual hotspots.• Provide an assessment of the air quality.[106] Mr Godden confirmed, after being referred to the first of these bullet points,that Optimum was trying to establish the actual makeup of the building materials andthat the report was not limited to surface asbestos, or to asbestos that was merelyvisible. Mr Godden explained that they were attempting to determine the most likelyplaces where asbestos was present, and there was no suggestion of the report beinglimited to asbestos that was practicable to remove. This is plain from the descriptionprovided in the report of the samples taken on the first day of its survey. The reportreads:6.1A SamplesThe samples that were identified and taken starting December 22 (A) weredesigned to provide a first stage to assist in establishing areas that containedmaterial that was positive or that contained fibre that was "man-made" andtherefore negative.This approach identified that the large steel pillars that run through to the topfloor and house cabling etc had a large amount of asbestos in their buildup.Samples A4, A5, A14, A22, A23 and A24 all proved positive for a mixture ofasbestos and showed up in the concrete spray coating, its paint, and the gasketsthat are between the plates as well as encapsulated at its base and top....[107] No invasive testing was carried out for the purpose of preparing the OptimumReport. There was inconsistent evidence as to whether such testing would have beenrequired for preparing an asbestos report for the purpose of demolition. However, theshort point is that it is common ground that the report which had been prepared forremediation was now being used to identify the asbestos required to be removed inorder to demolish the building. Both parties proceeded on the basis that the asbestosrequired to be removed under the contract was that identified in the Optimum Report.14To the extent the report failed to identify the presence of asbestos in the building itwas not included in the contract.[108] A central issue between the parties regarding the scope of the required workrelated to the detection and removal of asbestos on "the topside of all steel beamswhere they met the floor slab". This was one of the areas of concern identified in theOptimum Report. Mr Albertson identified a drafting error in the executive summaryof the report that stated that positive results for asbestos had been obtained from thetopside of the beams, whereas Mr Albertson's evidence was that he had not been ableto test the topside of the beams where they met the floor slab. I do not consider thatrecent discovery is material.[109] The fact that, unbeknown to the parties, Optimum made some internal error inthe compilation of its report is not relevant to the dispute between the parties. TheOptimum Report identified the topside of all the steel beams where they met the floorslab as being an area of concern, and all the parties proceeded on the basis that thiswas asbestos that had been identified by the Optimum Report. It follows that it was14 Mr Albertson who carried out the testing described in his evidence that in sampling the pillarsrunning through to the top floor which housed cabling, they were found to contain a large amountof asbestos in their buildup, and were sampled by obtaining scapings using a chisel, chipping backpaint and going through the layers that were on the pillars to identify material that wasencapsulated underneath. Arguably, this constituted a form of invasive testing, at least in relationto the pillars.asbestos that had to be removed. Again, while irrelevant to the issues I must decide,later testing would in fact confirm the presence of asbestos in those areas.[110] The sole role of the Optimum Report for the purpose of the asbestos removalcontract was to identify the asbestos required to be removed and disposed of pursuantto that contract. Insofar as ACM Removals suggested that the scope of work requiredto be carried out under the contract was limited to only those specific locations in thebuilding from which samples were taken and returned a positive result, I reject thatsubmission. The samples were taken to obtain representative information across theentire building in order to identify the areas and components of the building that wereclear of contamination and those which contained asbestos. The sampling wasdesigned to determine the extent of asbestos contamination within the building and, asis apparent from the diagrams showing the location from which each of the sampleswas taken, the sampling provided an indication of the areas that were "of concern".The parties proceeded on the basis that asbestos in those areas identified in the reporthad to be removed under the asbestos removal contract. The Optimum Report wouldhave no utility if it was to be read, as was suggested at one stage by Mr Barton, thatthe only asbestos required to be removed was from where positive samples hadactually been taken.[111] While, as acknowledged by Southern Demolition, the contract did not mandatethe removal of all asbestos "absolutely", it did require the removal of asbestos fromthe "main areas of concern" identified in the Optimum Report. The Report had beenprepared for the purpose of the client's potential remediation of the building, but byNovember 2015 both parties and Cequent were using the document to identifyasbestos for the purpose of the demolition of the building. The efficacy of theOptimum Report in performing that function may have been qualified as a result ofthe original purpose for which it was created. However, both ACM Removals andSouthern Demolition were prepared to enter into the asbestos removal contract and toproceed on the basis it sufficiently identified the asbestos required to be removed forthe purposes of demolition.The effect of cl 3 in the context of the contract[112] I have accepted that the standard terms and conditions set out in the9 November quotation carried over to the 12 November quotation to form part of thecontract. However, in reaching that conclusion, it cannot be overlooked that cl 3 wasa generic or standard term which, on ACM Removals' own evidence, was included inall its contracts as a matter of course. I consider the parties largely over-estimated theimportance of cl 3 in terms of its influence on the interpretation of the asbestos removalwork required to be completed by the contract. The clause cannot be applied to limitthe agreed scope of the asbestos removal work which the contract expressly specified.[113] To the extent Southern Demolition and Cequent were concerned about thepotential effect of cl 3, I consider their focus, particularly in the wake of the neardoubling of the contract price, was to ensure that the risk of unanticipated orundiscovered asbestos which should not fall within the scope of the works and anyadditional associated cost was kept to a minimum. I do not interpret their concern asany implicit concession that cl 3 qualified the extent of the work required to removethe asbestos identified in the Optimum Report which set the parameters of thecontractual work.[114] I do not consider ACM Removals' reliance on cl 3 can be applied to excludeits obligations to remove asbestos identified in the Optimum Report which mayotherwise have fallen into the category of asbestos that was not visible. In thecircumstances of this asbestos removal contract, the scope of works ACM Removalswas contractually obliged to complete was explicitly governed by the OptimumReport. To the extent identified areas of concern included asbestos that was not visiblebecause it was known to be encased or took a particular form, and which may arguablyhave otherwise fallen within the terms of cl 3, I consider the application of thepurported disclaimer was superseded by the explicit terms of the scope of works thatincluded the asbestos identified in the report.[115] Clause 3's reference to the removal of "visible" asbestos and to the propositionthat due to "the nature of sprayed on or some other forms of asbestos" a "100 per centguarantee of removal cannot be given" did not prevent the parties from entering intoa contract to remove "invisible" asbestos that had already been identified as present,and listed as an area of concern in the Optimum Report. Nor is such a term necessarilyinconsistent with such a contract. As is apparent from the purpose of surveying andsampling a building in order to discover and locate the presence of asbestos within itscomposition, asbestos may not be "visible" and/or may remain undiscovered. In thepresent case, the contract required asbestos already identified to be removed.Undiscovered asbestos or asbestos that remained invisible notwithstandingOptimum's work and its subsequent report would fall outside the contract.[116] The interpretation and application of cl 3 of the standard terms and conditionsmust be assessed against the actual scope of the contract works. The clause issecondary to, and subject to, the explicit terms of the stipulated work required to beundertaken under the contract. As the House of Lords observed in HomburgHoutimport BV v Agrosin Private Ltd and Others (The Starsin):15... it is common sense that greater weight should attach to terms which theparticular contracting parties have chosen to include in the contract than topre-printed terms probably devised to cover very many situations to which theparticular contracting parties have never addressed their minds.Similarly, in Shephard v Ellison Holdings Ltd, Associate Judge Matthews accepted thepremise that an inconsistency between specific terms of a contract and general termsset out in a printed form will result in the former prevailing.16[117] All the parties, including Mr Edge and Mr McPherson on behalf of SouthernDemolition, acknowledged that it was not feasible for an asbestos removal contractorto be able to guarantee the removal of all asbestos from a building. That is a realisticconcession. However, it does not follow from that acknowledgment that this type ofdisclaimer can be used to qualify the agreed ambit of the asbestos removal work. Norcan cl 3, which recognises the inherent limitations in the removal process and that a100 per cent guarantee of total removal is not possible, be applied to distort the agreedscope of the contract work.15 Homburg Houtimport BV v Agrosin Private Ltd and Others (The Starsin) [2003] UKHL 12 at [11].16 Shephard v Ellison Holdings Ltd [2012] NZHC 2798 at [22].[118] The type of standard disclaimer which cl 3 represents has to be read subject tothe actual scope of works that was agreed between the parties based on the OptimumReport. That exercise must be approached on an objective basis, having regard to thecontext in which the contract was entered into and the circumstances known to theparties at the time. This must necessarily include the concerns raised by Mr Blair andSouthern Demolition with ACM Removals regarding cl 3, and the assurance theysought at the time about the efficacy of the asbestos removal contract to adequatelyreflect the need to remove asbestos from the BNZ Building to allow for its demolition.[119] Furthermore, while no actual agreement was reached to delete cl 3 or removethe standard terms and conditions, a consensus was reached that allowed the parties tomove forward with the contract based on the increased price. That consensus wasachieved as a result of, and informed by, the parties' discussion that the price wouldsubstantially, if not comprehensively, cover the cost of removing the asbestosnecessary to allow for the demolition of the building. Clause 3 must be read in thatlight and against that background.[120] It is now necessary to examine whether ACM Removals discharged itsobligations under the contract to remove the asbestos identified in the OptimumReport. The assessment of that question necessarily requires consideration of whetherSouthern Demolition's insistence that ACM Removals complete certain work beforepaying the balance of the fixed price was justified, and whether the variations (orquantum meruit claims) claimed by ACM Removals related to asbestos that had notbeen identified in the Optimum Report.Did ACM Removals discharge its obligations under the contract?[121] The parties are agreed that by the end of March 2016 ACM Removals hadcompleted 75 per cent of the asbestos removal work. This work had been invoicedand paid. All the work carried out by ACM Removals to that point fell within theasbestos removal contract. The first indication of an issue regarding the scope of thework required to complete the contract appears to have arisen in late March 2016.Testing and review of the work[122] Mr Albertson, who was now working for a different asbestos testing company,was engaged by ACM Removals to carry out testing as progress was made with theremoval work. He advised that a number of the pillars appeared to have asbestos onthem. Subsequent sampling confirmed that five or possibly six pillars still hadasbestos on them.[123] Mr Barton, who it will be recalled had taken over the running of the companyafter Mr Blackie sold ACM Removals in December 2015, approached Mr McPhersonabout the issue. It was Mr Barton's evidence that he informed Mr McPherson that avariation claim would need to be submitted for what he considered was extra work,the cost of which would need to be absorbed by the client. Mr McPherson told MrBarton to submit a variation claim, however, this was not done.[124] On 11 April, Mr Albertson advised ACM Removals that sampling of the I-beams had also returned a positive result for asbestos. A subsequent certificate issuedby Dowdell on 7 May, based upon Mr Albertson's inspections, advised that whileasbestos had been removed where access had been possible it was "obvious that somelimpet [asbestos] remains in behind concrete beams". The report concluded with thefollowing recommendation:Recommendation, The removal process was completed on what was visualand accessible (as with all asbestos removal). We suggest that when thedemolition is taking place a COC should be onsite to inspect the ends of thebeams. If any asbestos is found it should be removed professionally whenthey can be assessed. Our clearance is given on the above basis that the airquality is under detection levels.17[125] On 13 May, Mr Albertson and Mr Barton jointly submitted a report on ACMRemovals' letterhead to Southern Demolition which referred to testing undertaken oneach floor (four levels – ground to third floor). It concluded as follows:After several months of meticulous attention to removal of all known asbestos,the BNZ Building is clear and deemed so by the testing done by Alan[Albertson] and Dowdell. We are also having a "peer" review from thepresident of Dowdell's next week (Wednesday May 18th).17 The refererence to a COC is to a Certificate of Competence holder.Air, visual, swab and previous "grab", scrape samples have been cleared viaan analytical and visual inspection from this highly accredited firm, and it isthe opinion that the areas ground level through to 3th (sic) floor are deemedsafe to work in.[126] The 13 May report from Mr Albertson and Mr Barton did not address the"obvious" limpet asbestos referred to in the Dowdell report of 7 May. That reportrecommended a COC remain onsite during removal of the beams at the timedemolition took place, in order for the asbestos to be removed when it could beaccessed.[127] The peer review referred to in Messrs Barton and Albertson's report of 13 Maywas undertaken by Mr Nicholson of Dowdell, and on 27 May he reported that frominformation obtained from the "paper (reports) trail" that "asbestos materials had beensystematically removed" from level four to ground. Mr Nicholson noted each areahad been cleaned to a best as practicable standard, and that following removal andclearances each floor had been totally water blasted and wiped down to remove anyresidue that may have been present, leaving each floor in a clean state.[128] However, Mr Nicholson then referred to the "I" beams on each level. Hereported as follows:Concerns had been raised regarding the "I" beams on each level. These beamsare prominent on each level. The concern is that asbestos insulation materialwhich coated the beams may also be present and wedged between the top ofthe beams and the above concrete floor.As a result and during my visit on 19 May 2016, several top pieces of the "I"beams were cut out for further examination/analysis at the laboratory. Fivesamples were cut out on level one, two samples were found to have amosite(Brown) asbestos attached to the top surface (IANZ report 16-022162attached). A second concern is where the "I" beams attached to the Pillars,these areas are in some cases coated with concrete. I believe that the materialcould not be removed due to structural reasons.As a result our recommendation is that during deconstruction of this building,especially "I" beam areas, an asbestos COC should be present to determine atthe time, if any insulation material is present, and if so, samples taken andanalysed to determine any presence of asbestos.The "I" beams[129] The asbestos removal contract required the removal of asbestos that wasidentified in the Optimum Report. This included asbestos on the topside of all steelbeams (the "I" beams) where they met the floor slab. It follows that ACM Removalswas obliged to remove that asbestos under the contract. However, as Mr Bartonconfirmed in his evidence, no attempt was made to remove that asbestos.[130] For the reasons I have already articulated earlier in this judgment, I do notconsider ACM Removals can rely upon cl 3 of its standard terms and conditions toexclude the removal of asbestos from the topside of the "I" beams from the scope ofthe contractual works. In the circumstances and context of this asbestos removalcontract, I consider the parties intended, when entering into the contract, for the scopeof works to include the removal of all asbestos identified in the Optimum Report. Thatincluded asbestos identified in the report as "areas of concern" which listed the topsideof all steel beams where they meet the floor slab.[131] As referenced by Mr Nicholson in his "peer review" of 27 May, because of theposition of the asbestos, removal could likely only take place during thedeconstruction of the building, at which time it could be accessed. This limitation wasargued by ACM Removals as demonstrating that it was not practicable to remove theasbestos because the asbestos would have to be removed in stages during thedemolition of the building.[132] As part of the process of quoting for the asbestos removal work, ACMRemovals provided Southern Demolition with its methodology. This was supplied atthe time Ms Manderson submitted the first quote of 1 October 2015. The documentstated that the methodology was "for the removal of the asbestos products andcontamination that has been identified in the report supplied by Optimum Projects",and that "[a]ll work will be carried out to the New Zealand Guidelines for theManagement and Removal of Asbestos Third Edition", (the Guidelines). The relevantpart of the Guidelines provides as follows:5.4.7 Demolition and structural alterations involving restricted workDemolition and structural alteration of buildings or other structurescontaining asbestos-based material should be in accordance with theseguidelines.All asbestos products, including asbestos cement sheeting, must beremoved before demolition is begun. In some circumstances, partialremoval followed by partial demolition to allow access to previouslyobstructed asbestos material may be necessary. In such areas, thepartial demolition operation should be conducted under conditionsappropriate to the removal work.[133] Mr Nicholson's recommendation contained in the Dowdell report is consistentwith these Guidelines. Ms Manderson in her evidence confirmed that the asbestosremoval work was required to be undertaken in accordance with these Guidelines.Both Mr Blackie and Mr Edge agreed that ultimately the way in which ACM Removalschose to carry out the removal of the asbestos identified in the Optimum Report wasa matter for that company. Importantly, however, where a building is beingdemolished the process of removing asbestos may require partial demolition to allowaccess to the asbestos material. This appears to have been the case with the asbestoson the topside of the steel beams.[134] As already noted, at the time the asbestos removal contract was concluded, MrBlackie was aware the BNZ Building was being demolished. The Optimum Report,in identifying the areas of the building where asbestos was considered to be present,did not qualify its identification of the asbestos by reference to it being visible nor howeasily that identified asbestos could be accessed or removed. How the asbestos wasto be removed and the required approach to complete that exercise was theresponsibility of the asbestos removal contractor.[135] Clause 2 of the standard terms and conditions set out in the 9 Novemberquotation provided that all work was to be carried out under "the asbestos regulationsand the current code of practise (sic)". However, the significance or relevance of theGuidelines in the present case is not whether either they or the methodology documentprovided by ACM Removals to Southern Demolition formed part of the contractbetween them. The importance of the Guidelines is that it is a professional publicationrecognised by the industry that provides where a building is being demolished theaccessing and removal of asbestos may need to be delayed to allow partial demolitionto occur in order for it to be extracted. Mr Nicholson's recommendation contemplatedsuch a process. While I accept, as Mr Blackie stated in his evidence, that he was notrequired to follow the Guidelines and was free to choose his own methodology, thatdid not affect his company's contractual obligations to remove the asbestos identifiedin the Optimum Report. Nor does it alter the fact that in respect of that task there wasan available methodology, albeit one that required partial demolition of the buildingto have taken place and cooperation and coordination with the demolition contractor.The basement and the lift shafts[136] The position taken by Mr Barton on behalf of ACM Removals was that thescope of works under the asbestos removal contract covered only the ground floor tolevel four and did not include the basement. ACM Removals' stance extended to adenial that the clearance of the piled rubble from the basement lift shafts, created bythe earlier partial demolition of the building before the parties had become involved,fell within the contractual scope of works. It is important at this point to distinguishbetween issues regarding the scope of the contracted works relating to the clearanceof the lift shafts which extended down to the basement and the piles of debris theycontained, on the one hand, and the wider basement area, on the other.[137] On 14 April 2016, Mr Barton sent a letter to Southern Demolition that ACMRemovals was willing to remove the contaminated asbestos material in the lift shaftsas an agreed variation. No response was received to this correspondence. However,on 20 April 2016, a meeting was convened at which Mr Barton brought up the issueof the clearance of the basement lift shafts as a variation. As Mr Barton acknowledgedin his evidence, that suggestion was not met well. Despite that observation, ACMRemovals' case was that this work was undertaken on the basis it was additional workthat fell outside the fixed price contract. Mr Edge denied agreeing to any variation atthe 20 April meeting. He stated that it would be "silly to do so" without ensuring thevariation was acceptable to Cequent, and that Southern Demolition would, in turn, beable to claim a variation to its tender sum under the main demolition contract.Mr Edge maintained there was no such thing as "oral variations" in the industry.[138] I do not consider ACM Removals can realistically contend that the clearanceof the lift shafts extending down to the basement was other than included in theasbestos removal contract. As I have already observed, the very reason the original 1October quote was sought to be renegotiated by Mr Blackie was because that pricefailed to take into account the material piled in the lift shafts which he discovered uponattending the site. This was the main explanation given for the need to increase theprice, and the work in the "lift shaft areas" was subsequently identified as a separatecost, both in the 9 November quotations and in the working sheets that accompaniedthe 12 November quotation. Because of the explanation Mr Blackie obtained fromMs Manderson regarding the extent of Mr Albertson's opportunity to carry outsampling in the basement, the 9 November quotation was made explicit that it did notinclude the basement.[139] The 12 November quotation addressed the concerns raised by SouthernDemolition and Mr Blair with Mr Blackie. It removed the limitation on the descriptionof the work to be undertaken in the BNZ Building by omitting the previous limitationon the scope of the work from the ground to the fourth level. Furthermore, the specificbullet points listed in the 12 November quotation referred to samples being taken fromthe lift shafts and of there being two teams working on the site; one specifically forthe lift shaft areas and one for the remaining areas. The bullet points also referencethe rubble in the lift shafts.[140] I therefore reject ACM Removals' contention that the asbestos removalcontract did not include the lift shafts or the basement, at least insofar as the lift shaftsextended to the basement and contained piles of rubble which were the subject of themeeting on 20 April 2016. Mr Barton confirmed in his evidence that until the 20 Aprilmeeting ACM Removals had left any of the asbestos that had fallen down the shaft tothe basement where it was. However, it is common ground that when the parties leftthe meeting it was understood that ACM Removals would undertake this work.The pillars[141] Also raised at the 20 April meeting was ACM Removals' claim relating to whatit considered was additional work required to be taken in respect of a number of pillarsthat Mr Albertson had brought to Mr Barton's attention in late March as appearing tohave asbestos on them. Mr Barton pursued a claim for a variation at the meeting onthe basis the asbestos removal contract did not include this work. Mr Bartonmaintained that Mr Edge gave approval for this variation at the meeting. However,Mr Edge denied that was the case and that while he was prepared to look at "all thefacts and figures" that may support a variation, he would not have done so orally atthis meeting.[142] On 26 April, Mr Barton submitted a variation claim for the asbestos removalwork in respect of the pillars. At the request of Mr McPherson, Ms Mandersonprovided further details relating to that claim, including photographs, a plan of wherethe pillars were located, and a spreadsheet showing how the variation claim of$16,888.41 (plus GST) had been calculated. In a telephone conversation the followingweek, Mr McPherson advised Mr Barton that the variation claim was with Cequentfor consideration and that he would let Mr Barton know whether it was able to beapproved. The status of this work on the pillars, in terms of whether it was includedin the fixed price contract or was in addition to the contracted works, is discussed laterin the judgment, at [176].Were the contracted works completed?[143] On 3 May, ACM Removals sent Southern Demolition an invoice for paymentof 10 per cent of the contract price and issued a payment claim on the same day forthe amount of $53,052.95 (including GST). Mr Barton's evidence was that theasbestos removal work was by this time very near completion, although work was stillbeing undertaken clearing material from the lift shafts in the basement. Additionally,during the month of May, Mr Albertson and Mr Nicholson carried out their testing andinspections of the building for the purpose of preparing the reports to which I havepreviously referred.[144] On 31 May, ACM Removals sent Southern Demolition its payment claim forthe remaining 15 per cent of the contract price in the sum of $79,579.37 (includingGST). Southern Demolition declined to pay the last two payment claims totalling25 per cent of the contract price and, on 3 June, its solicitors advised ACM Removalsthat it disputed it had completed the contract. Southern Demolition identified a failureto complete the "cleaning of all steel "I" beams in the building" and that until thatwork was completed the contract was outstanding. It demanded that ACM Removalsrecommence work immediately and complete the work for the fixed price which hadbeen agreed. Southern Demolition reserved its position to terminate the contract ifACM Removals refused to carry out the required work on the "I" beams. The responsesubsequently received from ACM Removals' counsel was that the asbestos betweenthe top of the "I" beams and the concrete floors was not covered by the contract.[145] For the reasons that I have earlier canvassed, I do not consider that positionwas correct. The Optimum Report specifically identified the topside of all steel beamswhere they met the floor slab as being one of the listed areas of concern for thepresence of asbestos. This meant that under the terms of the asbestos removal contractACM Removals was obliged to remove material from the described area of thebuilding notwithstanding the difficulties that process of extraction may havepresented. The fact that the Optimum Report was originally prepared for the purposeof a client contemplating remediation of the building was no answer to the contractualobligation to remove the asbestos identified in the report.[146] At this point, the relationship between the parties completely broke down andACM Removals refused to return to the site. The position at that stage was that ACMRemovals claimed it had completed the contract and sought payment of its claim forthe remaining 25 per cent of the contract price. For its part, Southern Demolition'sstance was that ACM Removals had not completed the contract and there wassignificant outstanding work yet to be completed. It refused to pay ACM Removals'invoices while the contract remained incomplete.[147] I have concluded that the cleaning of the "topsides of all steel beams wherethey meet the floor slab" (the "I" beams) was a contractual obligation owed by ACMRemovals under the asbestos removal contract. I therefore consider its refusal orfailure to complete that work, which formed a substantive part of the contract, entitledSouthern Demolition to decline the last two payment claims and terminate thecontract. On the basis ACM Removals had not discharged that part of the contract,Southern Demolition was entitled to withhold payment with a view to setting off theretained sums against the cost of having another subcontractor complete this part ofthe contractual works.[148] Because Southern Demolition's counterclaim and the issue of quantum havebeen severed from the issues of liability with which this judgment is concerned, noevidence was tendered regarding the specific cost to Southern Demolition ofcompleting the work on the topside of the steel beams. I am therefore not in a positionto make an assessment of how the amounts of the two outstanding invoices for theremaining 25 per cent of the contract price, some $115,332 (exclusive of GST),compare with the cost to Southern Demolition to complete this part of the asbestosremoval contract. In the absence of that information, the parties are left with myfindings that as at June 2016 the asbestos removal contract had not been completed,and there remained outstanding contractual work which, at the least, took the form ofthe cleaning of the topside of all steel beams. Southern Demolition was entitled towithhold payment pending completion of that aspect of the contract.[149] As observed, there is the possibility that ACM Removals may be entitled topayment of some portion of those two outstanding invoices, but I am not in a positionto assess how much, if any. That feature of the case is touched upon later in thisjudgment in reference to ACM Removals' claims of having undertaken additionalwork beyond the scope of the contract, which were also the subject of invoices issuedby it after the breakdown in the contractual relationship with Southern Demolition. Itis to that issue I now turn.Variations[150] The standard terms and conditions provided for variations:12. Should we become aware of any relevant circumstances or facts onthis project that was not known to us prior to tendering, we willconsult with you, the main contractor/client, and make ourrecommendations, plus discuss any cost implications? (sic) Oncewritten agreement is received, should this apply, the work will becarried out.13. Any other variation request and/or site instructions generally willrequire pricing and agreement in writing before any such work is tobe carried out. This includes for un-foreseeable lack of access,obstructions, stand down costs, due to circumstances beyond ourcontrol, or where the company's materials – masking, are damagedonsite by other parties or any other uncontrollable event.[151] Those variation clauses relating to additional work outside the scope of thecontract became subject to the condition contained in the 12 November quotation, that:• Any asbestos 20 metres squared or less that is discovered during theprocess of removal, shall be removed, without any extra costs.It is apparent from the addition of the 20 m2 clause to the contract that no formalvariation to the contract was required to be submitted for the removal of that quantityof additional asbestos, and no further payment was to be provided for such work. Theremoval of additional asbestos less than 20 m2 formed part of the contract works.[152] There is a dispute between the parties as to whether the 20 m2 condition wasto be calculated in relation to undiscovered asbestos found in one area of the building,or whether the figure was to be calculated on the basis of the aggregate of undiscoveredasbestos removed from the whole site. A further issue that arose between the partieswas whether the extra cost was only for asbestos removed in addition to the 20 m2, orwhether once the 20 m2 threshold had been exceeded Southern Demolition was liableto pay the cost of removing the whole amount of undiscovered asbestos. Because ofmy conclusions in relation to the claimed variations and the alternative action relyingon the doctrine of quantum meruit, it is not necessary for me to resolve theseambiguities.[153] It is indisputable that the fixed price contract provided for variations to thecontract, including of the type claimed by ACM Removals, for the cost of removingasbestos which fell outside the contract works. Mr Edge accepted that if there wasadditional asbestos removed that was not identified in the Optimum Report, thatpotentially could be the basis of a variation to the asbestos removal contract whichwould warrant an additional payment. Southern Demolition's own contract with thebuilding owner allowed for variations to be claimed for unforeseen work.[154] ACM Removals' claim for variations is based upon the three invoices itsubmitted in June 2016 after the exchange of letters between the parties' legalrepresentatives. The amounts claimed and the description of the variations set out inthe invoices are reproduced later in this judgment. The payment claims sent in Junewere not accompanied by any supporting calculation of the amounts being sought.However, in respect of the variation regarding the removal and disposal of asbestosfrom 17 pillars, as set out at [142], Ms Manderson had, in late April, providedspreadsheets and other details to Southern Demolition which showed how the amountclaimed of $16,888 (exclusive of GST) was calculated.[155] In order for a variation to be approved, ACM Removals needed to submit theappropriate paperwork setting out the basis of the claim and how the cost of theadditional work had been calculated. Most importantly, before embarking on anywork that was considered to be outside the scope of the contract, ACM Removals wasobliged to consult with Southern Demolition, discuss the cost implications and onlyproceed with the work if written agreement had been provided regarding the additionalcost. That need for written approval reflected the terms of ACM Removals' ownrequirements before accepting liability for additional costs. Clause 11 of its standardterms and conditions stipulated that it would not accept any claims for costs withoutprior agreement or approval in writing from an approved ACM Removalsrepresentative.[156] ACM Removals did not obtain agreement in writing in advance for the work itclaimed as variations to the contract, and failed to comply with the terms andconditions of the contract regarding the process by which variations were to be agreedand the cost implications of those variations accepted. ACM Removals claimed thatagreement was reached at the 20 April meeting involving Messrs Barton and Edge,and that oral approval for variations relating to work in the basement on the pillarswas obtained. As I have already concluded, I do not accept that Mr Edge agreed thatthis work qualified as a variation to the scope of the contract for which additionalpayment would be warranted beyond the fixed price. While there is evidence fromMr McPherson that the claim for $16,888 in respect of work carried out on the pillarswas being considered, no agreement was ever reached between the parties regardingwhether that constituted a valid variation or comprised work that fell within the scopeof the contract works.[157] It follows that at the time the two invoices were submitted by ACM Removalsin early June, at which point contractual relations between the parties had alreadybroken down, no agreement had been reached in accordance with the terms andconditions of the contract that the amounts constituted valid variations in respect ofwhich ACM Removals should be paid additional sums beyond the fixed term price.The action in damages based upon these claimed variations must therefore fail.However, that does not dispose of the issue because, as an alternative cause of action,ACM Removals sought to recover the costs of this work under the doctrine of quantummeruit.The quantum meruit claim[158] The doctrine of quantum meruit is based on the principle that a party should beentitled to restitutionary relief for the reasonable value of work or services providedto the other party which for some reason falls outside the terms of their contractualrelationship.18 In order for a claim to succeed it must be established that services wereprovided by one party to another at the latter's request or instruction, and that thesecond party freely accepted those services and obtained a benefit from their provision.In such a situation it is equitable that the first party should receive fair and reasonableremuneration for those services.[159] Examples where a quantum meruit claim can arise may include where serviceshave been provided pursuant to a contract which for some reason is subsequentlyfound to be void or unenforceable, or where services are provided in anticipation of acontract being concluded which is never finalised.19 Value may have been providedon the mistaken assumption that payment for the services was subject to a bindingcontract, where there has been some failure to stipulate the price of the services orgoods provided, or where additional work is required to be completed to satisfy theobjective of the contract.20 Subject to the satisfaction of the elements required to18 Chillingworth v Esche [1924] 1 Ch 97.19 VONZ v Ministry of Health HC Auckland CIV-2003-404-5143 at [72].20 See Wilkins and Davies Construction Co Ltd v Geraldine Borough [1958] NZLR 985; Nicholls vAirways Corporation of New Zealand Ltd [2012] NZCA 444; VONZ v Ministry of Health, aboven 19; Transpower New Zealand Ltd v Meridian Energy Ltd [2001] 3 NZLR 700 at [59].establish a claim, the essential issue is whether it would be unjust for the recipient toretain the benefit of those services without paying for them.[160] ACM Removals argued that in the event the work claimed as variations in thetax invoices addressed to Southern Demolition in mid-June fell outside the variationregime of the contract, it was entitled to compensation under the doctrine of quantummeruit. It had completed the work at Southern Demolition's request or insistence andit was to Southern Demolition's substantial benefit because, on its case, asbestos inthe lift shafts down to the basement and on the pillars was required to be removed inorder for it to demolish the BNZ Building.[161] Southern Demolition acknowledged that the work set out in the variationinvoices was requested or indeed required by it, but maintained that such services werepart of the scope of work covered by the fixed price contract, and that any benefit itreceived was not the result of additional work carried out by ACM Removals butresulted from services it was required to provide. The question therefore, as to whetherit would be unjust to permit Southern Demolition to retain the benefit of the work inthe variation invoices without further payment, turns on whether that work was alreadycovered by the terms of the asbestos removal contract.[162] The work for which ACM Removals seeks restitutionary relief is set out in thetax invoices of 15 June 2016. I consider each of these claims in turn.Tax invoice 5186- Lift shaft clearing and removal of asbestos[163] A claim was made in the sum of $83,500 (exclusive of GST) for the followingwork, described in the invoice as follows:Variation: Lift Shaft Cleaning and equipment cleaning, removal of asbestosdebris of 40 m3. This was a verbal agreement made with Alan Edge ofSouthern Demolition to carry out these additional works. This agreement wasreached on 20/04/2016.[164] I have accepted Mr Edge's evidence that no verbal agreement was reached withMr Barton on 20 April 2016 regarding this work. While that finding is important interms of whether ACM Removals can claim for an unpaid variation under the termsof the contract, the quantum meruit claim does not turn on that issue. ACM Removalsargued that Southern Demolition requested and instructed it to carry out the workrequired in the lift shafts and to remove asbestos from those areas down to thebasement.[165] It is common ground between the parties that after the 20 April 2016 meetingthe work in the basement lift shafts was to be undertaken. However, there wasconflicting evidence as to whether this work had been completed by the time ACMRemovals left the site. Southern Demolition contested that the work had beencompleted. There is evidence that favours a finding that the work in the lift shaftsdown to the basement had been completed or, at least, was being undertaken. Duringa site visit on 17 May, when Mr Barton accompanied Messrs Blair, McPherson andMurphy, it was noted that in order to enter the basement they had to wear respiratoryprotective equipment and passed through a decontamination unit because removalwork was going on in the basement area at the time of their inspection. Mr Nicholsonfrom Dowdell, who visited on 19 May, gave evidence of being aware that people wereworking in the basement, and Mr Barton's evidence was that this part of the job wascompleted. He produced tipping records that showed that over 48 tonnes of debriswas removed from the basement.[166] While I accept the clearance of the asbestos in the lift shafts down to thebasement was likely completed, I consider that this work was always part of theasbestos removal contract. I have already canvassed my reasons for concluding thatthe asbestos removal contract included the lift shafts extending to the basement andremoval of material from those areas. The starting point for my conclusion is theOptimum Report which identified the public lifts and the staff lift of the building asone of the main areas of concern for asbestos. Having been identified as such in theOptimum Report, it was necessary for asbestos from those areas to be removed anddisposed of. I found that Mr Blackie was concerned about the inadequate pricing ofthe initial 1 October quote, predominately because of the large amount of material inthe lift shafts, and that the revised price in the 12 November quotation addressed bothhis concerns, and that of Southern Demolition and Cequent, that the contract includethose areas and that material.[167] I consider the claim for what is contended to be additional work for the "liftshaft cleaning" and the removal of asbestos debris (40 m3) is not sustainable. Inreaching that conclusion, I do not overlook the limited area of concern identified inthe Optimum Report for asbestos in the basement. The report identified asbestos asbeing present in varying concentrations throughout the building, but only specificallyidentified the electrical room in the basement as an area of concern. Furthermore, itidentified areas which as a result of sampling were clear of contamination. Theseincluded "various paintworks, basement, stairs, office floors", and "plant, pipework,machinery in the basement". While I do not consider the asbestos removal contractcan reasonably be interpreted as other than including the material piled in the lift shaftsdown to the basement, the Optimum Report does not specifically identify any otherareas in the basement apart from the electrical room.[168] This feature of the Optimum Report appears to be linked with the condition MrAlbertson found the basement in at the time of his testing. He records in the OptimumReport that the "basement area was very damp with some rooms flooded".Ms Manderson had clarified with Mr Albertson at the time she prepared the first quoteof 1 October that the basement was limited to items above the waterline because ofthe flooding. It is difficult to accurately assess the extent to which the condition inwhich the basement was found affected the testing that could be undertaken in thatarea of the building, but of the samples that were taken only the basement switchboardreturned a positive result.[169] It follows that apart from the lift shafts down to the basement, including thepiles of material they contained, the electrical room and any pillars or steel beams ofthe type described in the Optimum Report as areas of concern, the remainder of thebasement fell outside the scope of works. As I have previously observed, apart fromthat identified work in the basement, ACM Removals would be entitled to becompensated for the balance of any further asbestos removal work undertaken in thebasement (greater than the removal of 20 m2 of asbestos). However, ACM Removals'claim for additional work is for cleaning the lift shafts and removing asbestos debrisas discussed at the 20 April meeting between Messrs Edge and Barton. This onlyconcerned the removal of material from the basement lift shafts.[170] ACM Removals in support of its claim for "additional work" carried out in thebasement relied upon testing undertaken in that location. This included two airsamples taken from the basement which were cleared as containing no asbestos byDowdell. A swab taken from a digger used in the basement was also cleared on 3 June,it previously having returned a positive result from a swab taken on 30 May. However,significantly, it appears the only other testing undertaken to obtain clearance of thebasement was limited to the areas that I have determined were within the scope of thecontract. On 3 June swab samples were taken from various locations within the liftshaft and from what was described as the "electrical alcove". While ACM Removalsrelied upon the sampling as constituting a clearance of the basement, the testingcertificate tends to support only the clearance of those parts of the basement which Ihave determined were required to be cleared of asbestos in accordance with the termsof the asbestos removal contract. It is not apparent that any other part of the basementwas sampled for the purpose of obtaining a clearance. This is consistent with the thescope of the works required to be completed in the basement which included the workpurported to be claimed in the 15 June invoice as a variation.[171] Asbestos was discovered in the basement a number of months later by SouthernDemolition's substitute subcontractor. Southern Demolition relied upon that findingas proof that ACM Removals had not completed the work in the basement, or that itwas at least evidence of it not having undertaken any further work beyond theelectrical room and the lift shafts. Testing undertaken by laboratories engaged by thesubstitute subcontractor identified positive samples at various locations, includingrelevantly the basement centre ceiling and the basement safe room. In response, ACMRemovals submitted these samples, taken in September and October 2016, could notbe relied upon to determine whether the basement was clear at the time it left the siteat the end of May.[172] ACM Removals noted that the substitute subcontractor did not appear to havecharged for removing rubble from the basement. In its payment claim of 25 December2016, under the description of work claimed for, the substitute subcontractor, inreference to the basement, only described the removal of "water and silt". ACMRemovals argued that the site was open to the weather in the interim period, and thatthe build-up of contaminated silt and water in the basement, which appears to havebeen identified as the source of asbestos contamination, could have resulted fromrainwater running down the lifts and walls of the building. It rejected SouthernDemolition's allegation that the contaminated silt and water had resulted from waterblasting work carried out by it while it was onsite which had not been adequatelyfiltrated and dammed to avoid contaminating the basement. It is not necessary toresolve these subsidiary issues, nor is it possible to do so on the state of the evidence.These are matters best reserved for determination when hearing Southern Demolition'scounterclaim.[173] In summary, I have concluded that ACM Removals likely did complete theremoval of the material from the basement lift shafts, but that this was work that fellwithin the contract to which it was not entitled to claim any additional payment beyondthe fixed price. The variation claim the subject of the 5 June invoice I interpret asbeing limited to the clearance of the lift shafts and the removal of the asbestos debrisfrom that location. I am reinforced in that view by a letter authored by Mr Barton of21 June 2016, addressed to Mr McPherson, which, after referring to the letter sent byACM Removals' counsel, attached the five invoices the sums of which are now soughtto be recovered pursuant to this proceeding.[174] In reference to the invoices "for variances", Mr Barton stated, "there is also aninvoice for variances for both the lift shaft basement and 17 pillars". It is apparentfrom Mr Barton's own letter that the claim relating to invoice 5186 for $83,500 waslimited to "the lift shaft basement" and did not extend to a claim for wider work in thebasement beyond that identified. Because I have concluded that such work was withinthe terms of the contract, I consider ACM Removals' quantum meruit claim for workidentified in that invoice must be declined.[175] That conclusion is subject only to the possibility that a portion of the balanceof the fixed price withheld by Southern Demolition ($115,332.45 (excluding GST))remains available after being set off against the cost of completing the work requiredto remove asbestos from the topside of the "I" beams which ACM Removals wasobliged to complete under the asbestos removal contract. Because issues of quantumhave been severed from that of liability, I am unable to ascertain whether that remainsas a realistic consideration.Invoice 5187- Removal and disposal of asbestos from 17 pillars[176] ACM Removals sought recovery of the sum of $16,888 (exclusive of GST) forwork described in another invoice of 15 June in the following terms:Variation – 30 m3 Removal and disposal of asbestos from x 17 pillars notincluded in the quote. This also includes testing and monitoring. Refer to thecontract dated November 12th 2015 "any asbestos 20 metres squared or lessthat is discovered during the process, shall be removed without any extra cost.[177] ACM Removals' quantum meruit claim for the work relating to the 17 pillarsagain turns on whether it falls outside the contracted scope of works. The OptimumReport listed pillars that penetrate "the floors through to level four" as being an areaof concern for asbestos. The 17 pillars in question are those in respect of whichMs Manderson prepared spreadsheets and associated documentation forMr McPherson and were the subject of a variation claim on 26 April, to which noresponse was received from Southern Demolition.[178] Mr Baird submitted that the 17 pillars that were the subject of this work werenot ones that were identified in the Optimum Report because they did not penetratethe floors through to level four. I accept if that was the situation then the pillars wouldfall outside the scope of the Optimum Report. However, it is necessary for ACMRemovals to prove that the pillars were not ones that penetrated the floors through tolevel four. I was not directed to any evidence that supported that submission. Theevidence is to the contrary.[179] In the course of his evidence, Mr Barton referenced some photographs of theinterior of the building and identified concrete pillars that did not penetrate the floors,and "I" pillars (not to be confused with "I" beams) which did penetrate the floors.However, in cross-examination and by reference to floor plans of the building,Mr Barton conceded that the 17 pillars that were the subject of his claim for additionalwork were ones that penetrated the floors. That concession by Mr Barton appears toaccord with the evidence of Mr Albertson, who referred to the variation claimed byACM Removals in the 15 June invoice for work on 17 pillars.[180] Mr Albertson opined that there would have been approximately 17 pillars thatactually penetrated the floors and confirmed, by reference to the Optimum Report, thatthe pillars that did not penetrate the floor were not those which were considered to bean "area of concern" for asbestos. Mr Albertson expressed the view that ACMRemovals completed the removal of what he referred to as the "visible, practicallyaccessible asbestos from the 17 pillars that penetrated the floors". Mr Albertson'sevidence on the point is somewhat confusing. From the floor plans that were providedas an exhibit, it is apparent that there were more than 17 pillars that penetrated thefloors, and I am unsure what direct knowledge Mr Albertson had of ACM Removals'work on the 17 pillars, although he was involved in subsequent testing for asbestosafter the work was completed.[181] It is also not entirely clear from the evidence which pillars penetrated thefloors, in the words of the Optimum Report, "through to level four". The evidenceadduced on behalf of ACM Removals sought to distinguish between concrete pillarsthat did not penetrate the floors and the steel "I" pillars that did penetrate through thefloors. Mr Barton was shown the plan of the floors which marked the pillars that werethe subject of a variation claim submitted by Ms Manderson. That document was partof the paperwork that was submitted at that time, in April, in support of the claim fora variation. However, as noted, Mr Barton accepted that all the indicated pillars onthe plan marked up by Ms Manderson and submitted with the claim were in fact pillarsthat penetrated the floors.[182] In bringing its quantum meruit claim there is an onus on ACM Removals toprove on the balance of probabilities that the asbestos removal work on the 17 pillars,the subject of the June 2016 invoice, was work that was additional to what it wasobligated to complete under the asbestos removal contract. I do not consider on thestate of the evidence that ACM Removals has discharged the onus on it to show thatthe work was other than that which it was obligated to complete under the contract.The quantum meruit claim, the subject of invoice 5187, therefore fails.[183] Again, as noted at [175], that conclusion is subject to whether any of thewithheld portion of the fixed price remains available after being applied by SouthernDemolition to pay for that part of the contractual works which ACM Removals refusedto complete. While that appears unlikely, because the trial was limited to issues ofliability and excluded quantum, I cannot come to any final determination regardingthat possibility.Invoice 5189 – Mr Nicholson's work[184] The third quantum meruit claim relates to the disbursement incurred by ACMRemovals as a result of Mr Nicholson of Dowdell visiting the site and carrying out aninspection of the removal work. The claim is for the relatively small amount of $2,607(exclusive of GST). The sum claimed is not strictly pleaded as part of ACM Removals'quantum meruit claim, but I understand Mr Baird in his submissions contended for itsinclusion in this part of ACM Removals' claim and it is convenient to deal with itsmerits under that heading. The narrative accompanying the claim as set out in theinvoice is as follows:Variation – Rob Nicholson site visit as per Southern Demolition's request.This amount includes, Travel, Consulting charges, Flights/Rentals, Sampleprocurement, sample testing x 5.[185] ACM Removals relies upon cl 8 of the standard terms and conditions whichprovides:8. The principal is responsible for any air monitoring and clearanceprocedures, after the removal process has been completed. ACMRemovals will not take any responsibility for this nor will they beliable for costs incurred.[186] ACM Removals organised and coordinated the testing undertaken byMr Albertson and the review conducted by Mr Nicholson. Mr Barton gave evidencethat Southern Demolition had raised issues with the 13 May report provided on ACMRemovals' letterhead and signed by both Mr Barton and Mr Albertson, informing thattesting had confirmed the removal "of all known asbestos". Mr Barton advised thatSouthern Demolition did not "like the wording" of the report and wanted a "peer"review of the testing. Mr Barton claimed that he agreed to that. However, there is adifficulty in accepting Mr Barton's recollection of the circumstances of theengagement of Mr Nicholson.[187] Under the heading "Conclusion" in the 13 May report and the statement thatthe "BNZ Building is clear and deemed so by the testing done by Alan and Dowell(sic)", Southern Demolition is advised "we are also having a 'peer' review from thepresident of Dowdell's next week (Wednesday May 18th)". It is therefore clear fromthe 13 May report that Mr Nicholson had already been instructed by ACM Removalsto undertake the review before Southern Demolition had even seen the 13 May report.Mr Nicholson could not have been instructed at the request of Southern Demolitionafter receipt of the 13 May report. It is apparent from the content of the report itselfthat Dowdell's had already been instructed to carry out the review at ACM Removals'request.[188] It appears ACM Removals assumed responsibility for air monitoring andclearance procedures in an effort to demonstrate to Southern Demolition that it hadsatisfactorily completed all the work it considered it was required to complete underthe asbestos removal contract, and that it had done so successfully. It is likely MrBarton considered these were prudent steps, given he considered the contract was nearcompletion and the difficulties that were emerging between the parties at that time.Be that as it may, I am satisfied that Mr Nicholson was instructed at the initiative ofACM Removals and its motivation for doing so without reference to SouthernDemolition was for its benefit. Having taken that initiative without reference to itsclient at that stage of the contract, it appears to have assumed responsibility for thecosts. In the circumstances, it would seem fair that it accepted liability forMr Nicholson's expenses.[189] However, the position is governed by the contract, and in particular by a furtherterm included in the 9 November quotation to which neither party referred in thecourse of their submissions. After the statement of the price of the project at the endof the document, the quotation includes the following codicil:Note: Clause 8 does NOT apply and any air clearance monitoring is includedin the price.[190] ACM Removals' reliance on cl 8 in support of the recovery of Mr Nicholson'sexpenses was misplaced. Clause 8 was explicitly cancelled as an applicable term ofthe contract.[191] I do not consider the costs of Mr Nicholson's "peer review" is recoverable byACM Removals from Southern Demolition. Because of the emerging issues betweenthe contracting parties at that time, I do not consider the initiative of instructingMr Nicholson to carry out such a review could be categorised as work requested bySouthern Demolition, nor as being services that were of a type freely accepted bySouthern Demolition or, in the circumstances, considered a benefit to it. I do notconsider any injustice arises from ACM Removals bearing the cost of its instructionof Mr Nicholson. Insofar as reliance was placed on cl 8, it did not apply. The claimfor the work undertaken by Mr Nicholson in the sum of $2,607 (exclusive of GST) istherefore dismissed.Liquidated damages[192] As part of its claim ACM Removals sought to recover liquidated damagespursuant to cl 19 of the standard terms and conditions of the asbestos removal contract.That clause provided as follows:If a debt recovery agency has to be employed all payments will incur costs"plus" a penalty charge of $30. Plus a daily charge of 0.125 per cent of thecontract value.[193] Because of my earlier findings that ACM Removals was not entitled topayment of the last two invoices in the face of its material failure to complete theasbestos removal contract, its claim under cl 19 must fail. ACM Removals claim forliquidated damages is reliant upon it establishing that there were payments owed to itby Southern Demolition which remained outstanding. In light of my findingsregarding Southern Demolition's liability, it is not strictly necessary for me to addressthis part of ACM Removals' claim. However, this part of the case gave rise to thediscrete issue of whether the contractual term relied upon was an unenforceablepenalty as alleged by Southern Demolition. If I am mistaken in my findings regardingSouthern Demolition's liability, there is some value in expressing my views regardingthis issue.[194] The part of the liquidated damages clause which is the focus is that whichimposes a daily charge of 0.125 per cent of the contract value should a "debt recoveryagency" have to be employed to obtain payment of invoices. The contract value wasfor $461,329.66 (exclusive of GST) or a total amount of $530,529.11 (inclusive ofGST). The 0.125 per cent daily charge based on the contract price amounts to some$663.16 (inclusive of GST). Based upon the date the first of the claimed invoices(invoice 5179) went into arrears, 1 June 2016, until the commencement of the hearingof ACM Removals' claim on 16 April 2018 (685 days), the total amount of liquidateddamages claimed under cl 19 is $454,264.60. Apart from denying its liability to paythe outstanding invoices, Southern Demolition maintained that cl 19 represented anunenforceable penalty.The rule against penalties[195] The rule against penalties has traditionally been that a secondary obligation inthe event of a breach of contract will be considered a penalty unless the clause amountsto "a genuine pre-estimate of damages".21 ACM Removals accepts that the penaltiesdoctrine is engaged because cl 19 does represent a secondary obligation, theperformance of which is only triggered upon a defaulting party's failure to performthe primary obligation, namely payment under the contract. However, it denies theclause infringes the penalty rule.[196] The modern application of the penalty rule or doctrine has been the subject ofrelatively recent review in a number of common law jurisdictions.22 Originally, thescope and application of the penalty rule was marked by the need to distinguishbetween the contractual term which provided for a genuine pre-estimate of damagesin the event of breach with "payment of money stipulated as in terrorem of theoffending party", and being in essence a penalty.23 The common law considered thatpunitive provisions in contracts should be constrained and their remedial functionconfined to the achievement of performance expectations in respect of which theenforcement of punishment formed no part.2421 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (HL).22 Cavendish Square Holding BC v Makdessi [2015] UKSC 67, [2016] AC 1172; Andrews vAustralia and New Zealand Banking Group Ltd [2012] HCA 30, (2012) 247 CLR 2015; Pacioccov Australia and New Zealand Banking Group Ltd [2016] HCA 28, (2016) 258 CLR 525; WilaciPty Ltd v Torchlight Fund No 1 LP (in rec) [2017] NZCA 152, [2017] 3 NZLR 293.23 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd, above n 21, at 86, per LordDunedin.24 Wilaci Pty Ltd v Torchlight Fund No 1 LP (in rec), above n 22, at [70].[197] More recently, the dichotomy of penalty and compensation has given way toan assessment of proportionality. In Cavendish Square Holding BC v Makdessi(Cavendish), the United Kingdom Supreme Court recast the threshold test as beingwhether the secondary obligation "imposes a detriment on the contract-breaker out ofall proportion to any legitimate interest of the innocent party in the enforcement of theprimary obligation".25 Lord Hodge identified the question as being, "whether the sumor remedy stipulated as a consequence of a breach of contract is exorbitant orunconscionable when regard is had to the innocent party's interest in the performanceof the contract".26[198] Similarly, the High Court of Australia in Paciocco v Australia New ZealandBanking Group Ltd (Paciocco) focussed on the proportionality of the sanction for non-performance.27 Kiefel J, with whom French CJ agreed, considered the test waswhether the obligation was "out of all proportion to any legitimate interest of theinnocent party in the enforcement of the primary obligation".28 Gageler J focussed onwhether the purpose of the clause was to punish, noting that "the relevant indicator ofpunishment lies in the negative incentive to perform being so far out of proportionwith the positive interest in performance that the negative incentive amounts todeterrence by threat of punishment".29[199] The proportionality approach was adopted by the New Zealand Court ofAppeal in Wilaci Pty Ltd v Torchlight Fund No 1 LP (in rec) (Torchlight).30 While theCourt of Appeal in that case was applying the law of New South Wales, its reasoningwas adopted by this Court in Honeybees Preschool Ltd v 127 Hobson Street Ltd(Honeybees).31 In that case, Whata J undertook a detailed review of the rationale andapplication of the penalty doctrine and noted that the most authoritative statement onthe law of penalties in New Zealand is the Court of Appeal's earlier decision inAmaltal Corporation Ltd v Maruha (NZ) Corporation Ltd.32 In that case, Blanchard J25 Cavendish Square Holding BC v Makdessi, above n 22, at [32], per Lords Neuberger andSumption.26 At [255].27 Paciocco v Australia and New Zealand Banking Group Ltd, above n 22.28 At [54] and [57].29 At [164]-[165].30 Wilaci Pty Ltd v Torchlight Fund No 1 LP (in rec), above n 22.31 Honeybees Preschool Ltd v 127 Hobson Street Ltd [2018] NZHC 32, [2018] 3 NZLR 330.32 Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614 (CA).cited with approval the joint judgment of Mason and Wilson JJ in the earlier HighCourt of Australia decision of AMEV-UDC Finance Ltd v Austin:33... equity and the common law have long maintained a supervisoryjurisdiction, not to rewrite contracts imprudently made, but to relieve againstprovisions which are so unconscionable or oppressive that their nature is penalrather than compensatory. The test to be applied in drawing the distinction isone of degree and will depend on a number of circumstances, including (1)the degree of disproportion between the stipulated sum and the loss likely tobe suffered by the plaintiff, a factor relevant to the oppressiveness of the termto the defendant, and (2) the nature of the relationship between the contractingparties, a factor relevant to the unconscionability of the plaintiff's conductseeking to enforce the term. The Courts should not, however, be too ready tofind the requisite degree of disproportion lest they impinge on the parties'freedom to settle for themselves the rights and liabilities following a breachof contract.[200] Whata J considered that the rationale for the rule identified in AmaltalCorporation Ltd, namely the need to provide relief against oppression orunconscionable behaviour by a contracting party, broadly aligned with the explanationprovided in Torchlight, that remedial clauses not be oppressive or unconscionable.34However, it was observed that in Amaltal the difference between the stipulated sumand the likely loss to be suffered by the plaintiff was determinative of whether theclause was a penalty.35 Such an approach has now been qualified by that taken in theUnited Kingdom and Australia, which focusses on whether the clause is not out of allproportion with the legitimate performance interest sought to be protected.[201] Similarly, in Torchlight, the Court of Appeal considered the test was not simplya comparison between contractually stipulated and Court-imposed damages, butfundamentally turned on whether the impugned obligation is out of all proportionbetween the legitimate interest in the enforcement of the primary obligation, or wasexorbitant or unconscionable, having regard to the performance interests. In seekingto reconcile the early approach of the Court of Appeal in Amaltal when applyingNew Zealand law, and the same Court's more recent analysis of the penalty doctrinein the context of New South Wales law, Whata J distinguished between cases wherethe pre-estimate of loss/stipulated sum comparison approved in Amaltal will be central33 At [57], citing AMEV-UDC Finance Ltd v Austin [1986] HCA 63, (1986) 162 CLR 170 (HCA) at193-194.34 Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd, above n 32, at [59]; HoneybeesPreschool Ltd v 127 Hobson Street Ltd, above n 31, at [40].35 At [41].and other cases where a defaulting party is seeking to depart from the clear words ofthe contract. The latter category of case will require the focus to be on the full contextof the transaction to assess whether the remedial clause is a penalty.[202] In relation to the former situation, Whata J noted:[43] ..., I would not jettison altogether the pre-estimate of loss/stipulatedsum comparison in appropriate cases, not least because it was endorsed by theCourt of Appeal in Amaltal. Compensatory damages for loss remain theprimary remedy for breach of contract. The stipulated sum that is out of allproportion to likely compensatory damages for breach is prima facieextravagant and exorbitant. Furthermore, the pre-estimate of loss/stipulatedsum comparison may be usefully applied in a great many cases if a broadconception of likely loss is adopted including, for example, indirect losses orcost of a cure, or where the performance interest is a contract sum (a pointmade by Lords Neuberger and Sumption in Cavendish).[203] In Honeybees, a landlord had covenanted with a prospective tenant to install asecond lift in the building the subject of the tenancy by a certain date. If the lift wasnot installed by that date, the landlord agreed to indemnify the tenant for all obligationsunder the lease. At trial, the lift was 14 months overdue. Whata J held that theindemnity provided by the landlord was not an unlawful penalty, holding that itspurpose was not to punish non-performance, and that the amount under the penalty,some $556,500, was not out of all proportion to the tenant's legitimate performanceinterest in securing the second lift.[204] Whata J described his decision as "not clear cut". However, like the Court ofAppeal in Torchlight, the Judge based his findings on the commercial context of theclause. The second lift was important to the tenant who was seeking to run a childcarecentre at the property. It had a probationary licence for only 24 children, but after 14months the rental liability would be fixed by reference to a fully licensed facility of 50children. The tenant would be liable to pay the full rent and outgoings irrespective ofthe actual level of occupancy. The lack of a second lift precluded its eligibility for afull licence for 50 children, and thus the viability of the entire business rested on theinstallation of the second lift. In those circumstances, Whata J found there wasjustification for a strong deterrent against non-performance. The lack of a second liftat the property had initially been viewed as an unavoidable obstacle to a contract beingsuccessfully concluded, and its importance to the tenant was known by the landlord.No steps had been taken by the landlord to fulfil the contractual obligation. Bothparties were commercially astute.[205] Whata J concluded that the essential issue will be "whether a stipulated remedyfor breach is out of all proportion to the legitimate performance interests of theinnocent party or otherwise unconscionable, having regard to those interests".Relevant to that assessment would be whether the parties were commercially astute,had similar bargaining power, were independently advised, and whether thepredominant purpose of the impugned clause was to punish as opposed to simply deternon-performance.36 Drawing heavily on Whata J's analysis in Honeybees, I considerthe following principles guide the application of the penalty rule:(a) The threshold question of whether a clause is an unenforceable penaltyis one of construction and context to be decided upon the terms and thecircumstances of each contract. The issue is to be judged at the time ofthe making of the contract, not at the time of breach.(b) The fundamental issue is whether the impugned secondary obligationis out of all proportion to any legitimate interest in the enforcement ofthe primary obligation, or is exorbitant or unconscionable, havingregard to the interests of the innocent party. The degree ofdisproportion between the contractually stipulated consequence and theloss likely to be suffered by the innocent party will inform theassessment of disproportionality. The degree to which that factor willbe influential or potentially decisive will depend on the circumstancesof the case and will remain an important yardstick where theperformance interest is a contract sum.(c) The commercial context of the clause, including the relative bargainingpower of the parties and whether they were commercially astute, is arelevant consideration.36 At [45].(d) Whether the predominant purpose of the impugned clause is to punishrather than deter non-performance will also be a relevant factor.The competing contentions[206] ACM Removals argued that the secondary obligation imposed by cl 19 was tocompensate the innocent party for the non-payment of completed work and toincentivise the performance of that primary obligation. Mr Baird submitted that theparties were in a comparable commercial position with equal bargaining power. Whileneither party took legal advice, both were familiar with, or ought to have been familiarwith, the standard terms of ACM Removals' contract, having previously traded witheach other on the same standard terms.[207] ACM Removals argued that the clause provided appropriate insurance againstthe risk of late or no payment, in which situation it would be left to bear its own costsfrom the defaulting party's non-performance and which it would have to continue tobear regardless of payment by the defaulter. Mr Baird submitted that the figure of0.125 per cent was unambiguous, and pointed to evidence provided by Mr Blackie thatit was based on a "bank formula" provided by his accountant and was not an arbitraryfigure. Mr Barton, who had effectively inherited the standard clause when he tookcharge of the company, gave evidence that it was very difficult to pre-estimate withprecise accuracy the losses that might arise from late or non-payment. However, fromhis experience in the construction industry, he maintained, when balanced against thecosts associated with the running of ACM Removals' business, it was an appropriaterate to pursue liquidated damages for non-performance.[208] Mr Baird submitted that the liquidated damages figure had only grown becauseof Southern Demolition's failure to resolve the claim more quickly, or by paying thedisputed amount into Court or to a stakeholder and thereby limiting its liability. In theabsence of having done so, he submitted ACM Removals should not be disadvantagedbecause Southern Demolition's failure had resulted in an inflated figure comparableto the actual value of the contract itself.[209] Southern Demolition argued that compared with ACM Removals' legitimatecommercial interests and transactional risks, the effect of cl 19 was unconscionable.Mr Riches submitted it was only necessary to compare the losses arising from thealleged breach with the actual liability incurred by Southern Demolition under thepenalty clause to show that the clause represented an unenforceable penalty. The termimposed a blanket daily penalty regardless of the amount of the default. Even if $1was owing, the penalty would be the same, fixed as it was against the total contractprice. Mr Riches argued that this demonstrated the disproportionality of the clauseand that it lacked any compensatory element, but rather was for the sole purpose ofpunishing the other party.[210] Mr Riches referred to Mr Barton's admission that it was impossible to predictwhat the costs for any particular contract may ultimately be, and that it must thereforefollow that the percentage figure stipulated cannot be other than arbitrary. In relationto Mr Blackie's evidence, it was noted that the witness could not identify the rationalefor the figure included in the clause, other than that it was one supplied by hisaccountant and he had no real understanding of how it related to his business. MrRiches stressed there was no identified link between the claimed penalty of 0.125 percent of the contract price and the potential commercial effect of any non-payment,which may range from an insignificant residual amount to the whole contract price.[211] Both parties sought to gain support for their respective positions from theTorchlight decision. In that case, Torchlight was purchasing debt from the Bank ofScotland. It had paid all but AU$37 million of the AU$185 million purchase price andborrowed the remainder from Wilaci. That agreement was for a 60 day loan, withinterest of AU$320,000 and a AU$5 million facility fee. The contract also provided aclause that stated that a late payment fee of AU$500,000 per week was payable afterthe 60 days had elapsed. Torchlight was late in its payments, and by the time Wilacidemanded payment, the late fee amounted to AU$28 million.[212] This Court's decision that the late payment fee breached the rule againstpenalties was overturned by the Court of Appeal. In reaching its decision that the latepayment fee was not a penalty, the Court highlighted a number of features of thecommercial context of the parties' contractual relationship. The loan was acommercial transaction between economically astute commercial entities; each partystood to make substantial returns from the agreement, and expert evidence suggestedthat the risk was such that it was only attractive to lenders of last resort who could earna substantial rate of return. It was further observed that the cost of credit post-defaultwas in fact lower than the cost of credit for the initial 60 day period.[213] Because of those features of the contract and the parties' commercialrelationship, the late payment fee was not found to be out of all proportion to Wilaci'slegitimate interest in having Torchlight perform its obligations under the contractwithin the agreed timeframe. It was therefore not found to be a penalty. In reachingthat conclusion, the Court of Appeal observed that Torchlight's late payment feeindebtedness ended up nearly being as much again as the principal it borrowed andeventually repaid. However, that was the direct result of it not fully repaying theprincipal for some 19 months in clear appreciation of the risk, and litigating those feesrather than paying them.[214] Mr Baird submitted that, as in Torchlight, the scale of debt faced by SouthernDemolition is in large measure a consequence of the choices it made for itself bychoosing to contest the outstanding payments. Mr Riches, on the other hand,emphasised that the Court of Appeal's assessment was greatly influenced by the natureof the contractual transaction which was of a high risk, high return nature, entered intoby a company that did not normally involve itself in the business of makingcommercial loans. In reaching its decision that the late payment fee was not out of allproportion to the legitimate interest Wilaci had in achieving repayment, the Court ofAppeal relied on the particular commercial context and values the parties themselvesplaced on the provision of the loan facility. It was those features which led the Courtof Appeal to conclude that the fee was not an unlawful penalty, because its purposewas not to punish Torchlight.Decision[215] I accept there are aspects of the commercial context in which the asbestosremoval contract was entered into which suggest cl 19 should not be viewed as anillegitimate penalty provision. Both parties accepted they were commercially astuteand had similar bargaining power at the time the contract was entered into. The clausewas part of a standard form contract that had been employed on a number of earlieroccasions when the parties had entered into a contractual relationship. Both partieswere aware of the nature of the obligations they were entering into and the impositionof a late payment fee in order to deter default will not by itself have the effect ofrendering such a clause a penalty. As the Court of Appeal observed in Torchlight, alate payment fee is bound to have that purpose, as would other ordinary terms includedin contracts to encourage due performance. Where the predominant purpose of theclause is to punish default it will be an unlawful penalty, but that is not to the exclusionof permitting a degree of deterrence.37[216] I also consider that the size of the claim for unliquidated damages which hasswelled over time must not be permitted to cloud the assessment of whether the clauseitself is out of all proportion to the loss suffered. The question is not whether after theevent the amount of liquidated damages is out of all proportion but whether, at thetime of entering into the contract, the clause itself would be viewed as being adisproportionate response. At a daily rate of $667, the late fee, at least in comparisonto the $530,000 (GST inclusive) contract, does not appear unduly disproportionate,particularly when viewed against potential outstanding costs in respect of which theinnocent party may remain liable. Mr Barton and Ms Manderson gave evidence of thecost of hiring plant and equipment, employing staff and paying subcontractors. Whilethe cost of such expenses will likely vary depending upon the size of the contract,ACM Removals would remain independently liable for such costs regardless of whenand whether it is paid by the principal contractor. The fluctuating cost of credit,particularly over extended contracts and insurance, was also stressed as a factor.[217] However, the difficulty that arises in the present case is the apparent lack ofrelativity between the late payment fee provided by the contractual term and thepotential loss or risk arising from non-payment, to which I have referred. Clause 19fixed the late fee against the whole of the contract price at a daily rate. It does notallow for any differentiation based on the amount of the balance owing, despite thecontract being one for the payment of services rendered. The amount owing on thecontract is an essential part of ascertaining the potential loss the plaintiff will suffer inthe event of non-payment.37 At [97].[218] While efforts were made by ACM Removals to identify the risks and costsassociated with non-payment, the way the clause is formulated does not permit anycorrelation to be made between the amount owed and the costs and potential loss theinnocent party will be required to carry as a result of the default. No evidence wasoffered in the present case, nor attempt made, to quantify those costs. However, evenif such evidence was adduced, focussing on the clause itself, I am unable to envisagehow that potential loss could possibly be the same whether $1 is owed or $100,000. Alegitimate clause seeking to pre-estimate loss would ensure its application and effectcould, at least in some moderate or broad way, be calibrated to take into account theamount owing on the contract which it is seeking to recover.[219] The key factor which influenced the Torchlight and Honeybees decisions, thatthe terms of those contracts did not amount to unlawful penalties, is absent. In bothcases there was evidence about the risk that the plaintiffs faced in the case of breachother than non-performance of the contract. In Honeybees, the risk was the completefailure of the business. Its liability under the lease would only be able to be met if thelandlord fulfilled its obligation to provide the second lift. In Torchlight, each partystood to make substantial returns in consequence of the agreement. The stakes werehigh. While Wilaci stood to obtain a very substantial facility fee as its considerationunder the agreement, it also carried an exceptionally high risk as the lender. It was notin the business of lending and did not have a loan book across which it could spreadthe risk. In terms of proportionality, the weekly fee payable upon default was actuallyless than the cost of credit under the loan agreement itself. The late payment provisioncould not therefore be considered as out of all proportion to the legitimate interests ofthe lender. Wilaci was not viewed as predominantly intending to punish Torchlight bythe default clause.[220] In contrast, in the present case it is not clear what ACM Removals were at riskof losing, other than the non-performance of the contract, losses in respect of whichthey could be compensated by an award of ordinary damages. Furthermore, the clauseis clearly focussed on mitigating the ordinary "course of business" problem ofrecovering debt. The risk of non-performance to the innocent party arises from thedegree of the breach which can be measured against the balance owed. In Torchlightand Honeybees, the breaches were central to the efficacy of the contracts as a whole.That feature was reflected in the prominence of the secondary obligation, as either anauxiliary agreement to the main contract or as a component of the contract itself, andis to be contrasted with the nature of cl 19 as a debt recovery provision listed in thestandard terms and conditions which, as Ms Manderson acknowledged, was often notsought to be enforced when accounts were overdue.[221] Mr Baird submitted that the present situation was not dissimilar to that inHoneybees. He observed that, in the event that the landlord was even one day late ininstalling the second lift, it would incur a substantial liability. Nevertheless, Whata Jheld that Honeybees had a legitimate interest in the landlord performing the contractand that the amounts payable to it under the indemnity were not out of all proportionto the interest it protected. However, I do not consider the comparison is accurate.The contract sought to impose a deadline for the fulfilment of a contractual obligationthat was essential to the tenant. In the absence of its fulfilment the contract was of nocommercial worth to that party. It was not a question of the degree to which thecontract was fulfilled. As was observed in Cavendish and endorsed by the Court ofAppeal in Torchlight, it is the character of the provision, rather than the circumstancesin which it falls to be enforced, that matters.38[222] Had cl 19 sought to impose a daily charge on the balance of the outstandingunpaid portion of the contract, or sought to impose an ascending percentage attachingto the amount owed as a daily charge, the formulation could not be categorised as otherthan a legitimate mechanism to deter default and incentivise the payment of moneyowed to it. The issue is not without difficulty but had I been required to make adetermination, I would have, on balance, characterised the late payment fee providedin cl 19 as being illegitimately penal.Results(a) ACM Removals' claim for damages for breach of contract in the sumof $218,327.45 (exclusive of GST) is dismissed.38 Cavendish Square Holding BC v Makdessi, above n 22, at [9]; Wilaci Pty Ltd v Torchlight FundNo 1 LP (in rec), above n 22, at [101].(b) Subject to the quantification of the cost incurred by SouthernDemolition to complete the outstanding contractual works, ACMRemovals' quantum meruit claim in the sum of $102,995 (exclusive ofGST) is dismissed.(c) ACM Removals' claim for liquidated damages is dismissed.Costs[223] As the successful party, Southern Demolition is entitled to costs. However,because Southern Demolition's counterclaim and associated questions of quantumremain outstanding the proceedings are only partially completed. Accordingly, theissue of costs, at this stage, is formally reserved.Solicitors:McLeod & Associates, AucklandSaunders & Co, Christchurch