Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 6) - [2011] SASC 71

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ALSTOM POWER LTD v YOKOGAWA AUSTRALIA PTY LTD & ANOR (No 6)
[2011] SASC 71
Reasons for Ruling of The Honourable Justice Bleby
2 May 2011
EVIDENCE - ADMISSIBILITY AND RELEVANCY - FACTS RELEVANT TO FACTS IN ISSUE
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS - GENERALLY
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS - DEFENCES AND COUNTERCLAIM
Objection to question asked in cross-examination of defendant's witness – question related to whether defendants acted pursuant to the terms of the contract between the parties – objection raised on the grounds that the question does not arise on the pleadings – defendants in their counterclaim pleaded contractor-directed changes were not valued by the plaintiff in accordance with the contract – plaintiff pleaded compliance with the terms of the contract – question directed at a clause of the contract requiring notice to be provided by the defendant – whether that clause constituted a condition precedent as contemplated by r 46.07 – question fairly arises on the pleadings – objection overruled.
Supreme Court Rules 1987 r 46.07, r 46A.05, r 46A.06, referred to.
H Stanke & Sons Pty Ltd v O'Meara (2007) 98 SASR 450, applied.
Antique House Pty Ltd v Security and General Insurance Co Ltd (1984) 3 ANZ Ins Cas 60-556, distinguished.

ALSTOM POWER LTD v YOKOGAWA AUSTRALIA PTY LTD & ANOR (No 6)
[2011] SASC 71
Civil: Ruling on Evidence
BLEBY J.
Background

The plaintiff, Alstom Power Limited (“Alstom”), was a contractor to a partnership known as Flinders Power Partnership (“FPP”) which owned the Playford B coal-fired power station at Port Augusta. The contract (“the head contract”) related to the refurbishment of the power station and its conversion to a fully automated electric power generator. The defendants Yokogawa Australia Pty Ltd and Downer Engineering Power Pty Ltd were the members of a joint venture (“YDRML”) who entered into a subcontract with Alstom to perform the electrical, control and instrumentation (“EC&I”) works associated with the refurbishment.
The EC&I subcontract adopted the provisions of the head contract with certain variations contained in a set of special conditions constituting the EC&I subcontract.
There are many items of dispute arising under the EC&I subcontract. One of them is a claim brought by way of counterclaim by YDRML for work done under the EC&I subcontract by way of variation to the subcontract, or what the subcontract describes as “Contractor-directed Changes”.
Before describing the circumstances in which the immediate issue arises, it is necessary to set out some of the relevant provisions of the head contract as varied by the EC&I subcontract. Alstom is described in the EC&I subcontract as “Contractor” and YDRML is described as “Subcontractor”.
Article 4.2 of the subcontract is headed “Contract Changes”. Article 4.2.1 provides:
4.2.1 No adjustment to Contract Price
Subcontractor shall not be entitled to any increase in the Contract Price for any reason other than:
(a)as a result of a Contractor-directed Change issued in accordance with this Article 4.2; or
(b)in accordance with Article 3.3.4 or 4.5.
Subparagraph (b) is not relevant for present purposes.
The EC&I subcontract is appallingly badly drafted in many respects. It is necessary to refer to one of them. There are two definitions of “Contractor-directed Changes”. One is contained in the special conditions. It provides:
“Contractor-directed Changes” means any of the following changes to the Electrical and C&I Works instructed by Contractor pursuant to a Change Order issued in accordance with Article 4.2:
(a)an increase, decrease or omission of any part of the Electrical and C&I Works;
(b)any change in the character or quality of any Materials and Equipment or Electrical and C&I Works;
(c)any change in the levels, lines, positions or dimensions of anything described in the Deliverable Documents or any part of the Electrical and C&I Works; or
(d)any change in the method, sequence or timing of the Electrical and C&I Works (including the acceleration of the electrical and C&I Works where Subcontractor would otherwise be entitled to an extension of time to the Relevant Scheduled Dates under Article 4.3), but does not include an instruction by Contractor to perform the Electrical and C&I Works in accordance with this Contract.
It will be noted that the qualification in the text appears as a qualification only to para (d). However, there remains in the text of the EC&I subcontract an altered definition of “Owner-directed Changes” contained in and extracted from the head contract. When the alterations are incorporated into the text it provides a definition in identical terms to that set forth above but with the qualification contained in para (d) removed from that paragraph and clearly applying to all four paragraphs. The fact that there are two differing definitions of the same term in the one contract reflects incompetent drafting. However, in this case the consequences are probably not as severe as some of the other examples in the EC&I subcontract of incompetent drafting. It seems to me to be literally clear that the qualification was intended to apply to all four paragraphs. For present purposes I propose to apply it in that manner, although it has not been the subject of any argument by counsel.
The expression “Change Order” is defined in the contract as meaning “a written direction from Contractor to Subcontractor which is substantially in the form attached in Schedule U3”. Schedule U3 is a form which requires the completion of a number of details of a proposed change, including a brief description of the nature of the change, proposed adjustments to or reference to the means of determining any necessary adjustments to a number of significant elements of the subcontract including the contract price, Provisional Acceptance Date, Acceptance Date and work program. It provides for the dating and signing of the form on behalf of Alstom.
Article 4.2.2 of the subcontract provides:
4.2.2Subcontractor must carry out Contractor-directed Changes
Contractor may issue, and Subcontractor must carry out, Contractor-directed Changes subject to the following:
A number of subparagraphs follow which enable Alstom to require that YDRML submit a quote in the form of a Change Order Request in the form of Schedule U4 to the subcontract specifying the cost of the changes and the effect of the changes on the various milestone dates provided for in the subcontract.
The paragraphs also make provision for the adjustment of the contract price and consequential variations to the subcontract. Subparagraph (i) provides:
(i)if Subcontrator considers that any instruction given by Contractor involves a Contractor-directed Change notwithstanding that it is not contained in a Change Order, Subcontractor must, before implementing the instruction, notify Contractor. If Subcontractor does not do so, Subcontractor will not be entitled to make any claim for payment of money (including damages) for any reason (whether in contract, in tort (including negligence), on the basis of unjust enrichment, under statute or otherwise to the extent permitted by law) arising out of or in connection with the instruction including for any adjustments or modifications referred to in sub-articles 4.2.2(e) or (g);
Article 4.2.3 provides for changes initiated by YDRML and the seeking of consent for such changes also by way of Change Order Request. Article 4.2.4 contains provisions for the valuation of a Change Order where the parties cannot agree.
I return to article 4.2.2(i). An instruction contemplated by subparagraph (i) is not, by definition, a Contractor-directed Change. It is an instruction which presumably the Contractor considers is an instruction to perform the EC&I works in accordance with the subcontract as contemplated by the exclusion at the end of the definition of “Contractor-directed Changes”. Paragraph (i) is for the protection of the subcontractor where it is given an instruction which it considers involves a Contractor-directed Change which should be the subject of a Change Order. The Subcontractor is required to “notify the Contractor”, presumably that it claims that the instruction constitutes a Contractor-directed Change. No form of notice is prescribed, but the condition would likely be met if the Subcontractor submitted a Change Order Request in the form of Schedule U4. If that is so, the Subcontractor would not be deprived by virtue of subparagraph (i) from making a claim for money based on the instruction. However, the instruction would not become a Contractor-directed Change unless and until a Change Order is generated by the Contractor.
How the present issue arises
As mentioned above, YDRML by way of counterclaim against Alstom claims additional amounts by way of variation or Contractor-directed Changes to the EC&I subcontract for which it alleges it has not been paid.
Mr Everett was YDRML’s project manager for the power station refurbishment. Among other things he acted as YDRML’s point of reference for all communications and negotiations with Alstom; he was responsible for resourcing and administering YDRML’s labour and material requirements for the EC&I work done by YDRML; he was responsible for subcontract administration with Alstom; he managed YDRML’s programs for carrying out the EC&I work; he was responsible for reporting progress to both Alstom and YDRML with respect to the performance of the EC&I work; and he was responsible for financial reporting to YDRML.
Mr Everett was being cross-examined by counsel for Alstom as to his understanding of the procedure under the subcontract required to be adopted by YDRML in respect of claims for variation to the EC&I works. He was familiar with the forms contained in Schedule U3 and U4 to the subcontract. In particular he was asked about the procedure specified by article 4.2.2(i) and the need to have the Change Order formalities resolved before carrying out the work. He said he believed that YDRML raised a Change Order Request before they started work and were normally verbally told by Alstom to commence the work before they did so. He was then asked the following question:
QI want to suggest to you that the procedure required by the subcontract wasn’t followed by YDRML in respect of any of the Change Order Requests which it was said comprised a Contractor-directed Change because you did the work before you got any formal change order raised.
Counsel for YDRML objected to the question. After hearing argument I overruled the objection for reasons to be published. These are those reasons.
The grounds of objection
Mr Nicholls, junior counsel for YDRML, argued that the issue the subject of the question is not an issue which arises on the pleadings.
In para 243 of its counterclaim YDRML pleads as follows:
Contractor Directed Changes Not Paid by Alstom
243.At various times during the performance of the EC&I works, Alstom directed Contractor-directed Changes pursuant to the EC&I subcontract as pleaded in paragraph 64.26 herein. Notwithstanding the entitlement to a fair valuation for the increased costs, arrived at by Alstom in its capacity as Superintendent honestly, fairly and impartially, of the Contractor-directed Changes as required by the EC&I subcontract, Alstom (as Superintendent) in breach of the EC&I subcontract has failed or refused to value those Contractor-directed Changes set out in Annexure B1, (the invoices of which are set out in Annexure C and Annexure B2.
In its defence to counterclaim Alstom pleads:
243.As to paragraph 243 of the defence, the plaintiff says that it has at all times acted in accordance with the requirements of the EC&I subcontract.
In para 248 of its counterclaim YDRML pleads:
Non-Payment for Change of Scope
248.Further, in breach of the EC&I subcontract (or the contracts referred to in paragraphs 13.6.3 to 13.6.5 (inclusive) herein (as the case may be)), Alstom purported to alter the scope of non-EC&I works which required YDRML to incur additional expenditure to modify the EC&I works accordingly, and integrate the performance of the EC&I works with the non-EC&I works, and the Defendants refer to the matters pleaded in Annexures B2 and B3 which identify the relevant variations.
In response Alstom pleads:
248.As to paragraph 248 of the defence, the plaintiff:
248.1says that none of the issues pleaded remove YDRML’s obligation to perform the EC&I works; and
248.2repeats paragraphs 57.7, 57.8, 57.10, 59 and 62 of the statement of claim.
YDRML argues that at no point in its defence to the counterclaim does Alstom raise or identify article 4.2.2(i) of the contract and does not put in issue or question whether the Owner-directed Changes were within the scope of the EC&I work.
This action is governed by the Supreme Court Rules 1987 (“the 1987 Rules”). YDRML relies on r 46A.06(2) which relevantly provides:
(2)Any Reply or a Defence to Counterclaim must plead, but only plead:
(a)     …
(b)     the material facts necessary to constitute any ground of reply or of defence to counterclaim;
(c)     any further material facts necessary to give the other parties fair notice of the case which they will have to meet by way of reply or of defence to counterclaim; and
(d)     …
It also relies on r 46.07[1] which provides:
Averment of the performance or occurrence of all conditions precedent necessary for the case of the plaintiff or defendant shall be implied in his pleading and any condition precedent, the performance or occurrence of which is intended to be contested, shall be distinctly specified in his pleading by the plaintiff or defendant (as the case may be).
[1] Rule 46A.01(2) provides that r 46A applies to the exclusion of Rules 46 and 47. However, r 46.07 continues to apply by virtue of the operation of r 46A.16.
YDRML argues that the first part of article 4.2.2(i) of the subcontract which provides that the Subcontractor must notify the Contractor if it considers that an instruction is a Contractor-directed Change falls within the category of a condition precedent to any entitlement by YDRML to payment, and that if Alstom is to rely on that part of the article in the way in which the question suggests, then Alstom ought to have pleaded YDRML’s failure to notify Alstom that the instructions concerned involved to a Contractor-directed Change.
Consideration of the argument
I do not accept the premise on which YDRML’s argument is based. Paragraph 243 of the counterclaim does not plead that the changes referred to in that paragraph were changes the subject of article 4.2.2(i). Paragraph 243 pleads only that at various times Alstom directed Contractor-directed Changes. By definition in the EC&I contract that means changes to the EC&I works instructed by the contractor “pursuant to a change order issued in accordance with Article 4.2”.[2] The issuing of a Change Order in respect of any Contractor-directed Change is a condition precedent to the existence of Contractor-directed Change. As such, it was not necessary to be pleaded in para 243 of the counterclaim.[3] The remainder of para 243 pleads that Alstom, in its capacity as superintendent, failed or refused to value the Contractor-directed Changes as required by the EC&I subcontract.
[2] Definition of “Contractor-directed Changes”. See para 4 above.
[3] 1987 Rules, r 46.07.
By its defence Alstom merely pleads that in respect of those Contractor-directed changes pleaded, Alstom complied with the EC&I contract. It was not for Alstom to raise in is plea the failure of YDRML to give notice under article 4.2.2(i) of the contract. The assumption behind the plea in para 243 of the counterclaim is that all the changes referred to were Contractor-directed Changes as defined, and not instructions which YDRML considered ought to have been the subject of a Change Order.
If YDRML were to claim the value of work carried out by what it alleged was a Contractor-directed Change not the subject of a Change Order, it was for YDRML to allege that certain instructions were given, that YDRML considered such instructions involved a Contractor-directed Change not contained in a Change Order, and that it notified Alstom accordingly before implementing the instruction. Other pleas would then have to follow if it claimed the value of the work then performed, namely either that it became the subject of a Contractor-directed Change as defined or that Alstom was in breach of its contract by not issuing a Change Order. Those are different questions with which I am not presently concerned.
What Alstom did do was to allege, as YDRML concedes, that in respect of those Contractor-directed Changes pleaded in para 243 of the counterclaim it complied with the contract. The question objected to would appear to be directed to the fact that the alleged Contractor-directed Changes set out in annexure B1 were not Contractor-directed Changes at all, and in respect of which Alstom says there was also compliance with the contract because there was no obligation on Alstom in the circumstances to fix a value.
I have already referred to r 46A.06(2) relating to a reply or defence to counterclaim. Rule 46A.05(2)(b) and (c) are to similar effect in respect of a defence to a statement of claim. It was the subject of consideration by the Full Court in H Stanke & Sons Pty Ltd v O’Meara,[4] where Duggan and White JJ[5] in their joint judgment said:[6]
Rule 46A.05 is a rule which applies specifically to defences. The opening words of r 46A.05(2) indicate that its purpose is to specify both a minimum and a maximum content of a defence. A defence must incorporate the matters specified in r 46A.05(2), and it must not include any other content. Some indication of the matters which the sub-rule precludes from being incorporated into a defence can be gleaned from a comparison of it with r 46.12 of the 1987 Rules which applies to actions instituted before 3 June 2000. By r 46.12(2), a party is required to specifically admit or deny every allegation of fact, including those in particulars, contained in the pleading to which the defence relates. Any allegation not specifically denied is deemed to be admitted. Rule 46.12(3) elaborates the way in which a party might comply with r 46.12(2), namely, by permitting a plea of lack of knowledge of the fact rendering it unable to be admitted to have the effect of a denial. Rule 46A.05(2) not only omits any obligation on a defendant to address specifically each allegation of fact in a statement of claim, it positively prohibits a defendant (unless admitting the entirety of the plaintiff’s claim) from doing so. Under r 46A.05(2), the defence may contain admissions but not a denial or a non-admission. The rules provide that any fact not admitted in the defence is to be proved by the party alleging it (r 46A.08). This reverses the position which applied previously. A defendant who fails unreasonably to admit a particular fact may be ordered to pay the costs incurred by another party in proving that fact (r 46A.15). The content of a defence prepared in accordance with r 46A.05(2) is likely to be less than one prepared in accordance with r 46.12.
Rule 46A.05(2)(b) and (c) refer to the pleading of “material facts”, ie, those facts relied upon to constitute any ground of defence on which the defendant bears an evidentiary or legal onus of proof, and those necessary to give the other parties fair notice of the defendant’s case. …
One effect of r 46A.05 is to alter the way by which issues are joined on the pleadings. There will be a joinder of issue in respect of any allegation of fact not admitted in the defence, or, when appropriate, in the plaintiff’s reply (r 46A.06). Although 46A.05, unlike r 46.12(1), does not specify expressly that no plea of joinder is to be made, that is its effect.
[4] [2007] SASC 246; (2007) 98 SASR 450.
[5] With whom Kelly J concurred.
[6] [2007] SASC 246, [79]-[81]; (2007) 98 SASR 450, 466-467.

Similar considerations apply to a defence to counterclaim. Any fact not admitted in the defence is to be proved by the party alleging it. The fact in issue as a result of para 243 of the counterclaim is whether some or all of the items in Schedule B1 were the subject of Change Orders, and were therefore Contractor-directed Changes. It was not for Alstom to plead YDRML’s failure to give notice under article 4.2.2(i) of the contract.
Mr Nicholls, in his argument, sought to rely on the decision of Legoe J in Antique House Pty Ltd v Security and General Insurance Co Ltd.[7] In that case it was held that a defendant insurance company had not pleaded conditions precedent disentitling the plaintiff to claim under the policy, as required by the then Order 19 r 12 of the Supreme Court Rules. Legoe J held that it was for the defendant, if he contended that there was a condition precedent and that it had not been duly performed, to state specifically what that condition was, and to plead its non-performance. Otherwise, its due performance will be presumed. Order 19 r 12 was the predecessor to r 46.07. However, in this case there was no obligation on the part of Alstom to plead as a condition precedent to YDRML’s ability to claim for Contractor-directed Changes the failure to comply with article 4.2.2(i). On YDRML’s pleading of para 243 that issue did not arise.
[7] (1984) 3 ANZ Ins Cas 60-556.
Alstom’s counsel was entitled to ask Mr Everett questions designed to show that the relevant claims the subject of para 243 of the counterclaim did not constitute Contractor-directed Changes as defined in the EC&I subcontract. The objection was therefore overruled.