007-SLLR-SLLR-1985-V1-ABEYRATNA-v.-THE-ATTORNEY-GENERAL.pdf
ABEYRATNA
v.THE ATTORNEY-GENERAL
COURT OF APPEAL.
TAMBIAH. J. AND T. D. G. DE ALWIS. J.
C.A. 374/76 (F).
D C. COLOMBO 77752/M.
SEPTEMBER 24. 25, 1984.
Contract – Building contract entered into by builder on assumption induced by agent of*contracting Board – Failure of assumption to materialise – Devaluation – Changed,conditions and claim for enhanced payment.
The plaintiff contracted with the Tender Board of the Ministry of Education to constructsome office buildings for the Education Office in Kurunegala at low rates acceptable tothe Tender Board on the assumption (induced by Ratnayake, the SuperintendingEngineer of the Department of Education) that he could buy the necessary materialsfrom the Government Stores at government prices. But this assumption did notmaterialise. There was delay in completing the constructions. Extensions of time weregiven and in the meantime the rupee and pound sterling were devalued causing pricesto escalate further. The plaintiff completed the contract and claimed extra payment.
Held-
The assumption induced by Ratnayake that materials could be obtained from theGovernment Stores at government prices and the failure of the Government to makeavailable the necessary materials and the devaluation of currency created afundamentally changed situation and justified plaintiff's claim for an enhanced paymentover the contract price. A new contract by the State could be implied to pay theadditional sum over and above the contract price.
Cases referred to :•
Bush v. Whitehaven Trustees (1888) 52 J.P. 392.
Davis Contractors Ltd. v. Fareham Urban District Council [1955] 1 AH ER 275,277.
F. A. Tamlin SS Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd. [1916]*2A. C. 403.
APPEAL from the District Court of Colombo.
Nimal Senanayaks, P. C. with NaHn Abeynaike, Mrs. A. B. Dissanayake, Miss Tharangade Silva and R. Jogendran for the plaintiff – appellant.
S. W. B. Wadugodapitiya, Additional Solicitor-General for the defendant – respondent.
Cur. adv. vult.
November 15, 1984.
TAA/IBIAH, J.
" Jhe admitted facts in the case are that the Director of EducationTnvited tenders in 1966 for the construction of office building*? for theEducation Office in Kurunegala, that all the contractors, including theplaintiff, had quoted higher rates which the State was unwilling to pay,that the modified tender submitted by the plaintiff-appellant wasaccepted by the Tender Board of the Ministry of Education, that thecontract (PI) between the plaintiff and the Director of Education was.signed on 29.9.66 in terms of which the construction had to becompleted on or before 29.6.67 and the contracted amount for thesaid work was Rs. 172,761/10 cts., that the plaintiff was givenextensions twice and the building was completed on 23.7.69 and thatthere was a devaluation of the Rupee on 17.11.67.
As a building contractor, the pfaintiff says that he had undertakenother contracts as well for the Government – the building of theKegalle Hospital for 12 lakhs and the Kegalle Education Office for 3lakhs.
The plaintiff's evidence is that all the contractors, including him,who tendered for this work had quoted rates higher than thegovernment rates, that thereafter there was a discussion between himand Mr. Ratnayake, who was then the Superintending Engineer of theDepartment of Education and also a member of the Tender Board. Atthe discdssion, hd told Mr. Ratnayake that prices of materials hacfgone up and it was difficult to undertake the contract at the rates givenby the Department, and Mr. Ratnayake told him that he will get downfhe necessary materials from the Government Stores at governmentprices. In the letter P24 dated 23.3.69, he reiterated his position thathe undertook the contract because he was assured that the necessaryequipment would be provided by the government. In short, his positionwas that he was persuaded to undertake the contract at lower ratesbecause of the assurance g /en that materials would be supplied tohim from the Government Stores at low costs.
Mr. Ratnayake, a witness for the State, admitted that he spoke tothe plaintiff and asked him whether he was willing to take over thework according to the estimates of the Department; that thequotations of all the contractors were higher than the Department'squotations ; that the plaintiff undertook the contract on lower
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quotations than those submitted by him. He denied that he told theplaintiff that if he undertook the contract, he would supply materials tohim. According to him, materials were available in the market. He did#not encourage the plaintiff to undertake the contract.•
After the site was handed to the plaintiff, he commenced work andhe had difficulty in obtaining materials. In the letters P2 and P5 writtenby the plaintiff, he complained that iron required for beams and theroof was not available in the market or at the Steel Corporation andrequested that they be supplied from the Government Stores. Theletter P3 dated 2.6.67 written by the Director of Education,'Kurunegala, to the Secretary, Ministry of Education, referred to the •request of the plaintiff that he be supplied with iron from theGovernment Stores and states that as the plaintiff is attempting tocomplete the work within the financial year, arrangements be made tohave them supplied to him. The letter P 34 written by the Engineer,School Buildings, to the Secretary, Ministry of Education, refers to thefact that the amount of each tender was above the departmentalestimate, that the plaintiff agreed to complete the work for theestimated amount, and proceeds to state that the period ofcompletion was extended on several occasions since the importedmaterials such as iron, asbestos sheets, glass, sanitary equipment andcement were not available in the open market and that although thecontractor had taken action to import them from abroad, the
Department and the Steel Corporation have failed to supply the same.
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In November, 1967, an event not in contemplation at the time thecontract was entered into took place, namely, the devaluation of theRupee. The plaintiff was able to bring the work up to foundation levefonly. The Treasury received representations from many GovernmentDepartments that Contractors and Suppliers have asked for increasedcosts for supplies and services consequent on the devaluation of the.Pound Sterling and of the Ceylon Rupee. The Treasury Circular dated9.2.68 (P31) was issued to all Permanent Secretaries and Heads ofDepartments. Inter alia, it stated that if any claim for upward revisionof prices based on factors such as increase in wages or costs of rawmaterials are made, the requests were to be examined by the TenderBoard of the Ministry, and the Permanent Secretary on the advice ofthe Board may authorise an increase. The Circular gave guidelines toofficers who were called upon to deal with claims of Contractors forincreased payments.
The plaintiff wrote the letters P8, P9, P11 and P12 and asked for anadditional payment of 20%. as. on account of the devaluation, prices„ #of goods in the market had trebled, and he requested that either the^oods be supplied to him at the original prices or he be paid theadditional payment, otherwise, he will be forced to abandon the workand go in for a settlement. He then received the letter P13 from theActing Superintending Engineer writing for the Secretary, Ministry ofEducation , stating that a 'decision would be taken to change the ratesin due course". By letter P14, the plaintiff asked for a specific reply to. his request for additional payment and he received the reply P15 from.the Acting Superintending Engineer, writing for the Secretary, Ministryof Education, that 'action is being taken to increase the contractedamount. I would be informing you no sooner a decision is taken'. TheEngineer, School Buildings, wrote him the letter PI 6 and stated thathis request for additional payment had been replied to by the Ministryand ended by saying that he would be glad if the plaintiff couldre-commence work without any further delay.
Thereafter the plaintiff wrote the letter PI 7 and pressed for an earlydecision in regard to enhanced payment and referred to the fact thatwhen he undertook the contract he was promised a permit to importsanitaryware, glass, and other equipment, but he had not received thepermit as yet, that though he was promised on 28.5.67, that all ironwould be supplied from the Government Stores, even after the lapseof two years, he has not received them, that work was beingcontinued at great loss and if he continued, he would be a bankrupt.He asked for permission to use wood instead of iron for the roof. Hepressed for early payment of the additional payment, otherwise, he^vould have to halt the work. The 1st extension of time was thengranted to him till 20.11.68 by letter P20
The plaintiff then wrote the letter P22 to the Permanent Secretary inwhich he stated that he has come to know that he had approved apayment of 15% more and requested an increase by at least 25%. asthe rates he quoted for materials and costs of labour were far belowthe amounts he had actually expended. The 2nd extension of time till31.1.69 was granted to him by letter P23.
The plaintiff wrote the letter P24 to the Regional Director ofEducation, Kurunegala, and stated that as iron was not forthcomingfrom the Government Stores, to continue the work he had to purchaseiron at exorbitant prices caused by the devaluation of the Rupee; thjj*because he was informed that a decision regarding his request foradditional payment will be sent, he therefore continued with thebalance work and requested a payment of 20% more as has been paidto other contractors; that because of losses, he thought ofabandoning the work but did not do so because of the request of theSuperintending Engineer and the Director of Education, Kurunegala;that extension of time was given him because his work wa§satisfactory and there were excusable reasons for the delay; thatunless the additional payment is paid on or before 31.03.1969, hewould halt the rest of the work and take legal action to claim damages.
In the letter P 34, written by the Engineer, School Buildings, for theDirector of Education, Kurunegala, to the Secretary, Ministry ofEducation, the former refers to the contractor's request for additionalpayment and states “you have informed by letter dated 11.03.1968that a decision would be taken regarding the change of rates. Thecontractor was informed accordingly and after several discussions hehas taken steps to complete the work satisfactorily by finding therequired material somehow or other as soon as possible*
The work was completed and even after completion, the plaintiffcontinued to write to the authorities the letters P26-P30 requestingadditional payment, but without success.
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It'was the case of the plaintiff that consequent to the devaluation ofthe Rupee, there was a marked increase in the prices of materials andcosts of labour, that he was given the impression that the additionalamount asked for would be paid to him. and he continued andcompleted the work because of this impression given him that hewould receive enhanced payment. The plaintiff claimed Rs. 33,190 ^additional payment for work done and completed, after thedevaluation.
Issues 1 and 2 raised on behalf of the plaintiff are-
Did the Director of Education at the relevant time impliedly orexpressly agree to pay an increased contract price?
Did the plaintiff perform the contract on such implied or expressundertaking?
The case for the State was-
That there were no shortages during the original period of thecontract; material was available both at the commencementand during the period originally stipulated for its completion.The letters P2 and P5 were written after the due date ofcompletion of the contract.
{2) The letters D1-D5 to the plaintiff written between November,1966 and May. 1967 show that the plaintiff had abandonedwork for 7 months when material was available, and theDirector of Education, Kurunegala, was complaining of unduedelay.
The plaintiff should have completed the work before devaluationin November 1967, and because of his delay, he cannot nowseek to obtain relief as a result of devaluation. The TenderBoard decided (D8) 'that the work was due to be completed on20.06.1967. The devaluation was in November 1967. Hencethe contractor is not entitled for an additional payment due tothe devaluation of the Rupee'.
The letter PI 3 only informed the plaintiff that a decision inregard to change of rates is under consideration and not that adecision to vary the rates has been made. All that P15 attemptsto oinvey is that once the decision is taken, it will be conveyedto the plaintiff, which, means, a decision had yet to be made.That the plaintiff himself understood P13 and PI 5 to mean thatthe matter was under consideration is borne out by his letterP17. If at all, P13 and P15 contained only a promise toconsider, not a promise to pay the additional payment.
The circular P31, issued by the Treasury to Heads ofDepartments contains administrative directions in generalterms and sets out guidelines to officers who deal with claimsof contractors for enhanced payments. The plaintiff cannotbase his claim on this circular; it contains no promise,undertaking or assurance for the payment of enhancedamounts.
The learned trial Judge has arrived at the following findings
{1) The plaintiff accepted the contract on quotations lower than thequotations in his tender because of the promise of Ratnayakethat materials could be obtained from the Government Stores.
Due to the non-availability of necessary iron and wires and othermaterials in the local markert, the plaintiff's work was delayed.The plaintiff could not have completed the work on29.06.1967 and the plaintiff is not responsible for this.
Letters P13 and P15 made the plaintiff to understand that theadditional amount would be paid, without telling him- directlywhether he would get it or not, and thereby induced him towork.
The learned trial Judge having posed the question-"The onlyquestion that has to be considered in this case is whether the plaintiffis entitled to demand a higher amount due to the devaluation of thesterling pound and the rupee'-concluded-'a mere statement of oneparty that a higher amount could be paid does not make it a contract.If the terms of the contract entered between the Department and theplaintiff are altered, it has to be done with the consent of both parties.It does not appear that there is such a contract. The plaintiff cannotobtain an enhanced amount*. He answered issues 1 and 2 in thenegative.
Learned President’s Counsel submitted that the finding of thelearned District Judge is that the plaintiff would not have undertakenthe building contract but for the assurance given by Ratnayake thatmaterials would be supplied from the Government stores. This wasthe basis or footing upon which the contract was made and the basis«or footing of the contract was so changed that the contractor was nolonger bound by the contract price and he was entitled to the paymentof an extra sum of Rs. 33,190. He said that the case came within theprinciple of Bush v. Whitehaven Trustees (1).
The report of this case is not available but the facts and decision inBush's case are sufficiently set out in the judgment of Denning, L. J. inDavis Contractors Ltd. v. Fareham Urban District Council (2)-
'The facts were these : In 1886 Bush agreed with the trustees tobuild a water-main in the Lake District for £ 1,335. The contract wasmade in June and the work was to be done in the next four months,which were the dry summer months. Bush made his tender on that
footing. The trustees were to give him possession of the site as andwhen required, but they failed to do so. The land was not allavailable until October 6. The result was that the work had to bedone in the wet winter months instead of the dry summer months.Bush claimed an extra payment on that account. His difficulty wasthat there was an express clause in the contract saying that, if thesite was not made available in time, the contractor should beentitled to an extension of time but not to any increase of payment;but the courts got over that clause. The jury found that theconditions of the contract were so completely changed, inconsequences of the defendants' inability to hand over the site inthe time required, as to make the special provisions of the contractinapplicable*. On that finding it was held by this court that Bush wasentitled to a further £600 over and above the contract price. LordVasher, H. R said (2 Hudson's B. C., 4th Edn. at p 131) that-
'the condition of things had been so altered after the making ofthe original contract (they had been so greatly altered) that it wasnot reasonable, or right, or fair, or just to hold that the originalcontract was made with regard to these circumstances."
He held that in the new situation Bush had a claim for a fairrenumeration for the work done, in other words, to a quantum meruit."
In Davis' case Morris, L. J. (at p, 281) has quoted a passage in the
speech of Eari Lorebum in F. A. Tamlin SS Co., Ltd. v. Anglo-Mexican
Petroleum Products Co. Ltd. (3).
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"But a court can and ought to examine the contract and thecircumstances in which it was made, not of course to vary, but onlyto explain it, in order to see whether or not from the nature of it theparties must have made their bargain on the footing that a particularthing or state of things would continue to exist. And if they musthave done so, then a term to that effect will be implied, though it be
not expressed in the contractIn most of the
cases it is said that there was an implied condition in the contractwhich operated to release the parties from performing it, and in allof them I think that was at bottom the principle upon which the courtproceeded. It is in my opinion the true principle, for no court has anabsolving power, but it can infer from the nature of the contract andthe surrounding circumstances that a condition which is notexpressed was a foundation on which the parties contracted."
Let me examine the circumstances in which the contract was madeHere was a contractor whose tender was above the estimates of theDepartment of Education. He was persuaded by Mr. Ratnayake toundertake the building contract at the estimates of the Departmentand he was assured by Mr. Ratnayake, himself a member of theTender Board, that the required materials to build would be supplied tohim from the Government Stores at low prices. He undertook thecontract because of this undertaking or assurance; otherwise hewould not have. This was the footing or foundation upon which theparties contracted. Though this footing or foundation was notexpressed in the contract, having regard to the circumstances inwhich the contract was entered into, a term to that effect has to beimplied or inferred.
I cannot accept the contention of learned AdditionalSolicitor-General that Ratnayake gave this assurance in his privatecapacity and not on behalf of the State. He was a member of theTender Board and acted as agent of the Tender Board. The Boardknew that the plaintiff's first tender quoted rates higher than theGovernment rates.
The required materials from the Government Stores were notsupplied; nor were they available in the local market. The plaintiff couldnot complete the building within time; the fault was not his. InNovember '67, an event, not caused by the contractor, took place. Hewas caught up in the devaluation and the prices of materials andlabour charges soared. He completed the building, having purchasedthe materials at enhanced prices
The plaintiff was entitled to assume that the footing upon which heentered into the contract would continue, namely, that materials from*the Government Stores would be available at low costs. The Statefailed to make available the necessary materials, and this created afundamentally different situation. The footing of the contract was so,changed that it will be unjust to hold the plaintiff bound by the contractprice. He is entitled to be released from the contract price and recoverthe extra amount he had incurred, over and above the contract price.
The plaintiff wrote the letters P8,P9. P11 and P12 and requested anadditional payment of 20%, as, due to the devaluation of the rupee,prices of goods had shot up. He received the reply (Pi 3) that adecision would be taken in due course, to change the rates. To his
further request for a specific reply, he was told (P15) that action wasbeing taken to increase the contract price and he would be informedthe moment a decision was taken. Twice he asked for extension oftime to complete the building, and the extensions were given. It waswithin the power of the State to have terminated the contract whenthe plaintiff failed to complete the contract within the periodstipulated, but it did not. The plaintiff carried on and completed theconstruction. The finding of the learned Judge is that the letters PI 3’and PI 5, though they did not expressly tell him he would be paid,made the plaintiff understand that the additional sum would be paidand thereby induced him to work.
'It may happen that the contract has been abandoned, or that thecircumstances contemplated by it have become so changed thatthe conditions have become inapplicable. In such a case, if thebuilder or contractor has been encouraged to go on with the work, anew contract by the building owner or employer to pay a quantummeruit may be implied from such of the facts as are applicable.'{Halsbury's Laws of England, 3rd Edn. Vol. 3, pp. 435, 436, para.819).
The State failed to fulfil its undertaking to supply the requiredmaterials from the Government Stores. The circumstancescontemplated by the parties become so changed that the provisionin the*contract bs to the amount payable become inapplicable. Theletters P13 and P15 encouraged the plaintiff to go on with work andhe did so and completed it. A new contract by the State may beimplied to pay the plaintiff the additional sum he claimed, over andabove the contract price.
• The answer to issue 1 should be ‘Yes, impliedly’ and to issue 2should be 'Yes, on such implied undertaking'.
The appeal is allowed with costs. The plaintiff will be entitled tojudgment in a sum of Rs. 33,190 as prayed for
T. D. G. DE ALWIS. J. – I agree.
Appeal allowed.