AGC Industries Pty Ltd v Karara Mining Ltd
[2019] WASC 140
•3 MAY 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: AGC INDUSTRIES PTY LTD -v- KARARA MINING LTD [2019] WASC 140
CORAM: ALLANSON J
HEARD: 27 & 28 FEBRUARY, 1 - 3, 7 - 10, 13 - 17 MARCH, 21 APRIL, 22 & 23 JUNE 2017
DELIVERED : 3 MAY 2019
FILE NO/S: CIV 1997 of 2013
BETWEEN: AGC INDUSTRIES PTY LTD
Plaintiff
AND
KARARA MINING LTD
Defendant
Catchwords:
Contract - Where plaintiff contracted with defendant to carry out construction project at mine operated by defendant - Where parties entered Early Works Contract and Main Works Contract - Where plaintiff provided workforce and was reimbursed direct costs and corporate overhead and profit (COP) - Where rate of COP in Main Works Contract varied if plaintiff achieved completion of part of works by specified milestone dates
Misleading or deceptive conduct - Whether defendant engaged in misleading or deceptive conduct in pre-contractual representations - Proof of oral representations - Whether representations were made as to future matters - Where plaintiff alleged it would have negotiated alternative contract but for representations - Whether plaintiff has proved loss
Contract - 'Prevention principle' - Where plaintiff alleged defendant caused delay which prevented it from meeting the contractual milestones and earning a higher rate of COP - Whether prevention principle may found cause of action for damages for lost opportunity to earn higher rate of COP
Contract - Implied duty of cooperation - Where plaintiff alleged defendant caused delay which prevented it meeting milestone dates and earning increased rate of COP - Content of implied duty to cooperate - Whether plaintiff proved defendant's conduct caused it to miss milestone dates - Whether defendant liable for breach of contract for conduct causing delay
Contract - Operation and construction of exclusion clause - Where contract excludes liability for consequential loss - Whether defendant liable for damages for loss of opportunity to earn higher rate of COP
Contract - Where contract provided for plaintiff to carry out works as directed by defendant - Where defendant allocated work to another contractor - Whether plaintiff had fixed scope of work - Whether defendant in breach for removing work from scope of work for reallocation to another contractor - Whether plaintiff has proved loss - Whether liability excluded as liability for consequential loss
Contract - Where parties agreed the contract could only be varied in writing - Whether contract varied by payment of allowance outside terms of contract - Whether defendant estopped from denying variation
Contract - Where defendant made monthly progress payments - Where payments on account - Where defendant disputed liability to pay allowance - Whether defendant entitled to deduct amounts paid as allowance from subsequent payment claim as a correction of error in earlier payment or to set off disputed amount
Contract - Whether defendant liable for costs incurred by plaintiff in refinancing due to delayed payment - Whether consequential loss - Whether interest prescribed in contract the sole remedy
Contract - Time bar - Whether defendant can rely on contractual time bar in defence of claims not included in final payment claim
Legislation:
Australian Consumer Law, s 4, s 18, s 87
Competition and Consumer Act 2010 (Cth), s 82 , s 87
Trade Practices Act 1974 (Cth), s 52
Result:
Judgment for defendant
Representation:
Counsel:
| Plaintiff | : | N Pane QC & M R Collins |
| Defendant | : | P E Cahill SC & A D Bereyne |
Solicitors:
| Plaintiff | : | Hotchkin Hanly |
| Defendant | : | Jackson McDonald |
Case(s) referred to in decision(s):
Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499
Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd [2008] WASCA 119
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1988) 18 NSWLR 540
Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440
Biggin and Co Ltd v Permanite Ltd (1951) 1 KB 422
BP Refinery (Westernport) Pty Limited v Shire of Hastings (1994) 180 CLR 266
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Cahill v Kiversun Pty Ltd; Molonglo Group (Aust) Pty Ltd v Cahill & Anor [2017] VSC 64
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Carr v JA Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327
Cenric Group v TWT Property Group [2018] NSWSC 1570
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Cohen & Co v Ockerby & Co Ltd [1917] HCA 58; (1917) 24 CLR 288
Commissioner for Main Roads v Reed‑Stewart Pty Ltd [1974] HCA 53; (1974) 131 CLR 378
Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26; (2016) 260 CLR 1
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500
Di Giovanni v Dark Horse Developments Pty Ltd [2014] WASCA 188
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [1988] 14 NSWLR 523
Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358
Fazio v Fazio [2012] WASCA 72
Fitzgerald v Masters (1956) 95 CLR 420
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
Fubilan Catering Services Ltd v Compass Group (Aus) Pty Ltd [2007] FCA 1205
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1
Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560
H & E Van der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157
Helton v Allen [1940] HCA 20; (1940) 63 CLR 691
Hera Project Pty Ltd v Bisognin (No 3) [2017] VSC 268
Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368
James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332
James Point Pty Ltd v The Minister for Transport [No 3] [2018] WASC 277
John Grant & Sons Ltd v The Trocadero Building Investment Company Limited [1938] HCA 20; (1938) 60 CLR 1
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Kordan Pty Limited v Federal Commissioner of Taxation [2000] FCA 1807; 46 ATR 191
Laidlaw v Hiller Hewitt Elsley Pty Ltd [2009] NSWCA 44
Lemon v Mead [2017] WASCA 215
Lighting By Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23; (2008) 35 WAR 520
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd [1996] 1 NZLR 548
Nissho Iwai Australia Ltd v Malaysian International Shipping Corporation, Berhad [1989] HCA 32; (1989) 167 CLR 219
Parlux SpA v M & U Imports Pty Ltd; M & U Imports Pty Ltd v Gava International Freight SpA [2008] VSCA 161; (2008) 21 VR 170
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235
Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aus) Pty Ltd (1980) 144 CLR 300
Probuild Constructions (Aus) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151
RJ Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2010] WASCA 128
Robinson v Harman (1848) 1 Ex 850, 855; 154 ER 363
Secured Income Real Estate (Aus) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79; (2016) 50 WAR 226
Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [No 2] [2012] WASCA 53; (2012) 287 ALR 360
State of New South Wales v Deren [1999] NSWCA 22
Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd (1959) AC 576
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272
Taylor v Ellis [1956] VLR 457
The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Watson v Foxman (1995) 49 NSWLR 315
Westgyp Pty Ltd v Northline Ceilings Pty Ltd [2018] WASC 244
Table of Contents
The claims and defence
Background
The issues
Misleading or deceptive conduct
The claims for lost COP
The claim for loss of COP on work allocated to Ausco
The SPEC allowance claim
The additional finance costs
The contractual time bar
The trial
The Early Works Contract
Negotiation of the Main Works Contract
Misleading or deceptive conduct
Overview
Preliminary observations
January 2012 meeting
Further negotiation
March 2012 meeting
Events after the March 2012 meeting
The applicable law
Relevant circumstances
What was represented
Were the representations misleading
Reliance and causation
The Main Works Contract
The Formal Instrument of Agreement
General Conditions
Program, Key Dates and Practical Completion
The Works, Works and WUC, and Scope of Work
The Contractor's Responsibilities GC 2
Waiver of conditions GC 8
Workforce and Workforce Requirements GC 11
Company-Supplied Items GC 17
Limitation of liability GC 28
Payment GC 47
Variations GC 48
Time bar GC 49
Termination for convenience GC 53
Notification of claims GC 54
Special Conditions
Contract sum
Corporate Overhead and Profit Sch 2J
The claims for loss of opportunity to earn COP
How the Main Works Contract provided for delay
Was there a program
The prevention principle
The exclusion of consequential loss: Main Works Contract GC 28.2
The common terms
The proper construction of GC 48
The proper construction of GC 36
Implied terms
The Loss of Opportunity Term
The Cooperation Terms
The expert evidence
Mr Kong
Mr Bell
Changing workforce requirements by directing AGC to limit the number of blue collar employees on site
The plea
Were the directions by Karara Variations of the Contract
Would AGC have met the milestone dates but for the directions
The direction to undertake additional Work Packs
The plea
Scope of Work
The facts
Were the Work Packs variations or within the Scope of Works
Did the additional Work Packs delay Practical Completion of the Dirty Concentrate Works
Late delivery of company-supplied steel, mechanical equipment and piping
The plea
The facts
Did delayed delivery constitute a Variation
Did late delivery delay practical completion of the Dirty Concentrate Works
The obligation to supply
Delay in providing Work Method Statements
The plea
The Contract
The exclusion of liability in GC 12.1.6
The provision of Work Method Statements
The direction to integrate Ausco's workforce
The plea
The facts
Did the directions of May and 9 August 2012 delay practical completion of the Dirty Concentrate Works
The direction to undertake Works other than the Dirty Concentrate Works
The plea
The facts
Did the direction prevent AGC meeting the Milestone Dates
Other directed changes/ Directed changes to the Program
The plea
The facts
Loss of Corporate Overhead and Profit in relation to work performed by Ausco
The plea
The facts
The submissions
Breach
Termination for convenience
The nature of AGC's loss
Provisional assessment of damages
The SPEC allowance claim
The plea
The defence
The reply
The terms of the Contracts
The Early Works Contract
The Main Works Contract
Further facts
SPEC allowance
Payment process
SPEC allowance dispute
Findings on SPEC Allowance claim
Early Works Contract
Main Works Contract
The estoppels
The right to set off or deduct
The payment claims for costs of additional finance
The payment process
The plea
The defence
The evidence
Consideration
The estoppel claim
Conclusion on the payment process
Interest
Proof of loss
Time bar
Conclusion
Appendix 1
ALLANSON J:
AGC Industries Pty Ltd carries on the business of providing fabrication, manufacturing, construction and integrated services in the mining industry. AGC is wholly owned by AusGroup Limited, a listed company on the Singapore Stock Exchange.
Karara Mining Limited carried on the business of owning and operating the Karara Iron Ore Project (the Project).[1]
[1] In their pleadings and documents, AGC used the initials KML for the defendant. The defendant used Karara. I will refer to the defendant as Karara except where directly quoting from documents.
On 31 March 2011, AGC and Karara signed an Early Works Contract.[2] By October 2011, AGC had begun to carry out work under the Early Works Contract. The parties then signed the Main Works Contract on 15 March 2012. The action is primarily concerned with matters arising in the negotiation of the Main Works Contract, and work carried out pursuant to that contract.
[2] Contract No 1300-CON-CST002.
In the course of these reasons it will be necessary to refer to several employees of both AGC and Karara. I identify them and the position they held in Appendix 1.
The claims and defence
AGC's claims fall into five broad areas:
(1)Karara engaged in misleading and deceptive conduct by representations it made in the negotiation of the Main Works Contract.
(2)AGC lost the opportunity to earn a higher rate of Corporate Overhead and Profit (COP) as a result of Karara directing Variations to the Main Works Contract which prevented AGC from meeting milestones pursuant to an incentive scheme in the Contract. AGC pleaded eight separate matters:
•Karara directed AGC to limit the number of blue collar employees it employed on site;
•from about February 2012, Karara directed AGC to undertake additional work;
•Karara delivered steel, mechanical equipment and piping later than planned;
•Karara provided Work Method Statements to AGC later than planned;
•Karara directed AGC to integrate the workforce of another contractor, Ausco Engineering Pty Ltd (Ausco), into AGC's workforce;
•Karara directed AGC to undertake Works other than the Dirty Concentrate Works;
•Karara directed other changes; and
•Karara directed changes to the program.
(3)AGC lost the opportunity to earn COP on Work within its contracted Scope of Work that Karara reassigned to Ausco.
(4)Karara was liable to reimburse an allowance (the SPEC allowance) paid to AGC's leading hands at Karara's request and COP on the SPEC allowance. This claim is made under both the Early Works Contract and the Main Works Contract.
(5)AGC incurred additional finance costs due to late payment by Karara.
AGC claimed relief pursuant to the Competition and Consumer Act 2010 (Cth), sch 2 (Australian Consumer Law), and for breach of contract.
Karara denied the claims; it also relied upon a contractual exclusion of liability for consequential loss arising out of or in connection with the Main Works Contract.
Karara further pleaded two contractual time bars, pursuant to the Main Works Contract.
Background
The Karara Iron Ore Project is situated in the Shire of Perenjori, approximately 320 km North East of Perth. It involved the construction and operation of a large open pit mine, a processing plant to produce magnetite concentrate and all associated infrastructure.
The Project was a joint venture of Gindalbie Metals Limited and the AnSteel Group. AnSteel supplied steel for the construction work.
Karara and AGC entered two contracts, the Early Works Contract and the Main Works Contract, under which AGC was to carry out structural, mechanical and piping work (SMP works). Each contract provided for the reimbursement of AGC's costs together with an agreed rate of COP.
Under the Main Works Contract, AGC was referred to as the Contractor and Karara as the Company. On occasion, particularly in the discussion of specific terms of the Main Works Contract, I will refer to the parties in that way. I will refer to the Main Works Contract by its full title or as the Contract.
The parties identified specified work areas as separable portions of The Works ‑ the Dirty Concentrate Works. Dirty Concentrate is partially processed magnetic ore. It is more valuable than unprocessed ore. Dirty Concentrate could be produced with only part of the processing plant equipment functional. The Dirty Concentrate Works and the time of their completion were important because production of Dirty Concentrate would enable the plant to produce revenue before completion.
The parties agreed an incentive scheme under the Contract for the completion of the Dirty Concentrate Works, with a higher rate of COP for earlier completion. The rate of COP varied from 15% to 11%, by reference to five milestones between 1 August 2012 and 1 October 2012.
AGC did not complete the Dirty Concentrate Works by any of the Milestone Dates.
The issues
Misleading or deceptive conduct
AGC alleged misleading or deceptive conduct by representations made at two meetings in January and March 2012. The following factual matters are in issue:
(1)were the pleaded representations made;
(2)if they were made, were the representations misleading or deceptive;
(3)did AGC rely on the representations;
(4)did AGC suffer any loss or damage; and
(5)are the claims under the Australian Consumer Law subject to the contractual time bar pleaded by Karara.
The claims for lost COP
AGC alleged that, in breach of express and implied terms of the Main Works Contract, Karara prevented its achieving completion of the Dirty Concentrate Works before any of the milestone dates. The following principle matters are in issue:
(1)do the terms relied on by AGC arise on the proper construction of the Main Works Contract, or as terms to be implied in fact or in law;
(2)has AGC proved breach of the terms alleged;
(3)would AGC have achieved practical completion by 1 September 2012 (or any of the later milestone dates, and which of them) but for the Variations directed by Karara; and
(4)are AGC's claims defeated, in whole or in part, by the contractual exclusion of liability for consequential loss.
There are secondary issues of construction going to whether particular directions that Karara gave to AGC were Variations pursuant to the Contract.
In relation to the claim for late delivery of Company-Supplied items, there is the question of the application of a specific contractual exclusion of liability.
The claim for loss of COP on work allocated to Ausco
AGC alleged that Karara breached the Contract by taking work out of AGC's Scope of Work and giving it to Ausco. There is a fundamental dispute between the parties about the proper construction of the Main Works Contract, which goes particularly to this part of the claim, but has more general importance:
(1)AGC contended that, on the proper construction of the Main Works Contract as a whole, or by terms implied as a matter of business efficacy, AGC was obliged to carry out a fixed Scope of Works valued at about $176,789,041.00;[3]
(2)Karara contended that AGC was only obliged to perform such work and so much of the Scope of Work in sch 1 to the Main Works Contract as it was directed to do by Karara.
[3] The amount in the cash flow forecast in sch 10 of the Contract.
Karara raised, as an additional issue, whether it could rely on its right to terminate for convenience.
The SPEC allowance claim
It was not in dispute that AGC paid the SPEC allowance to its leading hands. AGC's claim for reimbursement, with COP, raised the following issues:
(1)what was the direction that Karara gave to AGC regarding the SPEC allowance;
(2)was it a term of the Early Works Contract or the Main Works Contract that Karara would reimburse AGC for the payment of the allowance;
(3)did Karara and AGC make a collateral agreement that AGC would reimburse the SPEC allowance and COP on the allowance;
(4)is Karara estopped from denying it was obliged to reimburse AGC for the SPEC allowance; and
(5) was Karara entitled to deduct or set off payments it had made in reimbursing the SPEC allowance against amounts otherwise due to AGC.
The additional finance costs
AGC's claim for additional finance costs, as a result of late payment, requires determination of these issues:
(1)on the proper construction of the Main Works Contract, do the claims for additional finance come within the exclusion of liability for consequential loss;
(2)on the proper construction of the Main Works Contract, is interest the sole remedy for late payment;
(3)has AGC proved the breaches of contract alleged; and
(4)are the losses claimed too remote to be recovered as damages for breach of contract.
The contractual time bar
Finally, Karara pleaded contractual time bars that require the court to determine:
(1)do the provisions governing the making of a final payment claim, and purporting to exclude claims not included in the final payment claim, apply to one or more of the claims;
(2)do the provisions for makings claims, other than a variation claim or payment claim, in the course of the Contract exclude claims that were notified in accordance with that clause;
(3)is Karara entitled to insist on its strict contractual position;
(4)has there been an abandonment by the parties of the Contract; and
(5)is Karara estopped from asserting its contractual rights.
The trial
The trial was conducted over 17 days. In opening, senior counsel for AGC handed up five volumes of 'key documents' on which AGC relied. That apparent economy proved illusory.
Evidence was by witness statement with witnesses attending for cross‑examination.
AGC called five witnesses:
(1)Mr Stuart Maxwell Kenny, its then CEO, Executive Chair and Managing Director;[4]
(2)Mr George Alistair Stuart Arndt, its Project Controls Manager;[5]
(3)Mr Gerard Patrick Hutchinson, its Group Manager Corporate, Development;[6]
(4)Ms Christine Ann Deering, its Cost Administrator;[7] and
(5)Ms Elaine Catherine Buchanan, its Employee Relations Manager for the Project.[8]
[4] Exhibit 3.
[5] Exhibits 12A, 12B.
[6] Exhibit 1.
[7] Exhibit 7.
[8] Exhibits 8A, 8B.
Karara called six witnesses:
(1)Mr Richard Thomas Bourne, its Project Director;[9]
(2)Mr David Arthur Geddes, its Contracts and Commercial Manager;[10]
(3)Mr Andrew Donovan Lindsay, its Manager Commercial Operations;[11]
(4)Mr Dennis James Gangell, its Senior Planner;[12]
(5)Ms Melissa Irene Kuipers, its Site Senior Cost Controller;[13] and
(6)Mr Steve Thistlethwaite, its Senior Project Superintendent for the Project.[14]
[9] Exhibits 37A, 37B.
[10] Exhibit 20A.
[11] Exhibits 28A, 28B.
[12] Exhibit 27.
[13] Exhibit 24.
[14] Exhibit 22.
Karara also called Mr Johnny Gervoe, the director of Softline Solutions Pty Ltd.[15] Softline Solutions developed and maintained a steel tracking database which enabled those working on the Project to keep track of the manufacture and movement of structural steel coming from China.
[15] Exhibit 25.
Karara tendered the statements of Ms Natasha Leigh, Karara's legal counsel,[16] and Mr Christopher Scott Gerrard, Karara's general counsel and company secretary.[17] Neither of them was required for cross-examination. Their witness statements related to Karara's approaches to Mr Murdoch, through Ms Leigh and Mr Gerrard, to discuss his giving evidence in the case.
[16] Exhibit 30.
[17] Exhibit 29.
Each party adduced expert evidence.
There was also an extensive record of contemporaneous documents, including emails and letters.
Where it is necessary, I will set out my specific findings on the witnesses in the context of their evidence. Generally, I had no reason to doubt that any of the witnesses was other than truthful, and trying to answer questions as well as they could.
Several potential witnesses were not called. The most significant was Mr Murdoch, Karara's CEO at the time of the negotiation and execution of the Main Works Contract. AGC's case for misleading or deceptive conduct relied on oral representations that it alleged Mr Murdoch made at two meetings in 2012 with Mr Kenny. The failure of Karara to call its former CEO left the evidence of Mr Kenny about those meetings uncontradicted (although not unchallenged).
When Ms Leigh and Mr Gerrard contacted Mr Murdoch he demonstrated a clear unwillingness to assist. Karara could have subpoenaed him to attend, and I do not doubt that he would have complied with an order of the court. But, from what he said to Mr Gerrard and Ms Leigh, Karara had no reason to believe that he was likely to cooperate further.
AGC submitted that the court should, in accordance with the rule in Jones v Dunkel,[18] infer that nothing Mr Murdoch had to say would assist Karara's case.
[18] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 320 ‑ 321.
The rule in Jones v Dunkel was explained by Hill, Dowsett and Hely JJ in Kordan Pty Limited v Federal Commissioner of Taxation in this way:
The rule in Jones v Dunkel is no more than a statement of common sense. It is regularly referred to but often mistakenly applied. It is regularly formulated in two different, albeit related ways. One formulation, derived from the judgment of Dixon J at 304-5 is that where a party having the onus adduces evidence in support of his or her case which gives rise to a positive inference which is more probable than another inference which is also open, that more probable inference if left unexplained will be accepted. It is important to note that his Honour, referring to an unreported judgment of the High Court in Bradshaw v McEwans Pty Ltd (27 April 1951), firmly rejected the rule that failure to give evidence permits an inference to be drawn where the state of evidence is such that there are 'competing inferences of equal degree of probability' so that the choice between them is a mere matter of conjecture. The other formulation, derived from the judgment of Kitto J at 308 is that where there is an inference favourable to a plaintiff and the defendant chooses to call no evidence to rebut it, it can be concluded that that evidence would not have assisted the case of the defendant and an inference favourable to the plaintiff, for which there are grounds in the evidence, might then be more confidently drawn. Both formulations are to be found linked in the judgment of Menzies J at 312 where his Honour, explaining what a proper direction to the jury in that case would make clear:
(i)that the absence of the defendant … as a witness cannot be used to make up any deficiency of evidence;
(ii)that evidence which might have been contradicted by the defendant can be accepted the more readily if the defendant fails to give evidence;
(iii)that where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.[19]
[19] Kordan Pty Limited v Federal Commissioner of Taxation [2000] FCA 1807; 46 ATR 191 [47].
If any inferences may be drawn from Karara's failure to call Mr Murdoch, on the evidence before the court, they are not of particular importance.
AGC's case in misleading and deceptive conduct was based on Mr Kenny's evidence about conversations that occurred in early 2012. I did not doubt that Mr Kenny was a truthful witness. The question is whether he was reliable in his recollection of what was said. And, even if I had wholly accepted the evidence of Mr Kenny (I did not), AGC's case on misleading or deceptive conduct was beset by other problems. The absence of Mr Murdoch could not make up for those deficiencies.
AGC also criticised Karara's decision to not call the SMP Project Manager, Mr Stark, and the employees or former employees who carried out the roles of Construction Manager, Project Planning Manager, General Manager of Operations, Senior Contracts Manager, Senior Project Engineer, and Finance Manager on the Project.
Mr Stark was clearly centrally involved in the management of the Project at the Site, and sent, received, or was copied into, many of the emails which were adduced in evidence. But, ultimately, I have not identified any particular factual issues to which his evidence or the evidence of the other witnesses was necessary or would have added to evidence adduced, including the documentary evidence.
The Early Works Contract
The terms of the Early Works Contract were relevant as part of the circumstances in which Mr Kenny and Mr Murdoch conducted the discussions, on which AGC relied in its claim for misleading or deceptive conduct. The Early Works Contract was also part of the objective factual circumstances in which the Main Works Contract was to operate.
Pursuant to the Early Works Contract, AGC was to perform pre‑mobilisation, procurement, cost estimation, programming activities and certain parts of the Scope of Work (as defined in the Contract) for the SMP Works. The Formal Instrument of Agreement to the Early Works Contract recited the parties' understanding that they would work together to negotiate the terms and conditions of a contract for AGC to perform 'the balance of the Scope of Work'.[20]
[20] Defined in the Early Works Contract as the SMP Contract: Recital D(2).
The 'Scope of Work' was defined in Special Condition of Contract, SC 1.1 as 'construction and installation of all structural, mechanical and piping works for the Project's process plant'.
The Early Works Contract was not for a lump sum contract amount, but AGC was to submit monthly progress claims on a cash flow neutral basis and be reimbursed for approved direct costs together with payment of COP.[21]
[21] Early Works Contract SC 2.2.
AGC was required to carry out and complete Work Under Contract (WUC) in accordance with the Contract and Directions authorised by the Contract.[22] AGC was responsible for the 'provision of suitably experienced, skilled, qualified and trained labour personnel and supervision for the completion of WUC'.[23]
[22] Early Works Contract GC 2.11.
[23] Early Works Contract GC 11.1.1.
Karara was required to give AGC access to the Site at commencement of WUC and to enable AGC to carry out WUC and other obligations under the Contract.[24]
[24] Early Works Contract GC 32.1.1.
By General Conditions of Early Works Contract, GC 39, AGC was liable to liquidated damages if it did not achieve acceptance of The Works within the time prescribed.
By GC 49.2, Karara could give AGC written notice of a proposed Variation. AGC was, within five business days, to notify Karara whether the proposed Variation could be effected, together with its estimate of the effect on the Program and cost. It was pursuant to a notice under GC 49 that AGC commenced the Main Works.
Schedules to the Early Works Contract included the Scope of Work and technical specifications (sch 1) and Pricing Schedules (sch 2).
The Scope of Work, included Installation of Company-Supplied items and Construction Work. AGC was to 'provide appropriate personnel to undertake Work in order to provide the Company with a cost estimate and optimised program for completion of the remainder of activities in the Scope of Work for the complete installation and construction of the [SMP] work at the Company's process plant'.[25] And AGC was to prepare a detailed cost estimate, program, and Resources Plan for the balance of The Works.[26]
[25] Early Works Contract sch 1A, cl 3.1.
[26] Early Works Contract sch 2I.
The Pricing Schedules set out the Direct Costs reimbursable under the Early Works Contract,[27] and provided generally for COP, which included AGC's costs for activities not directly involved in undertaking the WUC.[28] COP was calculated by multiplying the amount of Direct Costs (excluding fuel) by a COP factor of 15%.[29]
[27] Early Works Contract sch 2A – 2H.
[28] Early Works Contract sch 2I.
[29] Early Works Contract 2I cl 1.
Negotiation of the Main Works Contract
AGC and Karara negotiated a Main Works Contract for AGC to undertake the remaining SMP work for the Project. Negotiation of the terms of the Contract commenced in or about June 2011 and continued into 2012.[30]
[30] Exhibit 3 [21].
Each party had a negotiating team:
(a)For AGC, Mr Nicol and Ms Tibbets were part of the team. Neither was called as a witness.
(b)For Karara, Mr Geddes was responsible for formulating and negotiating contracts, and overseeing a team of 25 to 30 people working under him with respect to details of the Scope of Work.[31]
[31] ts 881- 884.
On 1 July 2011, AGC submitted a Cost Estimate and Program for Balance of Works, including a Construction Schedule.[32]
[32] TB 30.
On 1 September 2011, AGC was formally advised of a proposed Variation of the Early Works Contract under GC 49 to commence to mobilise to Site the plant, equipment, and labour in preparation for the Full Works SMP Package to commence on 3 October 2011.[33] AGC was given notice to provide pricing and documentation, after which Karara would be able to formulate a Variation to the Contract.
[33] TB 66.
On 2 September 2011, Mr Kenny (AGC) met Mr Murdoch (Karara) and expressed his concern about various issues, including that AGC did not have a construction manager on Site.[34] Mr Kenny explained that AGC wanted a steering committee of senior personnel from both Karara and AGC to oversee the Project.[35] Mr Kenny and Mr Murdoch also discussed the need to finalise commercial arrangements, including the parties' differences over the rate of COP for the Main Works Contract.[36]
[34] Exhibit 3 [30].
[35] Exhibit 3 [31].
[36] Exhibit 3 [32] ‑ [33].
On 14 September 2011, in an internal email, Mr Matthews (Karara) expressed concerns about the ability of AGC to meet manning requirements and suggested 'discreet enquiries' into rates from alternative companies as back-up.[37]
[37] TB 76.
On 17 September 2011, in an internal email, Tyler Counsel (AGC), raised several concerns including the lack of a construction or project manager on Site, the lack of an organisation chart, the manner in which Karara treated AGC staff, and the high turnover of staff.[38]
[38] TB 80.
At the end of September, there had still been no formal letter of commitment to AGC.[39]
[39] See TB 84.
On 12 October 2011, Mr Geddes (Karara) sent a marked up copy of the Full SMP Works Contract, excluding the Schedules, to Mr Nicol (AGC) and others. The mark-up was to show changes made by Karara to the Early Works Contract. AGC was asked to provide their clarification register response by 17 October 2011.[40]
[40] TB 120.
In the 12 October 2011 draft, several fundamental changes from the Early Works Contract were apparent. The character of the two contracts is quite different. Under the Main Works Contract, Karara assumed responsibility for management of The Works but also assumed risk, including the risk of late completion. Provision for extension of time was removed. The Program was now to be supplied by the Company. The definition of Variation included 'an increase, decrease or reduction of the Workforce or the Workforce Requirements or any part'.[41] There were also substantial changes regarding Workforce, Company-Supplied Documents and Company-Supplied Items.[42] The obligation on AGC to reach Practical Completion by the Date of Practical Completion was deleted.
[41] Main Works Contract, cl 1.
[42] In each case, Karara's obligation was to use 'reasonable endeavours'.
In late October 2011, Karara was considering a 'carve out', with some of the Scope of Work to be given to Programmed Construction & Maintenance (PC&M).[43]
[43] TB 174; TB 175; TB 184.
Around this time, Karara introduced an incentive scheme with bonuses for senior staff linked to completion of the Dirty Concentrate Works by three milestones: 1 July 2012, 1 September 2012, and 1 October 2012.[44]
[44] Exhibit 37A [30] - [34].
In November 2011, Mr Stark (Karara) directed AGC to hold further recruitment of labour/staff, referring to ongoing issues with late deliverables.[45]
[45] STB 8.
While AGC prepared for the commencement of Works on 3 October 2011, it still sought a letter of commitment from Karara to meet internal procedures for spending against the proposed new contract.[46]
[46] TB 84.
Between December 2011 and January 2012, AGC and Karara continued negotiations. Mr Nicol was responsible for conducting the day-to-day negotiations for AGC; Mr Kenny described his role as to supervise the negotiations.[47]
[47] Exhibit 3 [40].
The COP rate was a matter of contention in the negotiations. AGC proposed a rate of 15% and Karara a rate of or closer to 6%.[48] By 19 December 2011, the discussion of the COP rate was to be escalated to Project Director and CEO level.
[48] See Commercial Clarification Register, 19 December 2011 Row 34: TB 317.
The Scope of Works was also an issue. By letter dated 14 December 2011, Karara advised AGC that certain areas had been removed from the Scope of Works under the Main Works Contract, in entirety or for later reallocation, 'so that the Contractor [AGC] can focus all its resources on the remaining areas under the Scope of Works with priority focus on the Dirty Concentrate Circuit works'.[49] Mr Kenny was advised about this in December 2011 or January 2012, although he did not see the letter.[50] AGC estimated the value of that re‑allocated work at approximately $43 ‑ $50 million.[51]
[49] TB 294.
[50] Exhibit 3 [41].
[51] TB 294.
In further negotiations the COP rate was linked to the Scope of Works to be done by AGC.[52] On 21 December 2011, the parties discussed a rate of 13% based on approximately $50 million of Work (on AGC's valuation) being brought back into the Scope of Works, subject to performance, and a possible incentive scheme tied to project milestones.[53] Other matters were also in issue. In particular, AGC proposed no liquidated damages for non-provision of people, and a 20% cap on liability for defects.
[52] TB 325.
[53] TB 330.
On 18 January 2011, Mr Geddes and Mr Sims (Karara) met with Mr Nicol. AGC proposed either a flat 13% margin or a 12% margin plus a 3% incentive, a 20% cap on liability, and inclusion of work not already allocated.[54]
[54] TB 1182.
On or about 19 January 2012, Mr Bourne and Mr Kenny spoke again about the margin. Mr Bourne testified that Mr Kenny said AGC needed 13%, and Mr Bourne contended that 10% was the industry norm.[55] Mr Kenny recalled that he had an informal discussion with Mr Bourne where the margin was mentioned, but not what was said.[56]
[55] Exhibit 37A [41].
[56] ts 554 - 555.
Mr Kenny and Mr Murdoch met on 23 January 2012 and again on 2 March 2012. AGC relied on what was said at these meetings as the foundation of its claim for damages for misleading or deceptive conduct.
Misleading or deceptive conduct
Overview
It is useful at this stage to give an overview of the case pleaded by AGC under the Australian Consumer Law.
On one level, the pleaded case for misleading or deceptive conduct was relatively simple. AGC relied on what was said at two meetings between Mr Kenny and Mr Murdoch on 23 January 2012 and 2 March 2012.
With regard to the January meeting, however, AGC pleaded six separate representations, the first of which had six parts to it (the January 2012 representations).[57] AGC then separately pleaded that by making the January 2012 representations, Karara made three further representations.[58]
[57] Statement of claim [17].
[58] Statement of claim [25(a)].
Similarly, with regard to the March 2012 meeting, AGC pleaded three representations (the March 2012 representations), each of which had at least two parts.[59] AGC separately pleaded that by making the March 2012 Representations, Karara made four further representations.[60]
[59] Statement of claim [20].
[60] Statement of claim [25(b)].
The further representations in each case were pleaded to be the 'Pre‑Contract Representations'. AGC pleaded that it relied upon the Pre‑Contract Representations and entered into the Main Works Contract.[61]
[61] Statement of claim [27].
AGC pleaded that had the Pre‑Contract Representations not been made 'and the true state of affairs been known to AGC' it would have sought to negotiate and been awarded a different contract (the Alternative Contract). AGC put forward four alternative contracts, two of which themselves had alternatives.[62]
[62] Statement of claim [31].
By reference to the paragraphs which pleaded the January 2012 representations, the March 2012 representations, and the Pre‑Contract Representations, AGC sought damages on six alternative bases, not apparently related to the alternative contracts it pleaded it would have been awarded.[63] At least two of the damages claims (in statement of claim [32(v)] and [32(vi)] are not related to the claim under the Australian Consumer Law.
[63] Statement of claim [32].
Further and alternatively, AGC sought a declaration pursuant to s 87 of the Competition and Consumer Act, to the effect that the rate for COP under sch 2J of the Main Works Contract, once determined, should apply to the whole of the works completed under the Main Works Contract.[64]
Preliminary observations
[64] Statement of claim [33].
Where a party seeks to prove misleading or deceptive conduct by spoken words, the first factual issue is what was said. AGC relied on the evidence of Mr Kenny about his conversations with Mr Murdoch at two meetings in early 2012. In submissions on the reliability of this evidence, Karara referred to the frequently cited comments of McLelland CJ in Eq in Watson v Foxman,[65] and those of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd,[66] neither of which I will repeat. My own view accords with that succinctly expressed by Vaughan J in Westgyp Pty Ltd v Northline Ceilings Pty Ltd:
There is a view that in the trial of a commercial case the best approach in such circumstances is to place little, if any, reliance on witnesses' recollections of what was said in meetings and conversations. I acknowledge the doubt that necessarily attends the recollection of conversations many years in the past. But it does not follow that the correct starting point is to simply place little reliance on oral recollection. Rather, I should assess that evidence in light of its inherent probabilities in the context of the objectively established facts.[67]
[65] Watson v Foxman (1995) 49 NSWLR 315, 318 ‑ 319.
[66] Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 [20], [22].
[67] Westgyp Pty Ltd v Northline Ceilings Pty Ltd [2018] WASC 244 [53] (citations omitted).
AGC must still establish the words spoken with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. It is not necessary for AGC to prove the precise words spoken on each occasion. The court needs to be satisfied that it is more probable than not that words were spoken that would reasonably have conveyed the representations alleged. I can reach that satisfaction if I am satisfied as to the substance or effect of what was said, and that it conveyed the misleading representations alleged.[68] In considering that question, I must have regard to all of the evidence to the extent it throws light on what was said and what would have been conveyed in those conversations.
[68] James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332 [269].
I have taken into account that Mr Murdoch was not called, with the result that Mr Kenny's evidence was not contradicted. The court is not bound to accept evidence, simply because it is uncontradicted: 'if a court thinks the better view in all the circumstances is that witnesses giving uncontradicted evidence are mistaken in their evidence, the court is not obliged to accept the evidence'.[69]
January 2012 meeting
[69] Parlux SpA v M & U Imports Pty Ltd; M & U Imports Pty Ltd v Gava International Freight SpA [2008] VSCA 161; (2008) 21 VR 170 [30]; see also State of New South Wales v Deren[1999] NSWCA 22 [149]; Taylor v Ellis [1956] VLR 457, 463 ‑ 465.
Before the meeting on 23 January 2012, Mr Kenny was aware that those negotiating the Contract had been unable to agree the COP margin, and he understood the main point of the meeting was to try to agree on the margin.[70]
[70] ts 563.
In his witness statement Mr Kenny said:
At the start of the meeting, Mr Murdoch said to me words to the effect that 'we'll get this sorted in 10 minutes, here's what I'm proposing.' Murdoch said to me words to the effect that:
(a)KML was willing to agree to a base profit rate for AGC of 11% of the costs of the works, with a structure for an incremental increase of 4% on the total cost of the works if particular conditions were met;
(b)under this proposal, there would be no 'downside' for AGC …;
(c)KML would reinstate the scope of works which KML had previously indicated it was going to remove from AGC. That scope of work was valued at between $43 to $50 million …;
(d)with the reinstated scope of works, the total cost of the remaining structural, mechanical and piping works to be carried out by AGC was approximately $200 million …;
(e)with the additional 4%, and the reinstatement of $43 to $50 million of works, AGC stood to earn an additional $8 to $10 million …;
(f)the additional 4% would be payable to AGC if it completed the 'dirty concentrate works' by particular milestones which would be set by me and him …;
(g)key KML staff responsible for managing performance of the works were already incentivised and that that would be 'insurance for the project' …;
(h)we would set four dates as the milestones for the completion of the dirty concentrate works as follows:
i.if AGC completed constructing the dirty concentrate works by the first and earliest milestone, the total profit AGC would receive would be 15%;
ii.if AGC did not achieve the first milestone, but completed constructing the dirty concentrate works by second milestone, the total profit AGC would receive would be 14%;
iii.if AGC did not achieve the second milestone, but completed constructing the dirty concentrate works by the third milestone, the total profit AGC would receive would be 13%;
iv.if AGC did not achieve the third milestone, but completed constructing the dirty concentrate works by the fourth milestone, the total profit AGC would receive would be 12%; and
v.if AGC did not achieve the fourth milestone, the total profit would remain at 11%.
Mr Murdoch and I did not discuss the dates which we would set as the milestones for completing the dirty concentrate works. I said to Mr Murdoch words to the effect that AGC was willing to agree to the proposed structure. Mr Murdoch said words to the effect that he would arrange for our agreement to be reduced to writing.[71]
[71] Exhibit 3 [46] - [47].
At the meeting Mr Kenny made handwritten notes. The notes do not purport to record the words used by Mr Murdoch, but a series of subjects.[72] The notes support the finding that Mr Murdoch and Mr Kenny discussed the maximum rate of COP, the inclusion of 'extra scope', milestone dates, and that Mr Murdoch said the incentives had been offered already to Karara staff. Beyond that, I found them unhelpful in assessing the reliability of Mr Kenny's memory of the conversation and in ascertaining what Mr Murdoch said.
[72] TB 390.
On 23 January 2013, Mr Kenny sent an email addressed to Mr Nicol, Mr Vorster and Mr Gilbert (the AGC team negotiating the Contract) in these terms:
We have agreed the following
11% mark up O/H and Profit.
No risk/no exposure to LD's, No exposure to productivity issues, No exposure to workmanship rework costs.
Reinstatement of full remaining scope, est $43m-$50m.
I am not sure what the awarded value will be but based upon available bonus pool the contract value must be in the order of $200m.
Milestone bonus payments of 4% to take total mark up to 15%.
These will be applied to construction schedule activities, 4 off separable portions, 1% extra mark up to each of the targets.
Senior Karara staff have bonus payments tied to the same milestones.
Steve believes there will be an additional $8m-$10m available for AGC to earn.
Action is currently with Steve to arrange for written confirmation of this agreement.
It is intended to begin from Feb onwards.[73]
[73] TB 391 (emphasis added).
Mr Kenny said he sent the email to ensure that the matters agreed went into the Contract, and he was relying on AGC's team to ensure that happened.[74]
[74] ts 572 - 573.
There was no formal record of the January 2012 meeting, other than the extent to which it was recorded in the Main Works Contract. Mr Kenny understood that Mr Murdoch was identifying what Karara was prepared to have included in, or perhaps have removed from, a written contract.[75] Mr Kenny and Mr Murdoch did not exchange a note or otherwise confirm their understanding following the meeting.
[75] ts 565, 567.
The notes Mr Kenny took for himself are of little probative value. They identify topics, but do not record what was said or by whom.
The email Mr Kenny sent to Mr Nicol the same day records what Mr Kenny said was agreed. But only one statement is attributed to Mr Murdoch - 'Steve believes there will be an additional $8m - $10m available for AGC to earn'.[76]
[76] TB 391.
The provisions for COP were to be found in sch 2J of the Contract, and milestone dates were now also to be included in that schedule. On 3 February 2012, Mr Geddes sent an email to Mr Nicol and Ms Tibbits, with a revised version of sch 2J 'to reflect the deal on the margin agreed by Steve Murdoch and Stuart Kenny dated 23 January 2012.'[77]
[77] TB 429.
The General Conditions were also revised 'to give effect to the deal'. Changes included the deletion of liquidated damages for delay, and also the removal of clauses dealing with extensions of time.[78]
[78] TB 429.
In the draft sent on 3 February 2012, sch 2J unequivocally limits the increased COP that AGC could earn to an 'Interim Period'. This did not change up to the signing of the Contract on 15 March 2012.
Having regard to the detailed cross‑examination of Mr Kenny, I make the following further findings.
First, Mr Kenny professed to be able to remember who had said what at the meeting, but he was unable to recall the specific words used by either party.[79]
[79] ts 566, 575 - 577.
AGC was to be reimbursed its direct costs with a COP margin. Mr Murdoch said (and Mr Kenny agreed) that there would be a series of milestones by reference to which the rate of COP would vary between 11 and 15%. When asked if he could tell the court what words were used about the 11% base COP rate, Mr Kenny could not. He said, 'I've got the notes there, and it was a discussion around the table … '[80] The notes, however, say nothing more than '11%. Max 15% with incentives.'[81]
[80] ts 565 - 566.
[81] TB 390.
Mr Kenny could not recall the specific words used about the removal of AGC's risk, or about there being no downside 'other than we were both in agreement at that meeting as to a way to move forward.'[82]
[82] ts 566.
In his witness statement, Mr Kenny said that Mr Murdoch said words to the effect, 'with the additional 4%, and the reinstatement of $43 to $50 million of works, AGC stood to earn an additional $8 to $10 million.'[83] When those words were put to him in cross-examination Mr Kenny said:
I'm going to characterise it … in another way to say that he had said to me, 'the upside to AGC is in the order of 8 to 10 million'.[84]
[83] Exhibit 3 [46(e)].
[84] ts 575.
This leads into a second general finding. I believe that at times Mr Kenny was conveying a combination of what was said by Mr Murdoch, information he already had or later obtained, and his expectations about benefits the Contract should have conferred on AGC.
In his witness statement, Mr Kenny said that Mr Murdoch said to him words to the effect, 'the total cost of the remaining structural, mechanical and piping works to be carried out by AGC was approximately $200 million.'[85] But in his email to Mr Nicol, sent soon after the meeting, Mr Kenny wrote, 'I am not sure what the awarded value will be but based upon available bonus pool the contract value must be in the order of $200m'.[86] In oral evidence, when asked about this email, Mr Kenny explained that he and Mr Murdoch had not had the information about things such as quantities of steel or units of work ‑ 'the engineers and the quantity surveyors would prepare that schedule … But it was discussed by Mr Murdoch and myself that 200 million was around about that ‑ that sort of value…'[87] In oral evidence, he also said:
It was a ... contract that we were entering into, had an expectation that with the management team and the processes there, the right amount of labour that would be required to execute the work, there would be an earning ability of about 200 million.[88]
[85] Exhibit 3 [46(d)].
[86] TB 391.
[87] ts 573.
[88] ts 568.
Later, Mr Kenny said:
The scope of work was - had been evaluated and assessed by AGC and then there was this apparent scope of work that was - was going to be removed. I don't think anybody had truly costed the scope that was going to be removed, but - and this is why there was a little bit of flexibility there. But in the end, the agreement was that we expected that the overall value of the work that was going to be undertaken by AGC was around about 200 million. [89]
[89] ts 568 - 569.
While there may have been discussion in which an overall figure of $200 million was mentioned, I cannot be satisfied about what was said. Specifically, I am not satisfied that Mr Murdoch made a representation to the effect alleged.
Third, Mr Kenny understood that 'the specifics of the agreement would need to be reflected in the contracts',[90] and, importantly, that Mr Murdoch would need to go back to his team to 'firm up' the figures for the additional amount AGC would earn. His expectation, as he put it, was that both sides would ensure that numbers would fall out of the whole evolutionary process.[91]
[90] ts 567.
[91] ts 579.
Fourth, the effect of Mr Kenny's answers in cross-examination was to leave me uncertain about the extent to which his evidence was a reconstruction influenced by Mr Kenny's expectations about the Contract, and also what in fact occurred over the following months.
This was demonstrated by Mr Kenny's evidence regarding the incentives for Karara staff. In his statement about the January meeting, Mr Kenny said that Mr Murdoch told him the Karara incentives for their own staff would be insurance for the project. When asked if that was said by Mr Murdoch, Mr Kenny replied:
It's generally what would have been said to me. Not specifically. I can't - I didn't relay it or record it word for word.[92]
[92] ts 576.
Mr Kenny then said that Mr Murdoch 'used those types of words … there was insurance for the project because the key KML staff were incentivised already.'[93] A reasonable businessman would not understand an incentive to be insurance.
[93] ts 577.
At the time of the January 2012 meeting, no milestones for completion of the Dirty Concentrate Works had been agreed. Mr Kenny agreed with the proposition, put by counsel for Karara, that he 'needed to get [his] people, planners, schedulers, to do the work from AGC's side to get a really good understanding of what was an appropriate set of milestones'.[94]
[94] ts 575.
When he was cross-examined about a later meeting with Mr Murdoch on 2 March 2012, Mr Kenny was asked whether he was extrapolating what he was told about incentives on 23 January 2012 (when dates had not been agreed) to 2 March 2012 when those dates were agreed. Mr Kenny replied:
I can see that. That's correct. But it doesn't remove the fact that he represented to me that they were incentivised on ‑ I'm going to now say on a similar basis but if they weren't incentivised with similar dates or the same dates there would be a conflict.[95]
[95] ts 638.
I accept that Mr Kenny was trying to convey what he understood from all that had been said, at both meetings, and I do not doubt his honesty. But I am not satisfied that he was accurately recalling what had been said.
I am satisfied that Mr Murdoch said words to the effect that Karara would re-introduce work it had previously said would be removed from the Scope of Works. The Scope of Work was something that would be set out in the final contract.
Otherwise, I am not satisfied that AGC has proved what was said. I repeat that it is not necessary for AGC to prove precisely what was said at the meeting provided that it sufficiently proves the effect of what was said, so that the court can be satisfied that the words spoken by Mr Murdoch conveyed the representation alleged. Except for the limited matters identified immediately above, I am not satisfied that I can find the effect of what was said with sufficient certainty. AGC has not proved that what Mr Murdoch said conveyed the representations that it has alleged.
Further negotiation
In the weeks leading up to the execution of the Main Works Contract, negotiations continued. Mr Kenny and Mr Murdoch discussed productivity issues on the project.[96] AGC wanted to have a senior construction manager on site. Karara did not agree.[97]
[96] Exhibit 3 [56].
[97] Exhibit 3 [62].
Mr Kenny was receiving information from various AGC employees about progress on the site. In the second week of February, Stephen Andrews, superintendent for the Project, told him 'there was a lack of steel on site and progress was only 1% for the week.'[98] Around the same time, Mr Kenny was also advised by another AGC employee, Mr Stuart Arndt, that AGC were erecting piping and steel out of sequence.[99]
[98] Exhibit 3 [57]; TB 481.
[99] TB 481.
On 10 February 2012, Mr Geddes sent an email to Mr Watson (AGC), referring to the agreement made by Mr Murdoch and Mr Kenny, and requesting Mr Watson revise the cash flow spreadsheet for sch 10 of the Contract. The cash flow for the full SMP works (that is reintroducing excluded areas) was $200 million plus COP.[100] Approximately $60 million of that total was for the period from October 2011 to February 2012 (inclusive).
[100] TB 461. COP was at a rate of 6%.
On 15 February 2012, Mr Geddes sent Mr Nicol and Ms Tibbits a draft of the Main Works Contract for final review.[101] On 17 February, Mr Geddes re-sent the cashflow forecast that became sch 10 to the Contract, with a contract value of $177 million, of which $23 million was COP (that is, a rate of 15% COP).[102]
[101] TB 487.
[102] TB 508.
Mr Kenny was unaware of those documents, but he was aware that the negotiating teams, and those advising them, were determining the values for insertion into the Contract.[103] He relied on Ms Tibbits and Mr Nicol to 'sort out whatever the number should be and put it correctly into the [contract] schedule'.[104]
[103] ts 587 - 588.
[104] ts 588.
In mid-February 2012, Mr Bourne (Karara) advised Mr Kenny about some concerns with AGC's work practices. Mr Bourne complained about the standard of AGC supervision on site, and that AGC had been short in the number of personnel required, although manning was now up to date.[105]
[105] Exhibit 3 [58]-[60]; TB 462.
On 20 February 2012, by an internal email, Mr Sleeman (AGC) advised several of his colleagues, including Mr Nicol and Mr Arndt, that, in his opinion, there was no way AGC could meet any of the then proposed incentive milestones for Practical Completion of the Dirty Concentrate Works.[106] In another email of 23 February 2012, Mr Sleeman described the incentive proposal as 'useless to us'.[107]
[106] TB 529.
[107] TB 543.
Mr Kenny was to meet Mr Murdoch again on 2 March 2012. On 28 February, Mr Murdoch emailed Mr Kenny in these terms:
In the interests of making Friday's meeting a 'hand shake' there are two outstanding issues that need to be agreed your end so in advance would be great. We have rejected your commercial guys counter as this isn't what we agreed.
1.Corporate Overhead and Profit - You and I agreed a ratchet clause that took the margin from 15% to 14% to 12% to 11% whilst last AGC response requested margin to go from 15% to 14% to 13% to 12%. I have rejected AGC's proposal as what I put on the table was actually better in many respects to what you requested. This is a done deal in my mind.
2.Commencement Date - we proposed commencement date to be 23 January 2012 whilst AGC has indicated the commencement date should be the date the contract is signed. I have rejected AGC's proposal. I have countered by indicating we would accept start date of 1 February 2012, which would make a clean cut of the works performed during early works and full works regarding advance payment/reconciliation structures. This is a fair compromise and stalling will not get a better position in fact it puts at risk the increased scope I offered.[108]
[108] TB 565.
Mr Kenny was also copied into an email from Ms Tibbits, regarding her attempt to discuss with Mr Geddes items that AGC considered were still open but Karara did not. Karara had stated the position that 'if AGC did not execute the contract as it is then [AGC] will face "dire consequences" in relation to the amount of work that [AGC would] receive under the contract'.[109]
[109] TB 566; Exhibit 3 [65].
On 29 February 2012, Mr Vorster advised Mr Kenny by email that it was 'nearly impossible' to achieve any of the then proposed milestone dates of 1 July, 1 August, and 12 September.[110] Mr Vorster provided an analysis identifying these factors:
•the still unknown scope to complete for the Dirty Concentrate Works;
•scheduled completion of Client Main Deliverables;
•accommodation capacity limitations restricting the amount of resources that can be mobilised;
•quality issues with steelworks fabricated in China;
•interface issues with other Contractors;
•Client Specifications; and
•attrition and turnover of project personnel.
[110] TB 571; TB 573; Exhibit 3.
Mr Kenny had done further investigations and had also determined that the milestone dates then contemplated were probably unrealistic.[111] He was unable, in his oral evidence, to specify from where that information came, or what precisely caused him to form that view. He agreed, however, that he had probably discussed matters including AGC's productivity, matters relating to the delivery and erection of steel, recruitment of labour, the availability of accommodation, and the availability of plant and equipment with AGC staff.[112]
March 2012 meeting
[111] Exhibit 3[67]; TB 572.
[112] ts 594 - 595.
Mr Murdoch and Mr Kenny met again on 2 March 2012. The main point of the meeting was to agree the dates for the milestones.[113] Mr Kenny believed that the milestone dates and the percentage margins for each milestone had not then been agreed, and were for discussion.[114] That was correct to a limited extent. It appears that the COP upper limit of 15% was then settled; and Karara was settled on the base rate of 11%.
[113] ts 589.
[114] ts 595.
Mr Kenny said that he told Mr Murdoch that AGC considered that completion of the Dirty Concentrate Works by 1 July 2012 was not achievable, and asked for the dates to be extended by a month.[115] Mr Kenny said he requested that extension despite having himself formed the view that 1 August 2012 was unrealistic, and having been advised that it was nearly impossible to achieve any of the proposed dates.
[115] Exhibit 3 [69]; ts 596.
Mr Kenny did not himself believe 1 August was likely to be achieved, notwithstanding anything Mr Murdoch had said at the January 2012 meeting. All of the milestones were, in Mr Kenny's opinion, 'stretched targets' - probably unrealistic but not impossible.[116]
[116] ts 597 - 598.
In his witness statement, Mr Kenny stated that Mr Murdoch said to him words to the effect:
(a)I should not worry about AGC failing to achieve the first milestone because AGC was currently erecting approximately 350 tonnes of steel per week. Mr Murdoch said to me words to the effect that the 'target' for AGC was 230 tonnes of steel per week, and that for AGC to 'get in front' it would need to erect 250 tonnes of steel per week …;
(b)there was accommodation for AGC's personnel currently available on site, and there would be additional beds available after April 2012 …;
(c)there was 'acceleration built into the mobilisation plan' and 'float in the program' …; and
(d)in April and May, the weather would be improving.[117]
[117] Exhibit 3 [72].
Mr Kenny also made notes at this meeting. Relevantly, he recorded:
14.5 T → 13.5T → 12.5 now.
1/3 % now.
230T/wk target progress/week
250T/wk to get in front
350 achieved.
50T/day steel erected = float
200t/day needed.
Beds are available.
After April extra beds are available.
[Acceleration] is built into [mobilisation] plan.
Bruce Sleeman.
Target to achieve float in programme.
Cranage support by AGC - where are we!
1st February Due date for contract.
April/May → Weather improving
11% - 15%
Steve to check on 13% milestone. [118]
[118] TB 591.
In his witness statement, to a greater extent than with the January meeting, Mr Kenny acknowledged the limits of his memory of what was said. For example, Mr Kenny stated that he did not recall Mr Murdoch's exact response when Mr Kenny said that AGC was of the view that the 1 July 2012 milestones were not achievable and should be extended.[119] Despite it being a main point of the meeting, Mr Kenny had no independent recollection of Mr Murdoch telling him the dates on which the milestones were to be set, and the profit rate for each milestone.[120] Nor did he record the dates in his notes. He did not recall whether Mr Murdoch proposed all of the milestone dates and profit rates or only some of them.[121]
[119] Exhibit 3 [69].
[120] Exhibit 3 [75].
[121] Exhibit 3 [75].
In oral evidence, Mr Kenny could not recall telling Mr Murdoch that the milestone of 1 July was not achievable and the milestones should be extended by a month.[122] He said that AGC recognised the dates were not achievable and he 'would have said' that AGC's view was 'we're not going to be able to get there. We can't sign up for those dates'.[123]
[122] ts 595, compare Exhibit 3 [69].
[123] ts 596.
When asked about what his notes meant - in particular the '1/3% now' ‑ he said he could only speculate.[124] While he had made a note of figures that were discussed ('14.5T to 13.5T to 12.5'), and that they were a record of current progress, he could not now recall whether Mr Murdoch said it was a rate per day, or per week.[125] He just recalled that the figures he wrote down were from Mr Murdoch 'because he was receiving it from site'.[126]
[124] ts 600 - 601.
[125] ts 600 - 601.
[126] ts 601.
More generally, Mr Kenny's answers in cross‑examination demonstrated that he had an inexact recollection of what had been said by Mr Murdoch at the meeting. When pressed, Mr Kenny said he could recall Mr Murdoch saying 'beds were available', 'accommodation wouldn't be a restriction', 'there's float built into the erection program' and 'there's acceleration built into it'.[127] He said he also recalled Mr Murdoch saying that 'KML key staff were incentivised', although that was not referred to in his witness statement as a matter discussed at this meeting, nor included in his notes.[128]
[127] ts 603.
[128] ts 603.
Mr Kenny was asked directly (about par 72(a) of his witness statement):
Now, you don't actually remember him saying that: You shouldn't worry about AGC failing to achieve the first milestone because AGC was currently erecting 350 tonnes of steel per week.
You don't actually remember him saying that, do you?---Not word for word, but I - - -
Well, not even remotely, do you?---No, that's not correct. My notes reflect that.[129]
[129] ts 603.
But, although he noted '350 achieved', Mr Kenny did not note any statement that AGC should not worry about meeting the first milestone. He said that he had understood, from what Mr Murdoch told him, that Karara had the ability to accelerate the program. It was a combination of what Mr Murdoch told him about the rate of steel erection and other things ‑ the float, accommodation, manning, and restriction and removal of any impediments - that led Mr Kenny to his understanding that the milestones were achievable.[130]
[130] ts 611-612.
The effect of his evidence about the March 2012 meeting is exemplified by this exchange in cross‑examination:
So the point that you're making here is this, isn't it? That the real understanding you had at the time was that Mr Murdoch was telling you that he was going to improve project management?---The real understanding was that Mr Murdoch was aware of the ‑ the site conditions, he was aware of the schedule, and that he would do what was necessary to ensure that barriers were removed so that we could get on and achieve the productivity and the progress required to ensure that we made the milestones.
And how do you say that he represented that to you?---Because - - -
What did he say that led you to that understanding?---Because there was float built into the schedule, the beds were going to be made available … at the accommodation village, that the supervision … the key personnel from KML were incentivised. So not one thing … - but a number of factors led me to believe that KML had … the project targets … as not only a target, but something that they were managing too. They had the levers that could control the progress and the productivity.[131]
[131] ts 616 (emphasis added).
With regard to accommodation, Mr Kenny's evidence was that Mr Murdoch said that there would be additional beds available 'after April 2012' but not how many beds would be available.[132] There is no evidence about the context of those comments ‑ in particular, whether Mr Kenny and Mr Murdoch discussed how accommodation, and any consequent limits on personnel numbers, might affect progress and the ability to meet milestone dates. Mr Kenny said:
… I understood him to mean that there would be no impediment to AGC mobilising sufficient personnel to site to achieve practical completion of the dirty concentrate works.
Got that from a combination of what he said about accommodation and the fact that there was float in the program?---That's correct.
Or just the accommodation?---No. The acceleration in the program and the accommodation led me to believe that we needed additional resources – that there would be – sorry, there would be additional resources called upon and that there was sufficient accommodation for those resources to be accommodated.[133]
[132] ts 612 ‑ 613.
[133] ts 619.
In summary, Mr Kenny loaded many assumptions into his recollection of what Mr Murdoch said to him, and what it meant. I am not satisfied to what extent he was testifying about what was said, and to what extent his evidence was a composite of what was discussed with his own assumptions and expectations, not necessarily known to Mr Murdoch. This is not to deny that the surrounding circumstances are important in determining what was represented by what was said, and whether, in all the circumstances, it was misleading. But where oral representations are relied upon, it is first necessary to find what was said. And I am not able to find what Mr Murdoch said to Mr Kenny, and to separate it from what Mr Kenny hoped to take out of the meeting and what, with hindsight, he believes should have been in the Contract.
I am satisfied that Mr Murdoch said words to the effect that there was acceleration built into either the mobilisation plan or the program; that there was float in the program; that beds were available (although not how many); and that after April extra beds would be available. I am also satisfied that there was a discussion about the tonnage of steel then being erected and targets that needed to be met to achieve the first milestone, but I can be no more precise.
In his witness statement, Mr Kenny said that, based on his conversation with Mr Murdoch, he believed AGC had 'good prospects' of achieving practical completion of the Dirty Concentrate Works by the first milestone, and even better prospects of meeting each subsequent milestone. Because of that he agreed to the Milestone Dates and percentages.[134] In oral evidence, he said that at the end of the meeting with Mr Murdoch he believed that the 1 August, 29 August, and 12 September dates were all 'probably unrealistic, but not impossible.'[135] That is not consistent with Mr Kenny being misled into believing that Practical Completion of the Dirty Concentrate Works would be earlier than or by the first milestone.
Events after the March 2012 meeting
[134] Exhibit 3 [77] - [78].
[135] ts 598.
Mr Kenny appears to have made no attempt to discuss what he took out of the meeting with other AGC employees, or to check what was said at either meeting against what was included in the Main Works Contract. He signed the Contract on behalf of AGC on about 15 March 2012, and about a week or two later resigned as CEO and Managing Director of AusGroup.[136]
[136] Exhibit 3 [80].
Following the meeting on 2 March 2012, Ms Tibbits (AGC) sent an email to Karara requesting that some wording be inserted in sch 2J to accommodate an adjustment to the Milestone Dates should either a Force Majeure Event or Suspension by Karara occur during the relevant period. She also said 'we require some confirmation from Karara that our acceptance of this plan is based on the return of all the Works to our Scope'.[137]
[137] TB 599.
Mr Geddes replied, on 6 March 2012, with a revision of sch 2J and said:
I can confirm that the Scope of Works that has been incorporated in the conformed contract does include all of the works that were removed from AGC's scope of works except for process plant areas contracted out to another contractor.[138]
[138] TB 599.
On 7 March 2012, Ms Tibbits replied:
Please proceed with conforming the contract, incorporating Schedule 2J as was attached to this email and including all of the works that were removed from AGC's scope of works except for process plant areas contracted out to another contractor.[139]
[139] TB 603.
Mr Geddes then sent Karara's final response to AGC's clarifications 'taking into account the agreed sch 2J and also KML's position on Schedule 9 [Contractor's Workforce]'.[140]
[140] TB 604.
AGC received the Main Works Contract on about 8 March 2012. On 9 March 2012, Ms Tibbits requested that someone from the Karara team review the Scope of Work documents to ensure they were correct before the signing of the Contract the following week.[141]
[141] TB 621.
On 15 March 2012, AGC and KML executed the written contract pursuant to which AGC was to provide manpower and plant resources for the SMP works for the Project. Mr Kenny signed the Contract on behalf of AGC. The system in place in AGC ensured that someone had checked the Contract to ensure that it contained what had been agreed between the parties.[142] Mr Kenny did not read it before signing it, relying on the work of the negotiating team and the fact that the Contract had been read and each page initialled by Ms Tibbits.[143]
[142] ts 627.
[143] ts 628.
When Mr Kenny was taken in evidence to the terms of the Main Works Contract signed by him, he said that he was surprised that the cash flow forecast in sch 10 forecast a total cash flow, inclusive of COP, of $176.789 million. Mr Kenny said that it was the first time he had been made aware that the figure was not at or above $200 million.[144]
[144] ts 629. The COP was calculated at 15% to October 2012.
AGC reported to the Singapore Stock Exchange that the value of the Contract was 'in excess of $160 million'.[145]
[145] ts 632; Exhibit 5.
Although Mr Kenny was uncertain in his evidence, the documentary evidence suggests that Board approval was required for a contract with a value above $50 million. With that approval, Mr Kenny, as CEO, had delegated authority to sign the Contract.[146]
[146] Exhibit 36A, 12.
In accordance with the AGC and AusGroup protocols, there should have been something in writing explaining to the Board the essential details of the Contract in order for them to approve it. A document in those terms was called for, but not produced.[147]
[147] ts 630 - 631.
On the evidence I cannot find when, or on what information, the AusGroup Board approved the signing of the Contract with Karara.
The applicable law
In Campbell v Backoffice Investments Pty Ltd,[148] Gummow, Hayne, Heydon and Kiefel JJ quoted with approval the following passage from the judgment of McHugh J in Butcher v Lachlan Elder Realty Pty Ltd on s 52 of the Trade Practices Act 1974 (Cth):
The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.[149]
[148] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [102].
[149] Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 [109].
An action for damages lies under the Australian Consumer Law where a party has suffered loss because of, or by conduct that contravened the law, and requires an examination of whether a person has suffered, or is likely to suffer loss or damage, by or because of the contravening conduct.[150] Where a party to a proceeding has suffered, or is likely to suffer, loss or damage by misleading or deceptive conduct, the court may make orders to prevent the loss or damage suffered or likely to be suffered, including orders varying a contract or arrangement.
[150] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 [34], [38].
For conduct to be misleading or deceptive it is not necessary that it convey express or implied representations, although AGC's case was that Karara's conduct did.
Each element of a cause of action must be proved to the reasonable satisfaction of the court; the court 'must feel an actual persuasion of its occurrence or existence'.[151] A party seeking to rely on spoken words as the foundation for a cause of action must prove the conversation to the reasonable satisfaction of the court, so that the court feels an actual persuasion of its occurrence.[152] Here, AGC relied on oral representations made at two meetings. The court must be satisfied that there is sufficient evidence to support a positive finding that those representations were made.
[151] Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336; Helton v Allen [1940] HCA 20; (1940) 63 CLR 691, 712.
[152] John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 [94].
Once the court has found what was said it must determine whether what was said reasonably conveys the representations alleged.
Relevant circumstances
The court cannot determine whether what was said reasonably conveys the representations alleged by looking at the two meetings between Mr Kenny and Mr Murdoch in isolation. In deciding whether what Mr Murdoch said would reasonably give rise to the pleaded representations, and whether it was misleading or deceptive, I must also have regard to the circumstances in which the words were said and the whole of the course of conduct of the parties.
First, the parties had been acting pursuant to the Early Works Contract since March 2011. Specifically, AGC had been on Site and carrying out work, some of which was within the Scope of Works for the Main Works Contract. AGC site personnel knew about Site conditions. Weekly Progress Reports were prepared by Mr Del Pilar, checked by Mr Arndt and approved by Mr Andrews.[153] AGC planners and schedulers created weekly construction schedules which showed 'the actual progress of the works against the planned programs against the then current baseline schedule.'[154] AGC also prepared four week look-ahead schedules.[155] Weekly progress meetings were attended by AGC and Karara personnel.[156]
[153] See, for example, TB 388.
[154] Exhibit 12A [122].
[155] Exhibit 12A [123].
[156] Exhibit 12A [124].
With regard to the March 2013 invoice, Karara admitted that its representative issued a Progress Certificate to AGC in the amount of $11,817,451.52 (excluding GST) on or about 14 March 2013. It admitted that AGC issued an invoice in that amount on or about 14 March 2013 and that GST was payable. Karara further admitted that AGC obtained Advance Payment security for March 2013 and that security was exchanged for the February 2013 Advance Payment Security. Karara admitted that it was required to pay the invoice within two business days of receiving it - that is, by 18 March 2013 - and that it did not pay by then.[635] Karara submitted that AGC's sole remedy for late payment was interest and that interest was paid in accordance with GC 47.3.
[635] Defence [123] ‑ [128].
With regard to the later invoices, Karara argued that they were not submitted in accordance with the stipulated payment process under GC 47. There is no doubt that the prescribed contractual process, including the provision of payment security, was not followed. AGC's case is that the process had been replaced by the 'agreed payment process'. For the reasons given earlier, I do not accept that argument.
With regard to the June 2013 invoice, I further accept Karara's submission that 'in accordance with the process in the Contract', AGC was not entitled to issue an invoice on the fifth day of the month.
Interest
AGC claimed that, by reason of breaches of the agreed payment process and the Main Works Contract, it suffered loss and damage, particularised as 'additional financing costs it incurred in the amount of $2,054,446.16, by reason of KML's late payment'.[636]
[636] Statement of claim [156].
Karara denied the matters alleged and specifically pleaded the exclusion of consequential loss by GC 28.2. It pleaded that the payment of interest on any overdue amounts, calculated in accordance with cl 47.3, was AGC's sole right or remedy in the event of any default or delay in payment of an amount due from Karara to AGC.[637]
[637] Defence [156].
I have earlier considered the ambit of GC 28.2. It does, in my opinion, extend to the loss claimed by AGC in statement of claim par [156]. The exclusion of liability for consequential loss is relevant to Karara's second argument, that interest was intended to be the sole remedy for late payment.
Under GC 47.3, interest was payable on any overdue amounts at a rate equivalent to the corporate lending overhead interest rate of the Commonwealth Bank of Australia, accrued annually for the period from the date of default in payment until the date of payment of the overdue amount.
Karara submitted that, on the proper construction of the Contract, the provision for interest at the agreed rate was intended to be the sole remedy in the event of any default or delay. Karara referred to the comment of McLure P in Di Giovanni v Dark Horse Developments Pty Ltd:
Both building contracts provided for what was, by any measure, a very high interest rate (19.94% per annum) for late payment under the building contracts. The obvious inference is that the agreed interest rate was to recompense the appellant for not having the use of the moneys due and payable under the building contract. Even if, which has not been established, that rate did not protect the appellant against all relevant loss, it would not be in the reasonable contemplation of the parties that he would be entitled to top it up with a Hungerfords claim.[638]
[638] Di Giovanni v Dark Horse Developments Pty Ltd [2014] WASCA 188 [45] (Newnes & Murphy JJA agreeing).
The decision in Di Giovanni was on the construction of the particular provisions in the context of that contract. I would, however, draw the same inference in this case. First, although not as generous at the rate of interest considered by the Court of Appeal, the rate here was linked to the lending overhead interest rate of a major bank. The intention of the parties (the Contract not having been repudiated under GC 52 for substantial breach) was to agree a rate of interest to compensate for breach by late payment. Second, the parties had expressly agreed to exclude liability for consequential loss.
Proof of loss
Karara also disputed that AGC had proved the loss claimed, submitting that the real cause of the additional finance was its deteriorating cash flow position and the threat to call upon the securities. On the findings that I have made, it is not necessary to decide those factual matters.
Time bar
Karara pleaded that, by GC 49.1.1, within 20 business days after the expiry of the last Defects Liability Period, AGC was to give Karara's Representative:
(a)a statutory declaration certifying payment of workers, subcontractors and contractors; and
(b)a written Final Payment Claim endorsed 'Final Payment Claim'.[639]
[639] Defence [157] ‑ [164], [22(d)].
The Final Payment Claim was defined as
a Payment Claim together with all other Claims whatsoever in connection with the subject matter of the Contract including all Claims which the Contractor considers exist under or arising out of any alleged breach of the Contract whether or not such Claims had been made at any time previously.[640]
[640] Main Works Contract GC 1.
Karara pleaded that any claims which had not already been barred were barred after the expiration of the period for lodging a Final Payment Claim.[641]
[641] Main Works Contract GC 49.1.1(b).
The question, on Karara's case, is whether the parties have complied with the procedure in GC 49, including the prescribed time limits.
In the context of my earlier findings, the issue is largely academic. It was, however, pleaded in answer to the SPEC allowance claim where I have found Karara was not entitled to deduct the amounts which it had paid.
It was not in dispute that AGC did not give Karara a Final Payment Claim within 20 days of the expiry of the Defects Liability Period.
In its reply, AGC contended that it was not required to make a Final Payment Claim where it had given notice of a dispute and where Karara knew of the existence of the disputed claims.[642]
[642] Reply [6].
AGC further pleaded, in reply, that the parties conducted themselves on the assumption that they no longer considered themselves bound by the terms of the Contract and, in effect, abandoned it. [643] Alternatively, AGC pleaded an estoppel by conventional course of dealings which prevented Karara from asserting that GC 49.1.1 operated in the way Karara pleaded (that is, in accordance with its terms).[644]
[643] Reply [6(e)].
[644] Reply [6(i)].
Karara submitted that it was entitled to insist on strict contractual position and deny liability for any claim barred under GC 49. The time bar in GC 49 is to be given its natural and ordinary meaning, in the context of the Contract as·a whole.
The claim that Karara breached either the Early Works Contract or the Main Works Contract by issuing a Progress Certificate in which it deducted the amount of SPEC allowance, alternatively that Karara breached an agreement to reimburse AGC the amount of the SPEC allowance that it had paid, is a claim 'in connection with the subject matter of the Contract' or a claim 'arising out of [an] alleged breach of the Contract'. AGC was required to include such a claim in a Final Payment Claim. The consequence of not doing so was that the claim was barred under GC 49.1.1.b.
The effect of Karara relying on its strict contractual entitlements is, no doubt, harsh. That is not itself reason to deny to it the effect of the agreement.
AGC will suffer detriment by reason of not submitting a Final Payment Claim, but the evidence does not support a finding that there was any common assumption between the parties modifying their obligations or entitlements under the Contract. In particular, there is no evidence that Karara accepted that AGC should be able to assert claims in the way it now seeks to do, or in any way led AGC to assume that Karara would not insist on its contractual rights.
Conclusion
The result is that I have found that Karara breached the Contract in relation to the 'Ausco· claim', and also that it deducted the SPEC allowance from the amount certified in the Progress Certificate of 30 August 2013 without any ·contractual entitlement to do so. Karara is, however, entitled to rely on the contractual exclusion of liability for consequential loss, and the .contractual time bar excluding claims not made in the Final Payment Claim. The two claims which I would otherwise uphold fall within the contractual exclusions.
AGC has not made out the balance of its claims. In particular, to the extent that AGC relied on terms to be implied into the Main Works Contract, its claims failed at that point. In seeking to give content to the duty to cooperate, AGC contended for the Loss of Opportunity Term and the Cooperation Terms. Neither is necessary for the operation of the Main Works Contract, and neither is consistent with the terms of that agreement.
I would, accordingly, dismiss the claim.
Appendix 1
For AGC, the following held the specified positions at the time of the events relevant to this decision:
(1)Stephen Andrews - Superintendent.
(2)Stuart Arndt - Project Controls Manager.
(3)Elaine Buchanan - Employee Relations Manager.
(4)Vaughan Campbell - Strategic Support Manager.
(5)Tyler Counsel - Employee Relations Manager.
(6)Christine Ann Deering - Cost Administrator.
(7)Edgar Del Pilar - Planner.
(8)Dave Gilbert - Executive General Manager, Operations.
(9)Gerard Hutchinson - Group Manager Corporate Development.
(10)Stuart Kenny - CEO and Managing Director.
(11)Bert Klynsoon - Construction Manager.
(12)Hugh Nicol - Group Manager - Commercial Services.
(13)Steve Poole - Senior Project Engineer.
(14)Bruce Sleeman - Senior Project Manager.
(15)Lisa Tibbits - Senior Contracts Specialist and Risk Co‑ordinator.
(16)Tom Vorster - General Manager.
For Karara, the following held the specified positions at the time of the events relevant to this decision:
(1)Richard Bourne - Project Director.
(2)Dennis James Gangell - Site Planner.
(3)David Geddes - Contracts and Commercial Manager.
(4)David Henderson - Construction Manager.
(5)Melissa Irene Kuipers - Site Senior Cost Controller.
(6)Andrew Donovan Lindsay - Manager General Operations.
(7)Greg Matthews - SMP Project Manager.
(8)Stephen Murdoch - Chief Executive Officer.
(9)Paul Sims - Chief Financial Officer.
(10)Moran Stark - SMP Project Manager.
(11)Richard Tarr - SMP Construction Manager
(12)Steve Thistlethwaite - Senior Project Superintendent.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CG
Associate to the Honourable Justice Allanson
2 MAY 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: AGC INDUSTRIES PTY LTD -v- KARARA MINING LTD [2019] WASC 140 (S)
CORAM: ALLANSON J
HEARD: ON THE PAPERS
DELIVERED : 4 DECEMBER 2019
FILE NO/S: CIV 1997 of 2013
BETWEEN: AGC INDUSTRIES PTY LTD
Plaintiff
AND
KARARA MINING LTD
Defendant
Catchwords:
Costs - Where defendant seeks costs without regard to the limit on daily and hourly rates for named practitioners - Where orders relate to unusually difficult, complex and important construction dispute - Whether fairly arguable that costs allowed in determination are inadequate
Legislation:
Legal Profession (Supreme Court) (Contentious Business) Determination 2012 (WA)
Legal Profession (Supreme Court) (Contentious Business) Determination 2014 (WA)
Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA)
Legal Profession Act 2008 (WA), s 276, s 277, s 280
Result:
Special costs orders made
Category: B
Representation:
Counsel:
| Plaintiff | : | No appearance |
| Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Coulson Legal |
| Defendant | : | Jackson McDonald |
Case(s) referred to in decision(s):
Buitendag v Ravensthorpe Nickel Operations Pty Ltd [2014] WASCA 29 (S)
Crawley Investments Pty Ltd v Elman [2014] WASC 233 (S)
Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2011] WASC 268 (S2)
Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95
Red Hill Iron Pty Ltd v API Management Pty Ltd [2012] WASC 323 (S)
Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S)
The Pilbara Infrastructure Pty Ltd v Brockman Iron Pty Ltd [No 2] [2014] WASC 345 (S)
ALLANSON J:
On 3 May 2019, I delivered judgment dismissing the plaintiff's claim. It was agreed that the plaintiff pay the defendant's costs. The defendant brought an application for special costs orders.
On 10 October 2019, the defendant filed proposed orders including that its costs be assessed:
(a)without regard to the limits on the daily and hourly rates in Table A of the relevant Legal Profession (Supreme Court) (Contentious Business) Determination for:
(i)Senior Counsel (Patricia Cahill SC);
(ii)Counsel (Anthony Bereyne and Darren Pratt); and
(iii)Senior Practitioners (Anthony Bereyne and Darren Pratt);
(b)without regard to the limits (whether as to the maximum allowances for time, number of and experience of legal practitioners or total costs) imposed by Table B of the relevant Legal Profession (Supreme Court) (Contentious Business) Determination in relation to the Scale Items for:
(i)defences (scale item 3(b));
(ii)giving discovery of documents (scale item 7(b));
(iii)inspection of discovered documents (scale item 8);
(iv)preparation of case (scale item 17);
(v)Counsel fee on brief (scale item 20(a));
(vi)Senior Counsel fee on brief (scale item 20(b)).
On 14 October 2019, I made orders for the filing of any affidavits and submissions by each party and for the application for special costs orders to be determined on the papers.
The plaintiff did not oppose the orders except for the issue of hourly rates for all practitioners, including Ms Cahill SC, Mr Bereyne and Mr Pratt. The question that remained in contention was whether the costs of those practitioners should be assessed without reference to the hourly rates provided for in the Legal Profession (Supreme Court) (Contentious Business) Determination 2012 (WA) (as in place at the commencement of the action), 2014 (from 1 July 2014), and 2016 (from 1 July 2016).
Legal Costs Determinations
Part 10 div 5 of the Legal Profession Act 2008 (WA) provides for the making of legal costs determinations regulating the costs that may be charged by law practices in respect of specified classes of business. A determination must be reviewed in each two year period.[645] Before reviewing a determination the legal costs committee must give public notice of its intention to review the determination, consult with any relevant court, and make other such inquiries as it considers necessary.[646]
[645] Legal Profession Act s 276.
[646] Legal Profession Act s 277.
By s 280:
(1)Subject to any costs agreement made in accordance with Division 6 or the corresponding provision of a corresponding law, section 306 and the Legal Aid Commission Act 1976 section 14 ‑
(a)the taxation of bills of law practices; and
(b)any other aspect of the costs charged by law practices,
is regulated by an applicable costs determination.
(2)Despite subsection (1), if a court or judicial officer is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter, the court or officer may do all or any of the following ‑
(a)order the payment of costs above those fixed by the determination;
(b)fix higher limits of costs than those fixed in the determination;
(c)remove limits on costs fixed in the determination;
(d)make any order or give any direction for the purposes of enabling costs above those in the determination to be ordered or assessed.
Section 280 has been fertile ground for litigation where parties wish to recover a greater proportion of the costs they have agreed to pay their legal representatives under costs agreements.
The principles concerning special costs orders under s 280(2) are well settled and were recently set out in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2].[647] Relevantly, s 280(2) 'operates to give the successful party the opportunity to recover those costs which have been reasonably and properly incurred where, in the court's opinion, the scale is inadequate because of the unusual difficulty, complexity or importance of the matter'.[648]
[647] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S) [11] ‑ [16].
[648] Sino IronPty Ltd v Mineralogy Pty Ltd [No 2] (S) [11].
Before exercising the power in s 282(2), the court must form the opinion that the amount allowed under the costs determination is inadequate because of the 'unusual difficulty, complexity or importance of the matter'. That exercise is more straightforward where the question relates to the time reasonably spent compared with that allowed. It is more difficult where the question is whether the costs allowable under the determination are not adequate because the prescribed hourly rate would result in inadequate compensation for the successful party.
The fact that a party's counsel or instructing solicitor has charged at a rate higher, or even significantly higher, than the scale does not of itself justify the lifting of the scale.[649]
[649]See, for example, Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2011] WASC 268 (S2) [7] (Le Miere J); Red Hill Iron Pty Ltd v API Management Pty Ltd [2012] WASC 323 (S) [30] (Beech J); The Pilbara Infrastructure Pty Ltd v Brockman Iron Pty Ltd [No 2] [2014] WASC 345 (S) [10] (Edelman J).
In Flotilla Nominees Pty Ltd v Western Australian Land Authority, Pullin J considered, specifically, the question of increasing hourly rates in the manner sought by the defendant. His Honour said:
… there should be no expectation that, as a matter of course, rates in the costs agreement which are above scale will be ordered to be the rates to apply in taxation as between party and party. There would have to be evidence justifying the higher rate. The whole point of the existing scale is that the rates are struck by reference to what is being charged within the profession. It is true that the hourly rates can only be an average or mean of the upper rates determined in the survey, and there will be some cases where the unusual complexity or importance of the case warrants the special expertise of the practitioner involved and warrants an increase in the hourly rate. In some cases not involving unusual complexity or importance, the higher rates paid will not be recoverable. A party is always entitled to the luxury of retaining the highest paid practitioners in the conduct of their case, but they cannot always expect to recover these costs from the other party. If the hourly rates in the scale are thought by parties or practitioners to be too low for work which is not of unusual complexity or importance, then submissions should be made to the Legal Costs Committee to increase the rates in the scale.[650]
[650] Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [22].
The evidence
The defendant relied on an affidavit of Anthony David Bereyne, sworn 10 October 2019.
The evidence of Mr Bereyne was that Jackson McDonald acted for the defendant pursuant to a retainer agreement, including a disclosure letter, by which the defendant expressly agreed the rates and billing by time costing. That, of course, is a matter of agreement between Jackson McDonald and the defendant.
The retainer agreement was a general retainer for work described in the disclosure letter 'and any other work you may expressly ask us to do from time to time'. The defendant agreed that Jackson McDonald may appoint the partners or employees it thought appropriate to do the work.
Mr Bereyne managed the defendant's conduct of the litigation from the outset. He acted as junior counsel from about 1 February 2017 until the end of the trial on 23 June 2017. During that period, Mr Pratt's role included acting as instructing practitioner attending trial.
The disclosure letter stated that Jackson McDonald would charge the 'standard hourly rates' of 'other lawyers' working on the matter. The rates to be charged by Mr Bereyne and Mr Pratt were not stated, at least in the copy of the letter in evidence.
The disclosure letter also provided for rate reviews at six month intervals, but none of those reviews were put in evidence (although I infer there were such reviews from variations in the rates charged).
The evidence about the hourly rates for the practitioners employed in Jackson McDonald was, in effect, that the rates charged by the firm are 'benchmarked' against rates charged by comparable large litigation firms and, in Mr Bereyne's opinion, are competitive.
The plaintiff relied on an affidavit of Amy Louise Pascoe, sworn 24 October 2019. Ms Pascoe's evidence demonstrated the difference in rates charged by the solicitors for each party.
Was the matter unusually difficult, complex or important
Mr Bereyne gave evidence of the time taken for some of the scale items: approximately 200 hours by senior practitioners for drafting and amending the defence, not including the involvement of senior counsel in settling the various iterations of the defence; over 1,000 hours on discovery by practitioners of varying levels of seniority; 4,000 hours in preparation of the case by practitioners of varying levels of seniority; more than 300 hours on closing submissions.
Mr Bereyne deposed:
(e)discovery was a very substantial undertaking. Jackson McDonald received approximately 220Gb of raw data from [the defendant] (potentially the equivalent of 1,000,000 documents) which was reduced to approximately 200,000 documents for analysis and processing. Ultimately, the defendant discovered in the order of 25,000 documents over the course of the matter;
(f)the trial bundle was voluminous (approximately 1600 documents plus schedules containing many more documents and comprising 34 hardcopy folders);
(g)sixteen lay witnesses provided witness statements (20 witness statements in total) and 14 of those witnesses were called to give evidence at trial;
(h)expert evidence was required by both parties and both parties experts was sourced from outside the jurisdiction …[651]
[651] Affidavit of Anthony David Bereyne, sworn 10 October 2019, [18](e) ‑ (h).
Ultimately, it was not in dispute that this matter was unusually difficult and complex. I also accept Mr Bereyne's evidence that this action was important because of the size and the nature of the claim.
On the evidence, and my own experience as the judge at trial, this action required a well-resourced litigation firm with expertise in large, complex disputes. The senior lawyers engaged, for whom the uplift is sought, are all senior practitioners experienced in complex construction disputes.
The plaintiff submitted that the defendant was required to present evidence 'why no other practitioner within the Western Australian jurisdiction was available to undertake the legal work performed at the hourly rates in the relevant determination, or whether the party was unable to engage a solicitor to undertake the work at the Scale hourly rates'.[652] The plaintiff relied upon comments of Edelman J in Crawley Investments Pty Ltd v Elman.[653] The reliance was not, in my opinion, well placed. First, while Edelman J acknowledged that the arguments before him concerned a number of difficult, and unresolved legal issues, his decision was in relation to the costs of an application to set aside the issue and service of a writ out of the jurisdiction. In contrast, the matter before me results from a trial of many days, after about four years of preparation. Second, I do not believe that Edelman J was purporting to state a requirement of the kind contended for by the plaintiff. His Honour referred to the absence of any evidence or submission about the availability of other practitioners, but decided the application on the basis that it was not fairly arguable that the importance, difficulty or complexity of the issues was such that the maximum amount in the relevant scale would be inadequate. In the present matter, the court is able to form an opinion on that question without the evidence which the plaintiff submitted is needed.
[652] Plaintiff's submissions [15].
[653] Crawley Investments Pty Ltd v Elman [2014] WASC 233 (S) [23].
The plaintiff also submitted that while the action was complex and important, the nature of the work required a large legal team, as opposed to specialist practitioners with high hourly rates: 'engaging solicitors and senior counsel who charged more than the rates provided for in the Scale is to be regarded as a luxury of litigation, which is a cost that ought to be borne by the party indulging in that luxury…'[654]
[654] Plaintiff's submissions [17].
I do not accept the submission. Once it is accepted that the matter is complex and difficult, requiring a large legal team, it is reasonable that one or more experienced senior practitioners with experience and specific expertise in construction disputes will be required to manage the litigation. Similarly, the engaging of senior counsel with undoubted experience and expertise in such disputes was reasonable and proper.
The plaintiff made further submissions regarding the effect of GST and the need to avoid 'double dipping' in relation to the fees for senior counsel. That question does not arise on this application. I am not determining the amount payable in respect of counsel's fees, and whether the amount allowed should be on a GST inclusive basis.
Finally, the plaintiff submitted that hourly rates allowed to Mr Bereyne and Mr Pratt for their work as counsel should reflect the differentiation in rates between solicitors and counsel. Again, in my opinion, that is a question for the taxing officer. I would, however, make one comment. Neither of those practitioners is senior counsel. The Court of Appeal has said that, only in very exceptional circumstances would a person who has not been appointed senior counsel, with its attendant rights and responsibilities, have their costs assessed at the rate designated for senior counsel in the Determination.[655]
[655] Buitendag v Ravensthorpe Nickel Operations Pty Ltd [2014] WASCA 29 (S) [7].
Conclusion
In my opinion, the defendant has established that, given the complexity and importance of this action, it was reasonable for it to engage senior counsel and other practitioners at rates above those allowed in the scale.
Mr Bereyne gave detailed evidence about the rates charged by the three practitioners named in the proposed order. I am not, however, asked to make orders either approving the rates that were actually charged or setting the rates at which the services provided should be taxed.
The question under s 280(2) is whether the court is of the opinion that, because of the complexity and importance of the matter, the amount allowed in the determination is inadequate. On the authorities, I need determine whether it is fairly arguable that a greater amount should be allowed than that which is allowable under the relevant determination. I am satisfied that it is fairly arguable, and that is sufficient to resolve this application.
For these reasons, subject to the comments in the following paragraph, the orders sought by the defendant should be made. The reasonableness of the rates sought and the work carried out are for the taxing officer.
For the avoidance of doubt, the orders with regard to the uplift of hourly and daily rates are limited to the three practitioners named in proposed order 2(a). Where, in order 2(b), the costs are to be assessed 'without regard to the limits (whether as to the maximum allowances for time, number of and experience of legal practitioners or total costs) imposed by Table B', that order is not intended to remove limits on hourly and daily rates other than for those named practitioners. It should not be necessary to amend the words of the proposed order 2(b) in the defendant's minute to make that clear, but I will do so if there is any uncertainty about the effect of the order.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CG
Associate to the Honourable Justice Allanson
4 DECEMBER 2019
[298] BP Refinery (Westernport) Pty Limited v Shire of Hastings (1994) 180 CLR 266, 282 ‑ 283.
7
25
3