Alstom Ltd v Yokogawa Australia Pty Ltd (No 8) - [2012] SASC 117

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ALSTOM LTD v YOKOGAWA AUSTRALIA PTY LTD & ANOR (NO 8)
[2012] SASC 117
Judgment of The Honourable Justice Bleby
10 July 2012
INTEREST - RECOVERABILITY OF INTEREST - AWARD OF INTEREST ON DEBTS AND SUMS CERTAIN
INTERPRETATION - ADMISSIBILITY OF EXTRINSIC EVIDENCE IN RELATION TO INSTRUMENTS - WHEN EVIDENCE ADMISSIBLE - TO SHOW MEANING OF TERMS - IN GENERAL
EVIDENCE - ADMISSIBILITY AND RELEVANCY - OPINION EVIDENCE - EXPERT OPINION - IN GENERAL
Consideration of formal orders including issue of determining pre-judgment interest – whether payment of liquidated sums should be ordered now – whether payment of interest on liquidated sums should be ordered now – determination of dates from which payment of interest in respect of liquidated damages withheld is to run - determination of dates from which payment of interest in respect of agreed variations is to run – whether contract provisions for interest void for uncertainty due to reference to “prime rate” – whether additional expert evidence admissible to construe terms of contract – whether “prime rate” had accepted trade or commercial usage - whether interest “calculated daily” required payment of compound or simple interest.
Expert witness – consideration of the need for independence – whether evidence of expert witness compromised by suggestion of instructing solicitor, comments as to behaviour of opposing party and instructing solicitor redrafting portions of report – whether certain “opinions” of expert witness admissible – admissibility of evidence as to trade or commercial usage.
Held: it is in the interests of justice to order payment of liquidated sums at this time – appropriate to order payment of interest on liquidated sums at this time – payment of interest in respect of liquidated damages withheld ran from the date on which plaintiff unlawfully deducted the liquidated damages from defendant’s progress claims – payment of interest in respect of B2 variations ran from 35 days after defendant’s invoices for respective variations – payment of interest in respect of B3 variations ran from eight days after date of the agreement – contract provisions for interest not void due to uncertainty – additional expert evidence admissible in part to construe terms of contract – “prime rate” does have accepted trade or commercial usage and has discernible certain meaning in the contract – in this context “calculated daily” simply consistent with obligation to pay simple interest.
Supreme Court Act 1935 (SA), referred to.
Alstom Ltd v Yokogawa Australia Pty Ltd & Anor (No 7) [2012] SASC 49, discussed.
Wilson v Wilson (1854) 5 HL Cas 40; Fitzgerald v Masters (1956) 95 CLR 420; The Tropwind [1982] 1 Lloyd's Rep 232; Watson v Phipps (1985) 63 ALR 321; Austalian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130; Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; Robertson v French (1803) 4 East 130; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 236 ALR 561; Western Export Services Inc v Jireh International Pty Ltd (2011) 86 ALJR 1; Appleby v Pursell [1973] 2 NSWLR 879; Smith v Wilson (1832) 3 B & Ad 728; Mitchell v Henry (1880) 15 Ch D 181; Myers v Sarl (1860) 3 E & E 306; Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476; Nelson v Dahl (1879) 12 Ch D 568; Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48; Con-stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226; Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435; Byrne v Australian Airlines Ltd (1995) 185 CLR 410, considered.

ALSTOM LTD v YOKOGAWA AUSTRALIA PTY LTD & ANOR (NO 8)
[2012] SASC 117
Introduction

On 2 April 2012 I published reasons for decision[1] and indicated that I would hear the parties further as to the terms of any consequential orders and as to interest and costs.
[1] [2012] SASC 49.
Among other things I decided that the plaintiff (“Alstom”) had unlawfully deducted from progress payments due to the defendants (“YDRML”) the sum of $2,831,304.54 in respect of a claim by Alstom for Liquidated Damages. I also held that YDRML should recover from Alstom a sum of $948,652.47 plus GST, making a total sum of $1,043,517.72 in respect of variations to the EC&I contract referred to in the reasons. There were other claims in respect of which YDRML succeeded against Alstom for damages for breach of contract and for variations in respect of which there had been no agreement as to quantum. I indicated that, in respect of those claims, I would make appropriate declarations as to liability and adjourn questions of the assessment of those claims and damages as appropriate.
A number of disagreements became evident as to the nature of the various orders which should be made as a consequence of my findings, including substantial matters concerning pre-judgment interest. I have heard further argument as to those matters. I publish these further reasons to enable interest to be calculated and, I hope, agreed, to the date on which I indicate that the orders will be made.
Orders for the payment of liquidated amounts
Alstom opposed the making of any orders, at this stage, for the payment of liquidated amounts which I had found to be payable by Alstom to YDRML. It submitted that such orders should await the assessment of the outstanding claims in respect of which YDRML had succeeded. The basis of the opposition was that during the trial, and in the course of my reasons, I had stated my decision to make declaratory orders as to liability on Alstom’s claims and YDRML’s cross‑claims, and that I would adjourn the question of damages. I gave brief reasons at the time for doing so. No formal orders were made to that effect, but the trial continued without my hearing evidence going to the assessment of the various damages claims and as to quantification of disputed variation claims by YDRML. Alstom submitted that the appropriate time to deal with monetary amounts was when the issue of damages and quantification of the variation claims was dealt with, and that the natural and ordinary consequence of what I said during the trial was that all issues of damages and quantification were to be dealt with at the same time and not in a piecemeal fashion.
The reasons that I indicated that I would not deal with damages or quantification of disputed variation claims before determining questions of liability were that there were numerous and extensive claims and cross‑claims before me and that the evidence as to quantum of damages and disputed variations would be extensive and was conflicting. Without first determining questions of liability, the hearing of evidence on damages and quantification would have to have been led on a number of possible hypotheses as to liability, some of which might never eventuate. It would have been a very difficult and complex task, much of which, as it turned out, would not have been necessary. I therefore considered that it was in the interests of expedition and efficiency of the trial to defer evidence concerning the assessment of damages and quantification of variation claims until after the various questions of liability had been determined, thus resolving the many contingencies which would otherwise have had to apply to the evidence on damages and quantification. That would considerably reduce the number of issues to be addressed in a damages assessment and quantification of variation claims and the amount of time necessary to resolve those questions. Although not expressly stated, it was clear that I was intending to defer issues which required further evidence to be led before damages could be assessed and disputed quantification claims could be quantified. I did not say that I would, at the same time, defer the award of any liquidated sums which might become due as a result of any findings I made. The question was simply not addressed.
As it happened, all of Alstom’s claims against YDRML were dismissed, and a number of cross‑claims by YDRML did not require the assessment of damages or further evidence as to quantification.
The repayment of Liquidated Damages wrongly deducted by Alstom was a liquidated sum the amount of which could not be the subject of any dispute. It was a liquidated sum due by Alstom to YDRML under the contract and not paid. It does not require the assessment of damages or any further evidence.
The variations to the contract in respect of which YDRML could recover a liquidated sum were all items in respect of which I found there had been agreement between the parties that payment should be made and as to the amount of each of the payments. These amounts also did not require the assessment of damages or any further evidence.
In respect of both the amounts wrongly deducted on account of Liquidated Damages and the amounts in respect of agreed variations, the amounts concerned were not damages which required assessment but liquidated amounts due under the contract. Apart from attempting to rely on what I said during the course of the trial as to the assessment of damages, Alstom could point to no reason why YDRML should be prevented from recovering now what is justly due to it by way of liquidated sums. It would be a travesty of justice now to deny to the successful party the payment of liquidated sums which have long been due and payable by Alstom and which cannot be the subject of any offsetting claims by Alstom. I therefore consider that the interests of justice require that orders for payment of those monies be made forthwith.
Interest
A number of disputes remained:
1.Alstom claimed that interest on liquidated sums should not be awarded now but should be left to the Judge determining the assessment of damages after receiving evidence and submissions on all remaining issues;
2.If interest was to be awarded, Alstom submitted that interest on the amount of Liquidated Damages withheld ought to commence 14 days after the making of final orders or, alternatively, 14 days after delivery of my reasons;
3.Alstom claimed that interest on liquidated amounts for variations ought to run from eight business days after the making of final orders or, alternatively, eight business days after delivery of my reasons;
4.Alstom claimed that the interest provisions contained in the EC&I contract were void for uncertainty and should not be applied. If interest was to be awarded it should be calculated at the rate specified in the Supreme Court Act 1935 (SA) and Rules;
5.YDRML, on the other hand, claimed that the interest provisions in the EC&I contract were valid and enforceable. It further argued that, properly interpreted, they required the payment of compound interest calculated daily, not simple interest.
Whether the payment of interest on liquidated sums should be ordered now
The first issue identified above can be dealt with relatively briefly. If YDRML is entitled to the payment of liquidated sums, there is no reason why interest on those sums should not be ordered to be paid at the same time. Whether discretionary or in accordance with the terms of the contract, it does not require the hearing of further evidence save as to relevant rates of interest applicable at various times during the period for which it is claimed. In almost every case that should not be a matter of dispute. There is no reason to defer that question to the Judge assessing damages, which may involve the hearing of substantial and disputed evidence. Interest on damages and other amounts yet to be assessed can be dealt with in conjunction with that assessment.
The dates from which the payment of interest in respect of Liquidated Damages withheld is to run
Before dealing with the second point mentioned above, it is necessary first to refer to a number of relevant provisions of the EC&I contract.
Article 5.3.3 relevantly provided:
5.3.3 Progress Certification
(a)Within 30 days of receipt by Contractor of Subcontractor’s invoice issued in accordance with sub-article 5.3.2,[2] Contractor shall issue a progress certificate to Subcontractor setting out:
[2]    Article 5.3.2 required the submission of monthly invoices by YDRML to Alstom, together with certain supporting material.
(i)the percentage of the Electrical and C & I Works completed in accordance      with the Contract by Subcontractor; and
(ii)     the progress amount payable determined by reference to:
(A)the individual line items of the WBS as set out in Schedule E and the     maximum drawdown schedule set out in Schedule E;
(B)in the case of Electrical and C & I Works performed pursuant to    Change Orders, the drawdown schedule in the relevant Change Order;      and
(C)     in the case of any Additional Works Option, the relevant Additional   Works Option Election Form.
(“Progress Certificate”)
(b)     …
(c)Subject to sub-articles 5.3.2 and 5.3.3(d) to (f), within 5 days after issue by Contractor of a Progress Certificate, Contractor shall pay Subcontractor the amount shown in the Progress Certificate less any amount which Contractor is entitled to withhold or set off under Article 5.6.
(d)If Contractor disputes the amount payable following a Subcontractor’s invoice then, within 5 days after issue by Contractor of the Progress Certificate, Contractor must notify Subcontractor in writing of the reasons for the dispute and Subcontractor and Contractor must confer with each other within 5 Business Days after the notification to attempt to resolve the dispute.
(e)If Subcontractor and Contractor subsequently agree or it is determined in accordance with this Contract that the disputed amount or any part of the disputed amount was due to Subcontractor, Contractor must pay the amount agreed or determined to Subcontractor within 8 Business Days of the agreement or determination.
(f)The Contractor shall issue a Progress Certificate for the undisputed portion of the Subcontractor’s claim in accordance with clause 5.3.3(a).
(g)Any undisputed amount not paid in accordance with sub-article 5.3.3, shall bear interest from the due date at a rate equal to the prime rate announced by the Commonwealth Bank, as such rate may change from time to time, plus 2% per annum, calculated daily, until paid.
As can be seen from paragraph (a) of Article 5.3.3, the amount referred to in a progress certificate related only to the items in the Works Breakdown Statement that had been completed, together with amounts due for any Change Orders and other works performed. In other words, it related solely to the amount of work performed by YDRML.
Under paragraph (c) of Article 5.3.3, the amount shown in the progress certificate was to be paid within five days after its issue less any amount which Alstom was entitled to withhold or set off under Article 5.6.
Article 5.6 provided:
5.6 Payments Withheld; Set-off
Without limiting any other rights of Contractor under or in relation to this Contract:
5.6.1Contractor may withhold all or part of payment of an invoice in an amount and to such extent as may be reasonably necessary to protect Contractor from loss because of:
(a)any part of the Electrical and C & I Works not conforming to the requirements of this Contract; or
(b) defective Electrical and C & I Works; and
5.6.2Contractor may also set-off against amounts due or payable by Contractor to Subcontractor any amounts due or payable to Contractor from Subcontractor under or in relation to this Contract including without limitation any Liquidated Damages or Performance Guarantee Payments due or payable under this Contract.
The only amount that could be deducted by way of Liquidated Damages was Liquidated Damages “due or payable under this Contract”. I have found that there were none. Therefore, there was no entitlement to deduct any such amounts from a progress payment.
Article 5.3.3(d) set out what was to happen if Alstom disputed the amount payable following an invoice from YDRML. However, the right to payment and withholding was expressed to be subject (among other things) to sub‑articles 5.3.3(d) to (f). That was dependent upon Alstom disputing the amount payable following YDRML’s invoice and the requirement to confer and attempt to resolve the dispute. In respect of any undisputed amount, Alstom was to issue a Progress Certificate for the undisputed portion which would then be subject to deduction of any amount which Alstom was entitled to withhold or set‑off under Article 5.6. The obligation to pay a disputed amount, if the dispute was resolved in favour of YDRML, arose within eight Business Days after agreement or determination of the dispute. That only applied to the disputed content of YDRML’s invoice. It did not apply to any amounts deducted from the amount of the Progress Certificate in accordance with the provisions of Article 5.6, about which there might also be a dispute.
Article 5.3.3(e) was only concerned with the time for payment of amounts claimed in YDRML’s monthly invoice. This is confirmed by a reading of paragraph (f) which required Alstom to issue a Progress Certificate for the undisputed portion of YDRML’s claim in accordance with paragraph (a). An amount could then be deducted from the undisputed portion which Alstom was entitled lawfully to withhold or set-off under Article 5.6, such as a justifiable claim for Liquidated Damages.
It is also confirmed by Article 5.5 which provided:
5.5 Disputed Invoices
5.5.1If Contractor disputes any amount shown in a Progress Certificate or Final Payment Certificate, the amount not in dispute shall be paid by Contractor and any disputed amount ultimately paid shall be paid with interest from the due date to the date of payment calculated at a rate per annum equal to the prime rate announced by the Commonwealth Bank, as such rate may change from time to time, plus 2% per annum, calculated daily.
5.5.2If Contractor releases payment to Subcontractor on a disputed invoice and it is subsequently determined that all or part of the amount paid was not properly due to Subcontractor, Subcontractor shall refund such amount plus interest at the rate per annum equal to the prime rate announced by the Commonwealth Bank as such rate may change from time to time, plus 2% per annum, calculated daily.
5.5.3Any dispute which is not resolved by mutual agreement shall be resolved in accordance with Article 14 of this Contract.[3]
[3] Article 14 provided for a process of dispute resolution. However, the 2007 settlement agreement included a provision that that would be abandoned in favour of a separate mediation process or, failing that, this litigation. See Alstom Ltd v Yokogawa Australia Pty Ltd & Anor (No 7) [2012] SASC 49, [13].
For reasons to which I shall return, the words “Progress Certificate” and “Final Payment Certificate” must be read as “Subcontractor’s invoice” and “Final Payment Statement” respectively. So read, it restated the obligation for Alstom to pay the undisputed amount of YDRML’s invoices, leaving payment of any disputed amount to attract interest from the “due date”, i.e. the dates specified by Article 5.3.3(e). It said nothing about any amount, whether disputed or not, that might be deducted under Article 5.6.

YDRML advanced an argument that there was a mistake or inconsistency in Article 5.3.3(d) which required the expression “Progress Certificate” to be read as meaning “Subcontractor’s invoice”. Article 5.3.3(d) was the subject of modification by the Special Conditions of the same Article appearing in the head contract. So far as is material, the opening words of paragraph (d) of the head contract were:
(d)if Owner disputes the amount payable following a Progress Certificate then, within 14 days after receipt by Owner of the Progress Certificate, Owner must notify Contractor in writing of the reasons for the dispute…
That sub-Article dealt with a situation where the Progress Certificate was issued by the Superintendent, an independent third party, and not by the Owner, whereas under the EC&I contract the Progress Certificate was to be issued by Alstom as Contractor.
In the editing of the head contract by the Special Conditions the word “Owner” was replaced by “Contractor” and the expression “Progress Certificate” (first occurring) was replaced by “Subcontractor’s Invoice”. The phrase “receipt by Owner of the Progress Certificate” became “issue by Contractor of the Progress Certificate”.
It was said that the failure to change “Progress Certificate” (second occurring) to “Subcontractor’s invoice” was an obvious mistake which could be corrected by the Court without resort to a formal rectification application, consistent with the authorities discussed in Chapter 9 of Lewison and Hughes, The Interpretation of Contracts in Australia.[4]I reject that argument. There is no obvious mistake in the editing of the head contract in respect of that Article. The scheme as drafted is quite workable. There was an obvious intention that the expression “Progress Certificate”, second occurring in the head contract, should remain because the Special Conditions also changed the preceding phrase “receipt by Owner” to the phrase “issued by Contractor”.
[4] Sir K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012).
YDRML advanced a similar argument in relation to the construction of Article 5.5.1, namely that the expression “Progress Certificate” should read “Subcontractor’s invoice”, and that “Final Payment Certificate” should read “Final Payment Statement”. I accept YDRML’s argument in relation to that Article.
As I have already mentioned, the head contract provided a role for an independent Superintendent to undertake various certification functions, including the issue of Progress Certificates and the Final Payment Certificate. The Superintendent had no such function under the EC&I contract. That was provided for by the Special Conditions. It was therefore necessary to make alternative provision about the issue of Progress Certificates and the Final Payment Certificate under the EC&I contract. Progress Certificates and the Final Payment Certificate were to be issued by Alstom as Contractor.
Article 5.5.1 of the EC&I contract, if read literally, makes no sense. The Progress Certificates and Final Payment Certificate were to be originated by and were to be the creation of the Contractor. They were to specify what the Contractor was prepared to pay. The Contractor was not going to dispute any figures which were of its own origin. What occurred in the editing of the head contract for the purposes of the EC&I contract was an obvious failure to change the words “Progress Certificate” and “Final Payment Certificate” to “Subcontractor’s invoice” and “Final Payment Statement” respectively. Those were the relevant documents and the only relevant documents originated by YDRML.
Lord St Leonards, in Wilson v Wilson[5] said:
Now it is a great mistake if it be supposed that even a Court of Law cannot correct a mistake, or error on the face of an instrument; there is no magic in words. If you find a clear mistake and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about those things which can only be shown by parol evidence to be mistakes – without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the fact of an instrument without the slightest difficulty.
[5] (1854) 5 HL Cas 40, 66; 10 ER 811, 822.
The same principle has been applied by the High Court in Fitzgerald v Masters.[6] In that case the set of standard conditions was purported to be incorporated in a contract for the sale of land so far as they were “inconsistent” with the contract. The Court held that the word “inconsistent” should be read as “consistent”. In so holding, Dixon CJ and Fullaghar J said:[7]
There is a superficial difficulty in cl 8, because it purports to incorporate a set of conditions so far as they are inconsistent with what has been specifically agreed upon. No real difficulty, however, is created. Words may generally be supplied, omitted or corrected in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency. Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon. What they must clearly have intended is to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon, and cl 8 must be read as if it said ‘consistent’ or ‘not inconsistent’.
[6] (1956) 95 CLR 420.
[7] Ibid 426-427.
On the same topic McTiernan, Webb and Taylor JJ said:[8]
It is trite law that an instrument must be construed as a whole. Indeed it is the only method by which inconsistencies of expression may be reconciled and it is in this natural and common sense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words.
[8] Ibid 437.
Not to construe Article 5.5.1 as submitted by YDRML is to render the Article meaningless. To construe the Article as YDRML contends is to give it the only meaning it could possibly have – a meaning which is entirely consistent with the heading to Article 5.5: “Disputed Invoices”.
To construe Article 5.5.1 in the manner submitted by YDRML is also consistent with the principle of construction whereby the Court will seek to save a document where possible, rather than to render the clause in question meaningless and superfluous. In The Tropwind[9] Lord Denning MR said:
We have on a few occasions rejected a sentence as meaningless … But this is only when it is impossible to make sense of it. Rather than find it meaningless, we should strive to find out what was really intended – by amending the punctuation, or by supplying the words and so forth.
[9] [1982] 1 Lloyd’s Rep 232, 237.
In this case it is clear what was intended. This is in contrast with the editing of Article 3.3.1 and the resultant Article of that number in the EC&I contract discussed in my earlier reasons.[10] In that case the meaning of the clause was far from obvious. It was not merely ambiguous but uncertain.
[10] [2012] SASC 49, [157]-[173].
If I am wrong in my construction of Article 5.3.3, and the provisions of paragraphs (d), (e) and (f) applied to the amounts deducted by Alstom on account of Liquidated Damages from YDRML’s monthly invoices, so that the amounts in dispute need only be paid within eight business days of the agreement or determination of the dispute in respect of Liquidated Damages, Alstom’s case is no further advanced.
Article 5.3.3 provided, in essence, a process which dictated when certain payments were to be made. Importantly, the obligation to make payment in paragraph (c) was subject to paragraphs (d), (e) and (f). Paragraph (d) placed an obligation on Alstom to undertake certain activities in respect of disputed amounts within five days after the issue by Alstom of the Progress Certificate. There is no evidence of any Progress Certificates having being issued by Alstom nor of any attempt to give reasons for the dispute nor of any attempt to resolve the dispute. Alstom merely deducted what it claimed was its entitlement to Liquidated Damages from the payment made as a result of YDRML’s monthly invoice. The procedure prescribed by paragraphs (d), (e) and (f) were not followed. For the purpose of crystallizing times for payment, YDRML’s invoice was an undisputed amount payable within five days of the issue by Alstom of a Progress Certificate (which did not happen) which it was obliged to issue within 30 days of the receipt of YDRML’s invoice. To say that the claimed Liquidated Damages was not in dispute for the purpose of the timing of payments, does not mean to say that it could not subsequently become a matter of dispute, as indeed it did.
The “due date” for the calculation under the EC&I contract of interest on Liquidated Damages wrongly deducted is therefore the date on which Alstom unlawfully deducted the Liquidated Damages from YDRML’s progress claims. Those dates and amounts have been agreed.
Alstom argued that the construction I put on Articles 5.3.3 and 5.5 ignores the effect of the 2007 settlement, when all matters in dispute were effectively referred for determination in these proceedings. That may well be so as a means of resolving all outstanding disputes identified at that time in accordance with the provisions of that settlement agreement. However, the 2007 settlement said nothing about the requirement to pay or the right to withhold payment pending settlement of those disputes. Those matters were to be determined upon the proper construction of Articles 5.3.3 and 5.5.
Alstom then referred to Article 12.1. Article 12.1.1 was in the following terms:
12.1Delay in achieving Provisional Acceptance
12.1.1If the Electrical and C & I Works are not ready for Provisional Acceptance on or before the Scheduled Provisional Acceptance Date, Subcontractor must pay the Liquidated Damages to the Contractor, applied by the Owner, as can be attributed to the Subcontractor’s delay at the Liquidated Damages Rate for each and every day after the Scheduled Provisional Acceptance Date up to and including the date the Electrical and C & I Works are ready for Provisional Acceptance. The liquidated damages rates and limits shall be the rates and limits in the Head Contract multiplied by a factor of Subcontract Value/Head Contract Value.
[Original Emphasis]
Three conditions had to be met before the obligation to pay Liquidated Damages arose:
(1)The EC&I Works were not ready for Provisional Acceptance by the Scheduled Provisional Acceptance Date;
(2)The Liquidated Damages must have been applied to Alstom by the Owner under the head contract; and
(3)The Liquidated Damages payable to Alstom were to be “as can be attributed to” YDRML’s delay.
Condition (1) was fulfilled. I assume for present purposes that condition (2) was also fulfilled, although in some cases the deduction was made before the application by FPP of Liquidated Damages against Alstom. On my findings, condition (3) was not fulfilled. Delays in Provisional Acceptance were not attributable to YDRML. Therefore Article 12.1.1 does not assist Alstom. That was no justification for the deduction of Liquidated Damages by Alstom.
Article 12.1.4 then provided:
12.1.4If after Subcontractor has paid or Contractor has deducted Liquidated Damages, the time for Provisional Acceptance is adjusted under this Contract and, as a result, Subcontractor has paid or Contractor has deducted an amount in total that exceeds Subcontractor’s Liquidated Damages liability, contractor shall repay that excess to Subcontractor within 14 days of the determination of the adjusted Scheduled Provisional Acceptance Date.
That Article allowed for an adjustment within a certain time where Liquidated Damages had been deducted which exceeded YDRML’s liability for Liquidated Damages. However, that only applied where the time for Provisional Acceptance had been adjusted “under this Contract” and, “as a result” of that adjustment, the Liquidated Damages deducted exceeded YDRML’s liability for Liquidated Damages. Alstom argued that, as a result of my findings, I had effectively extended the dates for Provisional Acceptance and that the liability to repay the Liquidated Damages only arose 14 days after that date. I reject that argument.
I have not, as a result of this litigation, extended either Scheduled Provisional Acceptance Date. I was not asked to and do not propose to make a declaration to that effect. The Scheduled Provisional Acceptance Dates have remained the same throughout. To extend the Scheduled Provisional Acceptance Dates “under this Contract” required compliance with Article 4.3. That required the provision of certain information to Alstom by YDRML which, on my findings, YDRML was quite unable to give because of Alstom’s breach of contract in failing to provide YDRML with adequate programming information. Article 4.3 required Alstom to grant the extension of time if the relevant conditions were fulfilled. They could not be because of Alstom’s own default. Furthermore, Alstom had a discretion under Article 4.3.7, to extend the Scheduled Provisional Acceptance Dates notwithstanding non-compliance with the other provisions of Article 4.3. It steadfastly refused to do so despite the fact that, on my findings, YDRML was not responsible for any of the delays to Provisional Acceptance.
The deduction that exceeded YDRML’s liability for the Liquidated Damages was not “as a result” of any adjustment of the Provisional Acceptance Dates “under this Contract”. It was as a result of the unlawful deduction of the Liquidated Damages by Alstom in the first place. Article 12.1.4 has no application.
The dates from which the payment of interest in respect of agreed variations is to run
Item 3 above can be dealt with more briefly. In respect of the B1 variation claims, it is clear from Article 5.3.3(a) that work the subject of a Change Order was to be included in YDRML’s monthly invoice and was subject to the payment requirements of Article 5.3.3. In other words, Alstom could lawfully deduct a disputed claim that was the subject of a Change Order included in a YDRML invoice, and the time for payment of the disputed variation would be governed by Article 5.3.3(e).
The B1 variations were variations to which Alstom agreed not by way of Change Order but by way of an agreed variation involving a signed purchase order and subsequent separate invoice by YDRML. They were not strictly covered by Article 5.3.3(a). Nothing was said, during the course of negotiating that procedural variation, about when payment on an invoice would be due. However, adopting the formula adopted by Article 5.3.3, Alstom had 30 days after the invoice in which to issue a Progress Certificate, and five days after that to pay the undisputed amount. Therefore in respect of the B1 variations I consider that interest should run from a date 35 days after the date of YDRML’s invoices for the respective B1 variations.
The B3 variations had all been the subject of dispute, whether or not they were also the subject of Change Orders. They were all the subject of agreement with Mr Pigozzo on 18 June 2004. Applying the provisions of Article 5.3.3(e), payment was due eight days after the date of the agreement, namely 26 June 2004. Interest on the B3 variations therefore runs on the agreed amount from that date.
What I have said applies to the B1 and B3 variations exclusive of GST. If YDRML has not yet become liable to pay the GST, interest should only run on the amounts excluding GST.
Whether the EC&I contract provisions for interest are void for uncertainty
I have held that the amounts of Liquidated Damages withheld by Alstom were unlawfully withheld and that the withholding was not justified by Article 5.3.3 or Article 5.5 of the EC&I contract. For the purposes of the requirements in those clauses for making payment, they were undisputed amounts. They therefore bore interest from the respective due dates “at a rate equal to the prime rate announced by the Commonwealth Bank, as such rate may change from to time, plus 2% per annum, calculated daily, until paid”.[11] The same applies to the B1 and B3 variation claims.
[11] Articles 5.3.3(g) and 5.5.1.
The difficulty that arises is that, as is common ground, at no material time has the Commonwealth Bank announced a rate of interest described by it as the “prime rate”. Alstom argued that, as no such rate exists, the clauses are meaningless and void for uncertainty. It argued that it is not for the Court to rewrite the contract. It relied on the general proposition set out in my principal reasons[12] at [123]:
Another relevant principle is that, whilst the Court should avoid absurdity and inconsistency, it should go no further in construing the words used by the parties.[13] That is how the parties have expressed themselves. It is no part of the function of the Court by some process of divination as distinct from construction of the language employed to attribute to parties an intention to do something which their express words do not provide.[14] As the parties themselves have within a contract determined their rights and liabilities, it is not for the Court to rewrite the contract for them or to apply some principle of fairness extraneous to the contract.[15]
[12] [2012] SASC 49.
[13] Watson v Phipps (1985) 63 ALR 321, 324.
[14] Australian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99, 105.
[15] Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130, 132-136.
YDRML, on the other hand, sought to lead evidence from Associate Professor Guy Ford, Deputy Dean and Associate Professor in Finance at the Macquarie Graduate School of Management. That evidence was sought to be led to show that the phrase did have some meaning from which an appropriate interest rate could be derived. The evidence was objected to. In the interest of the efficiency of the hearing I admitted the evidence de bene esse before hearing argument, indicating that I would rule on its admissibility in the light of the argument put to me. As it happened, Associate Professor Ford’s evidence was attacked not only for its relevance as to the question of interpretation but for its admissibility, at least in part, as opinion evidence and as to its reliability. I will return to deal with those questions. The first question is to determine whether any additional evidence is admissible at all in order to construe the terms of the EC&I contract.
From the terms of the EC&I contract a number of points can be made:
1.From the provisions of Articles 5.3.3 and 5.5 it is quite clear that the parties intended that interest should be paid to YDRML on any sums not in dispute but unpaid after the due date.
2.It is also quite clear that the parties intended that interest should be paid on disputed amounts in a YDRML invoice within a certain period of the dispute being resolved by agreement.
3.The rate of interest was to be objectively determined by reference to a rate published by a responsible Australian bank.
4.To that rate was to be added an amount of 2%, no doubt as an added inducement to ensure prompt payment and because, so far as YDRML was concerned, the amount outstanding was unsecured.
5.All parties to the EC&I contract were or were subsidiaries of large and successful multinational corporations, from which one can properly infer that they would not be strangers to complex financial transactions which include negotiating substantial borrowing arrangements with banking and other financial institutions. They were likely to be regarded by a banker as being in the class of their best corporate customers.
6.The expression “prime rate” used in the relevant Articles was not defined, nor did it commence with upper case letters such as to indicate that it was an interest rate which bore a particular label.
7.While the word “prime” as used in the EC&I contract does have a plain, ordinary, grammatical or popular meaning, it is not one which would give an indication of the rate in question to be applied.

Another relevant principle to which I referred in the principal judgment was as follows:[16]
[16] [2012] SASC 49, [115]-[116].
It is settled law that the Court must adopt a businesslike approach to the interpretation of a commercial contract.[17] As Gleeson CJ said in International Air Transport Association v Ansett Australia Holdings Ltd:[18]
[17] Zhu v Treasurer of the State of New South Wales [2004] HCA 56, [82]; (2004) 218 CLR 530, 559; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3, [8], [53]; (2008) 234 CLR 151, 160, 174.
[18] International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3, [8]; (2008) 234 CLR 151, 160.
In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market …
[Footnotes omitted]
The court in considering the surrounding circumstances of a contract ensures that it is not interpreted in a vacuum. As the Court said in Zhu v Treasurer of the State of New South Wales:[19]
It was necessary to construe the [contract] so as to avoid it making commercial nonsense or working commercial inconvenience. Its commercial purpose – the purpose of reasonable persons in the position of [the parties] – was relevant. That, in turn, required attention to “the genesis of the transaction, the background, the context, the market” in which the parties were operating, as known to both parties.
[Footnotes omitted]
[19] [2004] HCA 56, [82]; (2004) 218 CLR 530, 559.
Consistent with those principles, in Robertson v French[20] Lord Ellenborough said that a written instrument:
… is to be construed according to its sense and meaning as collected in the first place from the terms used in it, which terms are themselves understood in their plain ordinary and popular sense, unless they have generally in respect to the subject matter, as by the known usage of a trade, or the like, acquired a peculiar sense of the same words; or unless the context evidently points out that they must in the particular instance, and in order to effectuate the intention of the parties to that contract, be understood in some other special and peculiar sense.
[20] (1803) 4 East 130, 135-136; 102 ER 779, 781-782.
In similar vein Mason J, in Codelfa Construction Pty Ltd v State Rail Authority of NSW,[21] gave evident approval to the statement of Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen:[22]
In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
[21] (1982) 149 CLR 337, 350.
[22] [1976] 1WLR 989, 995-996.
I do not intend to enter the possibly controversial area of the admissibility of evidence of what is often described as the “factual matrix” against which a contract is written.[23] That type of evidence usually relates to circumstances peculiar to the parties against which the contract is entered into.
[23] See Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35, [22]; (2004) 218 CLR 451, 462; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, [40]; (2004) 219 CLR 165, 179; Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144, [6]-[25], [98]-[100], [250]-[255]; (2006) 236 ALR 561, 563-566, 581, 609; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1.
What is relevant in this case is the question whether there was some accepted trade or commercial usage attached to the term from which it may be inferred that parties such as these understood that it had a particular commercial meaning. Evidence as to commercial or trade usage in such a case has always been admissible. Appleby v Pursell[24] involved the lease of farming land, a portion of which was heavily timbered. The lessor agreed, within a stipulated period, “to push and stack all timber” on the subject land excepting shade timber and dead timber. In clearing the timbered land the lessor had broken off many trees at or above ground level, leaving the roots in the ground. The lessee sued the lessor for damages for non-compliance with the covenant because the land could not be ploughed. It was argued by the lessor that the words “push and stack” were ordinary English words and that evidence of their meaning was not admissible. Although differing in the result, all three members of the New South Wales Court of Appeal[25] held that the evidence was admissible. Reynolds JA observed:[26]
In my opinion, his Honour rightly received evidence as to a special meaning of “push” and “push and stack” in the operation of land clearing. This was not a case in which it was sought to import an additional term into a written contract by reason of custom and usage, but, to interpret the actual words used, having regard to their usage in the context of a particular trade. The respondent sought to provide by evidence an appropriate dictionary for the words used, having regard to the subject matter involved. To a person unassociated with rural pursuits in Australia and in particular with land clearing, it would be but speculation to interpret them. Extrinsic evidence was needed and it is no answer to say that “push” and “pushed” are plain ordinary English words. No matter how plain to the ordinary reader is the apparent sense of a word, evidence is admissible to show that it bore a different meaning in the instrument. Well-known cases illustrate this dramatically. One thousand rabbits could mean one hundred dozen rabbits: Smith v Wilson[27]; white selvage could mean black selvage: Mitchell v Henry.[28]In Myers v Sarl[29] Blackburn J said: “It is a prima facie presumption that, if the parties to such a contract use expressions which bear a peculiar meaning in the trade, they use them in that peculiar meaning; which can be ascertained only by parol evidence. I do not think that it is necessary, in order to render such evidence admissible, that there should be any ambiguity on the fact of the phrase which has to be construed … That I take to be the true rule of law upon the subject; that when it is shewn that a term or phrase in a written contract bears a peculiar meaning in the trade or business to which the contract relates, that meaning is, prima facie, to be attributed to it … In the same case Cockburn C.J. said:[30] “Now , although parol evidence is not admissible to contradict a contract the terms of which have but one ordinary meaning and acceptation, yet if the parties have used terms which bear not only an ordinary meaning, but also one peculiar to the department of trade or business to which the contract relates, it is obvious that due effect would not be given to the intention, if the terms were interpreted according to their ordinary and not according to their peculiar signification”.
When a person engaged in rural pursuits contracts with a rural land holder in reference to land clearing operations, the latter’s knowledge of the sense in which the words were used may be inferred. In this case they were his words and he let a contract in identical terms. To attempt to find the meaning of the word “push” in relation to growing timber using its ordinary significant and by resort to dictionaries and other means of information other than parol evidence, would be an obvious exercise in futility.
[24] [1973] 2 NSWLR 879.
[25] Hardie, Reynolds and Bowen JJA.
[26] [1973] 2 NSWLR 879, 888-889.
[27] (1832) 3 B & Ad 728; 110 ER 266.
[28] (1880) 15 Ch D 181.
[29] (1860) 3 E & E 306, 319, 320; 121 ER 457, 462.
[30] Ibid 315; 461.
As in that case, so in this, it may be said that “prime” has an ordinary English meaning, and to a person unassociated with banking practice and with differing lending interest rates, it will be speculation to interpret the phrase “prime rate”. Evidence is therefore admissible to show, if it be the case, that the phrase “prime rate” in this context has an accepted meaning among bankers and their regular borrowing customers. However, as Finkelstein J said in Dovuro Pty Ltd v Wilkins,[31] “to prove usage is not easy”. His Honour continued:
[31] [2000] FCA 1902, [149]; (2000) 105 FCR 476, 516.
In Nelson v Dahl (1879) 12 Ch D 568 at 575 Jessel MR described the existence of a usage as:
“A question of fact, and, like all other customs, it must be strictly proved. It must be so notorious that everybody in the trade enters into a contract with that usage as an implied term. It must be uniform as well as reasonable, and it must have quite as much certainty as the written contract itself.”
There is also a passage from Browne on Usage and Custom (1875), which Stephen J said, in Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48 at 61, stated settled law. The passage reads:
“Seeing that custom is only to be inferred from a large number of individual acts, it is evident that the only proof of the existence of a usage must be by the multiplication or aggregation of a great number of particular instances; but these instances must not be miscellaneous in character, but must have a principle of unity running through their variety, and that unity must show a certain course of business and an established understanding respecting it.”
See also Appleby v Pursell [1973] 2 NSWLR 879; Con-stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 at 236-238; Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435 and Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 423-424, 440-441.
As these cases show it is difficult to discharge the burden of proving that a custom is so notorious that everybody contracts on the basis of it. This explains why so few cases have succeeded on this ground.
In that case an Australian based producer and distributor of agricultural seeds, including canola seeds, arranged for production of “Karoo” canola seeds in New Zealand by a New Zealand company. The contract required the seed to comply with Australian import regulations, to have “minimum 99% purity” and “maximum 0.5% weed and free of undesirable species”. The New Zealand company argued that the phrase “undesirable species”, in the context in which it was used, had a particular trade meaning and that the words should be given that meaning. It argued that the phrase was a reference to the list of weeds found in the standard terms and conditions of sale contained in the handbook published by the New Zealand Grain and Seed Trade Association. The Australian producer and distributor argued that the expression was one of ordinary meaning and not a term of art, and that it should be given its ordinary meaning, namely that the seeds that were undesirable in any part of Australia where it might wish to sell canola seed. Importantly, the contract did not incorporate in its terms expressions found in the New Zealand handbook which might pick up the list of undesirable weeds. It was held that the evidence as to the trade meaning in New Zealand did not go anywhere near to establishing what was required to make out the existence of a custom in dealings between a New Zealand grain merchant and a purchaser who was not a member of the New Zealand Trade Association. The words took their ordinary meaning.
It must also be observed that evidence by way of expert opinion as to whether a particular set of figures over a particular period, in this case, constitutes a particular bank’s “prime rate” is not admissible. That is not evidence as to a trade or commercial usage.
I return to the evidence of Associate Professor Ford. His evidence comprised an expert report dated 16 May 2012,[32] and a supplementary expert report dated 29 May 2012.[33] He was also called by YDRML and gave some brief evidence‑in‑chief in explanation of paragraph 16 of his first report. He was extensively cross‑examined by counsel for Alstom.
[32] Exhibit D506.
[33] Exhibit D507.
Besides holding his present position, Associate Professor Ford had worked as an analyst in the Group Treasury of the Commonwealth Bank, working in balance sheet risk management and loan pricing. He had lectured in university courses on bank management and credit analysis at a number of universities and had published a number of books in the areas of financial markets, bank management and corporate finance. He had recently devised a post‑graduate program on credit risk analysis. He also leads and delivers training courses on the financial analysis of banks for analysts in the Australian Prudential Regulatory Authority. His expertise in financial markets and analysis, bank management and corporate finance and credit risk analysis was not in question. However, because of the nature of the attack on his evidence, I have decided to admit the whole of this evidence as on the voir dire for the purpose of determining which of his evidence should be admitted as evidence in the trial.
Associate Professor Ford’s first report evidences a number of insuperable difficulties, and most of it must be rejected. The assumption he was asked to make was that an untitled schedule of interest rates, covering the period 14 January 2002 to date, was supplied to the solicitors by the Commonwealth Bank and was said to reflect the Commonwealth Bank’s prime rate. The opinion he purported to express was that the rates were likely to be the Commonwealth Bank’s prime rates at each of the dates provided. That is not evidence of a trade or commercial understanding of the term used in the EC&I contract. It was not for an expert such as Associate Professor Ford to express an opinion as to the meaning of the term or whether a given set of figures constitutes such a rate. That is a matter for the Court in the light of expert testimony as to the specialised meaning of “prime rate” if there is one. Indeed, if the very assumption that Associate Professor Ford was asked to make were true, it could easily have been proved by calling the appropriate officer from the Commonwealth Bank to prove that fact as the best evidence available. If primary evidence of the fact is not available, as it appears that it was not, it was quite improper to suggest to Associate Professor Ford that the schedule did reflect the Bank’s prime rate. That would have the effect of undermining any opinion he might express as to whether the table of rates supplied did represent the Commonwealth Bank’s prime rate. Any opinion he might express on that topic would require very close scrutiny before being accepted as an opinion of an independent expert.
There were other weaknesses in the instructions given to Associate Professor Ford. Paragraph 5 in his first report contained the following statement:
5[The defendants’ solicitors have] informed me that their understanding is that the “prime rate” is the benchmark rate charged by banks on loans to their best corporate customers.
It was not for the defendants’ solicitors to inform the expert they proposed to call what their understanding of the “prime rate” was. That was the very question on which the expert was required to give his own evidence, based on his knowledge and experience. To suggest an answer to an expert witness is immediately to raise a serious question as to the reliability of the whole of his evidence on that topic and to call into question the independence of the expert in giving his evidence.
During the course of correspondence between Associate Professor Ford and YDRML’s solicitors, Associate Professor Ford was informed by email:[34]
We have provided to the other side our submissions, which include what we say is the proper calculation of interest based on the Commonwealth Bank prime rate and the other side have until this Friday 11 May in which to tell us whether or not they agree with our calculation. We are working from the premise that they will not agree as their position has been throughout the litigation to take every point possible.
[Emphasis added]
[34] Exhibit D509, Tab 7.
What I have emphasised is irrelevant information to be given to an expert witness, even if true. It can only be interpreted as a subtle attempt to enlist the witness’s antipathy to the opposing side and thereby to enlist the sympathy of the expert to the instructor’s cause, again reducing the confidence one can place in the expert’s ultimate opinion. Indeed, Associate Professor Ford believed from that information that Alstom was somehow being obstructive or difficult or was taking unmeritorious or difficult points.[35]
[35] T9081:34 – T9082:2.
There was also evidence that, following the production of a first draft report on 10 May 2012 there was a conference with the witness, the instructing solicitor and counsel. It was arranged by the instructing solicitor that they would amend his draft “as discussed” and send it back to the witness. In my view that is a dangerous and undesirable practice. What the Court wants to know is an expert witness’s own expression of his expert evidence, not the instructing solicitor’s interpretation of it. Fortunately for Associate Professor Ford, he made some further alterations to the amended draft including substantial alterations to the drafting of paragraph 16 of what became his first report, to which paragraph reference is made below.
Another weakness in the instruction was that the witness was not provided with this Court’s Practice Direction concerning expert witnesses until after the witness had been “briefed” and had formed his opinion, but before he had informed the solicitors what it was and before he had committed it to writing. The requirements of this Court’s Rules and Practice Direction concerning the leading of expert evidence are of no little importance. If an expert is to act truly independently, as the Rules and Practice Direction require, he or she must be informed at the outset what those rules and requirements are, not after he or she has told the instructor that an opinion has been formed. That is because the Practice Direction is quite specific as to how the expert should proceed in forming an opinion and in preparing the report – matters which, if not brought to the expert’s attention from the outset and not properly observed, may also serve to undermine the opinion.
Not only did Associate Professor Ford express the opinion in his first report that the rates supplied were or were likely to be the Commonwealth Bank’s prime rate, but after further discussion with YDRML’s solicitors and further instructions he retracted that opinion.
The opinion to which I refer and which Associate Professor Ford expressed in his first report is therefore, for a number of reasons, worthless and is rejected as being inadmissible. If it were admissible, it would necessarily be rejected as being unreliable.
However, there are certain parts of that report[36] which are admissible and which I admit for the purposes of the trial. I admit paragraphs 1, 2 and 3, being formal and uncontroversial parts. I admit paragraphs 8 and 9 and Annexure GF2 relating to Associate Professor Ford’s expertise and qualifications. I admit paragraph 5, set out above, as it is essential to an understanding of paragraph 15. I admit paragraphs 15 and 16, which read as follows:
15On the question of the definition of the ‘prime rate’, it is my opinion that the definition provided by Corrs is correct.
16The expression ‘prime rate’ is an expression often used and well-known in the finance industry and is widely understood as meaning the benchmark rate charged by banks on loans to their best corporate customers, or more broadly, a bank’s highest quality borrowers. Specifically, banks use the prime rate as their base lending rate and add a margin (profit) based primarily on the amount of risk they deem associated with the loan. Banks in Australia typically do not publish their prime rate. The RBA collects rates from banks for different loan products and publishes these rates under the title of ‘Indicator Rates’. In the United States, the Wall Street Journal publishes the ‘US Prime Rate’, based on their polling of the top 10 banks in the United States.
[36] Exhibit D506.

In light of the observations which I have already made, the opinion expressed in paragraph 15 must be very carefully scrutinised in the light of his other evidence, and requires elaboration and confirmation that it is an expression so understood by those engaged in the industry.
I also admit, for the purposes of the trial, the following passage of Associate Professor Ford’s evidence‑in‑chief:
QCould you tell us, over what period of time in your experience has the expression ‘prime rate’ been used having the meaning you ascribe to it in para.16.
AI’ve been familiar with the use of the term ‘prime rate’ over my professional career which goes back to the late 1970s, so at least 30 years.
QCould you give us some examples of the context in which that expression has been used over that period of time.
AThe context would be within – the use of the term – to refer to the base lending rate that a bank would use to price its corporate loans. So you would hear politicians speak of the term ‘The Commonwealth Bank prime rate’ as a base lending rate. In my professional career we’d work out what we would call the prime rate based on market rates and then price loans from that point or from that rate. You might be familiar with the use of the term within the context of the global financial crisis where there was references around the world to the sub prime market meaning borrowers who were high-risk borrowers.
QIn the course of your evidence you referred to something called the base rate. Could you tell us what that is.
AThe base rate is another term often used in the industry to refer to the benchmark rate upon which all loans are priced to corporate borrowers.
Subject to certain qualifications which I mention below, I also admit, for the purposes of the trial, the supplementary report of Associate Professor Ford dated 29 May 2012, together with the attachments to that report. The qualifications are as follows:
1.Annexure GF6 is the list of rates provided to Associate Professor Ford by YDRML’s solicitors said to be the Commonwealth Bank’s prime rate from time to time. I admit that as a document to which Associate Professor Ford had reference but not as to the truth of its contents, for reasons described above.
2.Associate Professor Ford was provided with a schedule listing legislation in which reference is made to the expression “prime bank rate” and “prime rate of interest”, which in most cases is defined in the respective legislation as meaning “the Corporate Loan Reference Rate applied by the Commonwealth Bank of Australia for corporate lending on the first trading day of the Bank in that financial year”. In the first place, expressions in legislation do not need to be proved through a witness. Secondly, whether they carry any weight in determining whether a particular expression has a common trade or commercial meaning is not going to assist Associate Professor Ford’s understanding as to whether such a meaning exists. Expressions in legislation and any conclusions to be drawn from them will stand or fall on their own terms. I do not consider them relevant to the expression of Associate Professor Ford’s evidence but will give such weight to them as I consider appropriate in reaching my own conclusion as to whether the expression in question has a trade or commercial meaning.
3.Associate Professor Ford again, in his supplementary report,[37] expressed an opinion as to which of a number of Commonwealth Bank interest rate schedules was or should be taken to be the Bank’s prime rate. I do not admit such evidence or cross‑examination on it for reasons already mentioned. I have disregarded any such expressions of opinion in reaching my own conclusion.
[37] Exhibit D507, [24]-[28].
Subject to those qualifications, I admit the supplementary report, together with the whole of the cross‑examination of Associate Professor Ford, for the purpose of assessing the weight to be given to his evidence.
Subject to certain qualifications I also admit as evidence in the trial the affidavit of Aditi Kogekar affirmed on 28 May 2012. Ms Kogekar is a lawyer in the firm of the defendants’ solicitors who exhibited certain schedules of rates supplied to her by the Commonwealth Bank. Exhibit AK1 is the schedule of rates referred to in Associate Professor Ford’s first report. I do not admit it as evidence of the truth of the fact that it was said to constitute the Commonwealth Bank’s prime rate from time to time. It was inadmissible in that form for that purpose. The other two schedules exhibited to the affidavit were other schedules of rates supplied by the Commonwealth Bank to the defendants’ solicitors purporting to be, respectively, the Bank’s published Corporate Loan Reference Rates and Corporate Overdraft Reference Rates from time to time. I understood there to be no dispute as to those rates and they will be admitted as evidence of those respective rates.
I also admit Exhibit P510, being a list dated 30 May 2012 of the current rates and fees charged by the Commonwealth Bank. Under the heading “Loans” are listed “Corporate Loan Reference Rates” and “Corporate Overdraft Reference Rates”.
In his supplementary report Associate Professor Ford reaffirmed what he considered to be the meaning of “prime rate” as understood in the banking and finance industry. That was the understanding suggested to him by YDRML’s solicitors, namely that it is the benchmark rate charged by banks on loans to their best corporate customers or, as he said in oral evidence, the base lending rate that a bank would use to price its corporate loans. He contrasted that with what perhaps is a better known expression associated with the global financial crisis, namely the sub‑prime lending market, relating to high risk borrowers whose interest rates would generally be higher because of that.
As he said in his first report,[38] the prime rate is used by banks as their base lending rate, and they add a margin (profit) based primarily on the amount of risk they deem associated with the loan. He gave unchallenged evidence that the Reserve Bank of Australia collects rates from banks for different loan products and publishes these as “Indicator Rates”.
[38] Exhibit D506, [16].
I am satisfied, after carefully rereading Associate Professor Ford’s evidence, that his evidence as to what was understood in the industry as a “prime rate” was not tainted by the suggestion initially made by YDRML’s instructing solicitors, and that that was a genuine understanding he had held for some time. He added:[39] “There’s not a loan product that applies to a prime rate. A prime rate is just a benchmark rate from which all loan products are priced”.
[39] T9088:23-25.
Associate Professor Ford’s evidence was not contradicted.
The Commonwealth Bank’s Corporate Loan Reference Rate referred to in Exhibit P510 fits the description he has given. It is a rate which applies to the bank’s corporate customers. It is described as a reference rate. I accept Associate Professor Ford’s evidence that the expression “reference rate” is used interchangeably in the industry as a “base rate”, which terms are used in the market as the benchmark rate from which pricing begins for individual credits.
It would appear to be a base or benchmark rate which the bank applies to its best corporate customers. The description, as do some other rates published, bears the annotation “Customer interest margin may apply”. It is a significantly lower rate than the Bank’s Corporate Overdraft Reference Rate which, on Associate Professor Ford’s evidence, is generally an unsecured high risk loan, and is a specific product not normally associated with a prime rate.
Some of the rates published by the Commonwealth Bank are lower than the Corporate Loan Reference Rate, but they apply to particular types of security such as residential property and would appear to apply to a wider borrowing public than the bank’s best corporate customers.
I therefore conclude that, while there has never been a prime rate as such published by the Commonwealth Bank, that term as used in the EC&I contract is descriptive of a rate which is a benchmark or base rate charged by the Commonwealth Bank to its best corporate customers, and that the Bank’s published Corporate Loan Reference Rate fits that description. The Bank publishes at least two rates under that heading – for a monthly charging cycle and a quarterly charging cycle. The EC&I contract speaks of an interest rate being calculated daily. I consider that where two or more rates apply to that type of loan, the lower rate should be applied.
I should add that I am not influenced by the definition of “prime rate” used in the several Acts of Parliament to which I have been referred. That expression is one chosen by parliamentary counsel for the purpose of fixing a rate of interest for purposes described in the respective Acts. Other expressions could have been chosen using the same definition. It merely confirms that the expression “prime rate” is not unknown in banking and financial circles. What the EC&I contract requires is that a meaning be given to that expression consistent with the intention of the parties apparent from the contract. The additional 2% referred to in the contract no doubt represents the parties’ own assessment of the risk associated with non-payment which, in the case of monies owed by YDRML, was an unsecured debt.
Simple or compound interest
YDRML submitted that the use of the expression “calculated daily” required the payment of compound interest. I reject that submission. A requirement to pay simple interest may provide for payment for each completed period of time, be it daily, weekly, monthly or some other period. That does not convert the requirement to an obligation to pay compound interest. The expression can be read consistently with an obligation to pay simple interest. If the parties intended that compound interest should apply, one would expect the contract to have said so, usually accompanied by a requirement for periodic rests or some similar expression. In this case the expression “calculated daily” can impose no greater obligation than that interest is to be payable from day to day.
Conclusion
There will be an order that the liquidated sums be paid to YDRML forthwith. There will be an order that Alstom pay interest on those sums from the respective dates upon which they became due to the date of judgment. Interest is to be simple interest calculated by reference to the lowest rate published from time to time by the Commonwealth Bank as its Corporate Loan Reference Rate, plus 2%.
I intend to sit at 9.30am on Monday 23 July for the purpose of making final orders in the form annexed to these reasons. Interest to that date in accordance with these reasons is to be calculated by YDRML and details of the calculation are to be submitted to Alstom’s solicitors within seven days of the date of publication of these reasons. Alstom will have a further three days to indicate its agreement or disagreement with the calculation. As I have previously indicated to the parties, I will, at the time of making the orders, fix a further time for argument as to the costs of the trial to date.