Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC - [2008] SASC 244

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ABIGROUP CONTRACTORS PTY LTD v HARDESTY AND HANOVER INTERNATIONAL LLC
[2008] SASC 244
Judgment of The Honourable Justice Gray
8 September 2008
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - REMEDIES FOR BREACH OF CONTRACT - PARTICULAR CASES
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - OTHER MATTERS ARISING BEFORE TRIAL
Contractual dispute between head contractor (plaintiff) and sub-contractor (first defendant) concerning construction of bridge at Port Adelaide – dispute referred to expert determination – expert determination made in favour of first defendant and plaintiff ordered to pay judgment sum – expert determination challenged by plaintiff – first defendant sought urgent relief with respect to expert determination pursuant to three alternative interlocutory applications (i) summary judgment of expert determination; (ii) separate trial of issue of enforceability of expert determination; (iii) urgent determination of issue of enforceability of expert determination.
Held: applications refused – whole proceedings should be expedited and set down for an early trial.
Supreme Court (Civil) Rules 2006 (SA) r 119 and r 211, referred to.

ABIGROUP CONTRACTORS PTY LTD v HARDESTY AND HANOVER INTERNATIONAL LLC
[2008] SASC 244
Civil
GRAY J:

These reasons address an interlocutory application for a separate trial on a preliminary issue pursuant to Rule 211 of the Supreme Court (Civil) Rules 2006 (SA) and an application for the urgent determination of that preliminary issue pursuant to Rule 119 of the Supreme Court (Civil) Rules.
On 30 May 2008 I advised the parties that I did not intend to make an order for the separate trial on the preliminary issue, and that I would prepare and publish reasons for that determination. I now do so.
The Dispute
The within proceedings arise out of the construction of a bridge, designed to allow for both ship and motor vehicle traffic. The bridge is to span the Port River at Port Adelaide in South Australia.
The construction of the bridge is a State Government project. The plaintiff, Abigroup Contractors Pty Ltd, is the head contractor. Abigroup engaged the first defendant, Hardesty & Hanover International LLC (“HHI”), an American engineering and consulting firm based in New York, to undertake the engineering design aspects of the bridge construction. It should be pointed out that the contract is ongoing, and that professional services are still being rendered by HHI. Apparently the bridge is nearing completion.
Abigroup is dissatisfied with the work of HHI, and instituted the within proceedings with respect to alleged deficiencies in the bridge design, and in particular an alleged failure of HHI to adequately allow for the need for ship impact protection. Abigroup contended, inter alia, that this failure of HHI led Abigroup to significantly under price its tender. Abigroup also complained that HHI, in the submission of claims under the design contract, have claimed for substantial amounts not properly due under the contract, and that these amounts should be repaid to Abigroup, or otherwise a proper account taken of them.
HHI have filed a defence to the claim, in which they deny any breach of contract or breach of duty. HHI have counterclaimed in respect of contractual rights to which they say they are entitled. The counterclaim seeks relief in respect to what are said to be monies due and owing pursuant to an expert determination. It is this latter aspect of the matter that gives rise to the immediate dispute between the parties, requiring, it is said, the urgent attention of this Court.
Alternative Dispute Resolution
In the course of the contract, HHI sought to mediate a claim for the ongoing payment of fees for work said to have been performed under the contract. The mediation was unsuccessful. HHI then referred claims for expert determination. The expert made a determination in favour of HHI, ordering that Abigroup pay $499,839.88 to HHI. Abigroup have asserted that that there was not a proper submission of any dispute to the expert, and that the expert lacked jurisdiction. Abigroup allege that HHI manipulated the contractual processes to such a point that the so-called claim was a “sham”, such that the expert determination was of no legal effect. HHI deny these assertions.
Initially Abigroup sought an injunction to restrain the expert determination process. This application was refused by a master of this Court. The Master indicated that he considered that a prima facie case had been made out for an injunction, but that the balance of convenience favoured HHI. The expert determination process then proceeded with both parties making submissions before the expert. Abigroup maintained its protest that the expert had no jurisdiction, and against that background made its submissions. The expert proceeded to make his determination on the basis of the documents submitted, together with the written submissions of the parties. Abigroup claim that there was no opportunity to seek the making of full discovery or to test relevant witnesses.
Interlocutory Relief
Following the expert’s determination, HHI sought urgent relief from the Court with respect to the determination. Relief was sought pursuant to three alternative interlocutory applications:
-An application for summary judgment of HHI’s Cross Action (Counterclaim);
-If summary judgment was not granted, an application for a separate trial on the issue of enforceability of the expert determination (“preliminary issue”); and
-If summary judgment was not granted but a separate trial of the preliminary issue was ordered, an application for the urgent determination of the preliminary issue.
In the event, the application for summary judgment has not been pursued.
Extensive written submissions and supplementary submissions have been filed by the parties. These have been supplemented by oral submissions. It has been a difficult matter, at the interlocutory stage, for the Court to assess or evaluate the respective claims of the parties, and to determine the appropriate procedure to be adopted. There were a number of rival contentions that cannot be determined on the materials presented.
In the course of the interlocutory proceedings, substantial progress was made toward a compromise involving a payment by Abigroup to HHI in respect of the amount determined by the expert, but subject to a secured obligation to repay in the event that HHI is ultimately unsuccessful in its claims. Earlier attempts by the parties to negotiate a settlement of this aspect of the matter had been unsuccessful, but a settlement at least in principle has now been reached. Abigroup is prepared to make a payment and it has required what appears to be reasonable security. As HHI has no assets in the jurisdiction, a guarantee from a bank within the jurisdiction has been sought. Negotiations continued for several weeks, culminating in an agreement in principle. The agreement, however, is yet to be executed. HHI has suggested in an unspecified way that the sub-prime collapse in the United States has caused a problem in providing a bank guarantee. However, what is clear is that Abigroup is prepared to make payment, subject to the secured obligation to repay in the event that the Court determines such an entitlement. This arrangement has taken the urgency out of HHI’s application. The problem with giving effect to the arrangement is a problem arising from HHI’s assets being out of the jurisdiction.
Against this background, the Court has explored the way to progress this difficult and complex litigation in a commercially expedient manner. Both parties are content to adopt a procedure designed to achieve this end. Abigroup, for its part, is content to agree to a fast-track procedure for the entire litigation. In its view the proceedings could, with appropriate resourcing and priority, be ready for trial in October 2008.
HHI, for its part, views this as unrealistic and contemplates a fast-track procedure with a trial to take place in or about November 2009. When pressed about the apparent “time blow-out”, HHI explained that it intended to issue third party proceedings, and that the involvement of the third party would necessarily delay the proceedings. When further pressed as to why the third party proceedings had not yet been issued, HHI explained that the issue of proceedings had been deferred pending a proposed mediation apparently to take place during June 2008. It was said that the issue of third party proceedings might act as an inhibitor to a successfully mediated result. Be that as it may, HHI do not appear to be treating the overall proceedings, and in particular Abigroup’s claim for damages for breach of duty, as being urgent. This is to be contrasted with HHI’s attitude to their claim for interim payments. These were said to be extremely pressing.
Another matter of concern raised by HHI was the cost of preparing its money claim for trial. It was said that if its legal contentions were correct concerning the expert determination this work would be unnecessary. However, it was acknowledged that if monies were paid under the earlier referred to arrangement, the question of the quantification of any money claim could be deferred to follow the determination of the question of whether the expert’s decision was final and binding.
The Court has been told repeatedly by HHI that the question of whether the expert’s decision was final and binding is straightforward. It was said to be an argument based on documents, and inferred that the Court could resolve the matters in a day or so.
Abigroup disagreed. It submitted that the issues concerning the expert determination were complex. It said that questions would arise as to the interpretation of the contract and of complex and conflicting clauses, and as to whether any or much of the work performed was properly the subject of the contract. It was further contended that the Court would need to resolve the dispute concerning the alleged manipulation of material by HHI to present a claim as though the claim was below the cap of $500,000 so as to be entitled to an expert determination. It was submitted that the reason for this so-called manipulation was that an amount awarded of more than $500,000 would not be binding under the contract. In short, it was said that the expert determination involved a “sham” and was of no legal effect.
Abigroup submitted that determining the question about the binding nature of the expert’s determination would require oral testimony, would involve the making of findings concerning disputed facts, an in depth consideration of the context and background of the contract, and an exploration about the nature of the alleged manipulation engaged in by HHI. Abigroup pointed out that trying the “expert determination issue” as a separate issue was likely to lead to greater procedural complexity and delay. It was said that issues of credit might arise, and that this would present a difficulty for the same judicial officer to hear all aspects of the proceedings. It was argued that the offer to pay the disputed claims of HHI immediately, with the right to reclaim in the event of a court order, was a fair and appropriate way to handle the interlocutory arguments and appropriately addressed the claim for the need for urgent relief.
In reaching my conclusions with respect to the application of HHI, I have had regard to all of the submissions advanced and in particular the following:
-An apparently reasonable and sensible offer has been made by Abigroup to pay disputed claims as assessed by the expert. The only difficulty with the arrangement appears to be with the problems in giving security, and that appears to be within the control of HHI.
-The initiating proceedings related to Abigroup’s claim concerning defective design work. HHI elected to not only defend those proceedings, but to counterclaim in the same proceedings with respect to their money claim the subject of the expert determination. It would have been open to HHI to issue separate proceedings with respect to their claim. They did not do so.
-The legal issues concerning the expert determination are not simple. The contractual documents, part only of which have been provided to the Court, are complex and to the uninitiated, suggest there may be considerable ambiguity and lack of clarity in relevant terms. For example, two sets of competing clauses deal with expert determination and involve material levels of conflict and, with a clause in the contract, suggesting precedence to one set over another. This technique of simply lumping together apparently conflicting procedures in the contract, and then suggesting precedence to one over another, provides a circumstance that may give rise to potential confusion.
-The claim, as finally submitted to the expert, as earlier observed, is said to be manipulated in a way that distorts the true dispute, so as to bring the amount claimed under the $500,000 cap. These are potentially complex and difficult issues to resolve.
-Attempts by Courts to separate out discrete issues for determination often lead to complication and confusion, and have the consequence of delaying ultimate judicial determination of a dispute. The splintering of the case, consequent appeals, cost and delay are unattractive. The Court has a responsibility to provide an expedient and cost effective procedure for the resolution of disputes. The Court must be mindful that the procedure of the Court may be used to attempt to gain a commercial advantage, and its processes should not be unfairly used in this way.
I do not suggest that the above considerations are the only considerations, but they are issues of particular concern.
Expedition
In my view, the whole of the proceedings should be addressed with expedition, and as indicated to the parties, I am prepared to set in place a procedural timetable designed to that end. I do not accept that the litigation, if properly resourced and treated as urgent by both parties, could not be addressed within 12 months. I reject the suggestion that the obtaining of independent experts would necessarily involve lengthy delays. HHI’s concerns about unnecessary duplication and the preparation of its money claim in the event that it is decided that the expert determination is not conclusive can be accommodated by deferring that aspect of the case to the end of the trial. If HHI have received the disputed monies in the meantime, subject to a secured obligation to repay, their position would not appear to be substantially prejudiced. The question of discovery of material relating to that aspect of the claim, insofar as it may be burdensome, could be deferred.
If HHI wish to join third parties, they should do so as soon as practicable. The delays that have occurred already, and will occur in that respect while mediation takes place, cannot in my view fairly be used to delay an expedited timetable. A party is not entitled to simply “pick and choose” which part of the proceedings should be treated as urgent. The Court has an obligation to consider the position of all parties and strike the appropriate balance between their respective interests.
From time to time in the course of these proceedings, HHI have expressed impatience at what is said to be the Court’s unwillingness, or lack of expedition, in “grasping the nettle” in the way HHI would wish. HHI claims that unless the Court acts swiftly to give relief, HHI’s contractual rights will effectively be rendered nugatory. This is an emotional, and in a sense unattractive, submission. HHI is a firm of professional engineers, operate internationally, and are said to be of considerable substance. They have entered into what they claim to be a multi-million dollar professional engagement. They accepted the terms of engagement. The fact that they have entered into an arrangement that is complicated, and presents difficulties to a Court, is a problem arising from the particular commercial arrangements entered into by the parties.
This Court is prepared to offer an expedited hearing, and, subject to judicial availability, a trial date late in the calendar year 2008. Abigroup is prepared to proceed to trial in that time. Already weeks, if not months, have been lost through the deferring of third party proceedings. HHI have steadfastly resisted a trial this year.
For these reasons I propose ordering that there be an expedited process with a view to setting an early trial date. I will hear the parties as to the appropriate procedural orders to be made. However, since drafting these reasons, there have been two relevant developments. Initially, the parties requested a number of further adjournments to allow mediation to occur before any further orders concerning expedition were made. Subsequently, on 16 July 2008, HHI gave notice that it was seeking an order staying the proceedings. I referred that matter to a Master of the Court for hearing and determination.