Baker and Provan Defence Pty Limited v Supacat Pty Ltd

Case •

[2020] NSWSC 720

•

12 June 2020

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Baker & Provan Defence Pty Limited v Supacat Pty Ltd [2020] NSWSC 720
Hearing dates: 18 to 22 and 27 May 2020
Decision date: 12 June 2020
Jurisdiction:Equity - Commercial List
Before: Ball J
Decision:

(1)   Judgment for the plaintiff in the sum of $1,409,882.15;

 

(2)   Order that the defendant pay the plaintiff’s costs of the proceedings;

 (3)   Liberty to either party to apply to vary order (2) within 14 days of the date of this judgment.
Catchwords: CONTRACT – Where contract sets out mechanism to determine apportionment of responsibility for assembly costs overrun – Where party who has to make the determination has to act “reasonably” – Consideration of what acting reasonably involves in the circumstances – Damages – Consideration of principles relating to proof of damages – Where the defendant did not rebut the evidence adduced by the plaintiff.
Legislation Cited: Evidence Act 1995 (NSW)
Cases Cited: Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
Fink v Fink (1946) 74 CLR 127
Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288
Paragon Finance Plc v Nash [2002] 1 WLR 685
Robinson v Harman (1848) 1 Exch 850
State of New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133
Walton v Illawarra [2011] NSWSC 1188
Category:Principal judgment
Parties: Baker & Provan Defence Pty Limited (Plaintiff)
Supacat Pty Ltd (Defendant)
Representation:

Counsel:
M Sheldon (Plaintiff)
E Glover (Defendant)

  Solicitors:
Vincent Young (Plaintiff)
Osborne Law (Defendant)
File Number(s): 2018/63990
Publication restriction: None

Judgment

  1. On 2 April 2015, the plaintiff, Baker & Provan Defence Pty Ltd (BPD), a wholly owned subsidiary of Baker & Provan Pty Ltd (Baker & Provan), entered into an agreement (the Assembly Agreement) with the defendant, Supacat Pty Ltd, to assemble and test 89 specialist military vehicles (known as the “Redfin 1B”) that Supacat’s UK parent company, Supacat Limited (Supacat UK), had contracted to supply to the Commonwealth for use by Australia’s special forces.

  2. Under its contract with the Commonwealth, Supacat UK was required to deliver the 89 vehicles split into the following four functional configurations:

  1. Troop (6 seats);

  2. Mortar (4 seats);

  3. Command & Control (C2) (4 seats); and

  4. Integral Logistics (4 seats).

  1. Each configuration was built by fitting configuration specific items to a configuration independent base vehicle referred to as the DDR1 (Detail Design Review 1) product baseline. Once configuration specific items were fitted, the completed vehicle was known as a DDR2 (Detail Design Review 2) product baseline.

  2. Under the terms of the Assembly Agreement, BPD was to be paid a price for assembling each vehicle determined in accordance with a formula set out in cl 21.9(b) of the agreement. That clause is set out in para [20] below. For present purposes, it is sufficient to observe that under the formula the price payable to BPD was a function of the “Target Price” agreed between BPD and Supacat for each vehicle and the actual cost of assembly for each vehicle. However, under cl 21.9(c) of the Assembly Agreement, if the total cost exceeded 110 percent of the Target Price for a vehicle, then all costs above that amount “shall be absorbed by the party responsible for that overrun, determined by Supacat, acting reasonably”.

  3. The actual costs of assembling the vehicles exceeded 110 percent of the Target Price.

  4. On 14 July 2017, Mr Jeffrey Moore, Supacat’s then Head of Operations and now its General Manager, sent BPD a letter setting out Supacat’s determination of responsibility for the overruns (the First Determination). In that determination Supacat accepted that certain specific items were its responsibility. In relation to the balance, it apportioned responsibility for the overruns on the following basis:

3.7.1   for cost overrun associated with the first twelve vehicles, Supacat deemed responsibility of 100%, B&P deemed responsibility of 0%;

3.7.2   for cost overrun associated with the vehicles thirteen to twenty-one (inclusive), Supacat deemed responsibility of 75%, B&P deemed responsibility of 25%;

3.7.3   for cost overrun associated with vehicles twenty-two to eighty-eight (inclusive), Supacat deemed responsibility of 50%, B&P deemed responsibility of 50%; and

3.7.4   for cost overrun associated with vehicle 89, Supacat deemed responsibility of 100%, B&P deemed responsibility of 0%.

  1. On 23 January 2018, Mr Moore provided BPD with a second determination (the Second Determination) for invoices issued by BPD after the First Determination. Consistently with the First Determination, that determination concluded that 50 percent of the costs overruns shown on those invoices should be apportioned to BPD.

  2. In these proceedings, BPD takes issue with the determinations made by Supacat. It contends that Supacat, and Mr Moore in particular, did not act reasonably in making the determinations. It claims that any determination properly made in accordance with cl 21.9(c) would have attributed 100 percent of the responsibility for the cost overruns to Supacat. On that basis, it claims the sum of $1,220,527.73 as damages for breach of the obligation imposed by cl 21.9(c) to act reasonably together with interest. That claim relates to invoices which have not been paid in full in respect of Vehicles 13 to 86.

  3. Originally, BPD also took issue with the First Determination on the basis that it was not open to Supacat to make a determination after it had paid the relevant invoices. It also advanced a case that it was open to the Court, if it did not make an award of damages, to step into the shoes of Supacat and make the determination afresh. Both those contentions were abandoned during the course of the hearing, although a question remains whether Supacat was entitled to make the First Determination when it did.

Background

Events before the Assembly Agreement

  1. As might be expected, the project to build and to supply the vehicles to the Commonwealth has a somewhat lengthy history, the details of which are largely irrelevant to the current dispute.

  2. It is sufficient to observe that Supacat UK entered into the contract with the Commonwealth to supply the vehicles on 11 August 2014. Supacat had supplied similar vehicles to the Commonwealth previously. By the time the supply contract was entered into, Supacat UK had decided that the rolling chassis for each vehicle would be manufactured and assembled by Supacat UK in the United Kingdom and then shipped to Australia for a local company to complete the assembly under the supervision of Supacat. Supacat UK had by that stage identified Baker & Provan as its local “partner” to complete the assembly work and Mr Moore was provided with an office at BPD’s facility in St Mary’s, New South Wales in December 2013. He worked from that office one or two days per week until August 2014, when he moved to that office fulltime for the duration of the project.

  3. On 27 November 2014, BPD submitted a formal proposal to Supacat to assemble the vehicles. Among other matters, the proposal indicated where the vehicles would be assembled, the production process that BPD intended to follow, the personnel involved and when they would be recruited, how BPD intended to deal with components delivered to it, its proposal in relation to price and an estimate of the hours it was expected to take to assemble the vehicles and a breakdown of those hours. In relation to how time would be billed to the project, the proposal stated:

The following activities are chargeable to vehicle production:

1.   Assembly Operations

2.   Materials Handling

3.   Stores Operations

4.   Cleaning of the assembly bays

5.   Setup of support equipment and tooling

6.   Briefings, meetings and training conducted on the shop floor including toolbox talks and production briefings.

7.   Quality Control, if provided by [BPD], and Supervision time shall be split evenly between the vehicles in process on an individual day

8.   Crane waiting time

The following activities are not chargeable to vehicle production:

1.   Maintenance on tools, plant & support equipment

2.   Cleaning outside the assembly bays

3.   Briefings, meetings and training conducted outside of the production area on the shop floor

4.   Idle time, no work and downtime due to equipment failure.

  1. On 19 January 2015, BPD employed Mr Daniel Otormin as its supervisor for the project. He remained in that position until 13 July 2016. He now works for Supacat and was called by it to give evidence. On 16 March 2015, the first rolling chassis was delivered to BPD. It was described as a “reference vehicle” and was designated as Vehicle 89. The plan was that that vehicle would be used as a test and training vehicle to be assembled to the DDR1 configuration and that it would be the last vehicle to be completed.

  2. As I have said, the Assembly Agreement was signed on 2 April 2015. Work on Vehicle 89 started at about that time.

The Assembly Agreement

  1. The roles of the respective parties are described in cl 11 of the Assembly Agreement in the following terms:

11.1   The role of the Supplier [BPD] is to receive Factory Parts, procure components and consumables (as specified), manage stores, manage material flows, assemble vehicles, perform Factory Acceptance Testing, rectify issues and deliver to the Delivery Point as efficiently as possible to the highest level of quality and to the required delivery schedule. It is expected that the Supplier possesses and will use an extremely high level of knowledge and experience, particularly in terms of assembly, cost of assembly and assembly process.

11.2   As such, without limiting any other obligations of the Supplier under this Agreement, it is expected that the Supplier will actively seek, in conjunction with the Supacat engineering team, to improve the design of the assigned assemblies making up the Supply to improve the cost, schedule, weight and quality of those assemblies.

11.3   The Supplier must also ensure that full assembly instructions used under this Agreement are made available to Supacat for future manufacturing, maintenance, development and any other opportunities.

11.4   Supacat are responsible for the design, configuration control of the design, providing all the information required by the supplier to carry out their contracted tasks in a timely, clear and concise manner.

  1. “Factory Parts” is defined to mean “any parts, including tools, tooling, jigs, fixtures, parts, components, sub-assemblies or assemblies, provided to the Supplier by Supacat or which the Supplier has been paid for by Supacat”. “Supply/ies” is defined to mean:

… the goods, services or goods and services provided by the Supplier to Supacat under this Agreement or any work specified in a Purchase Order from Supacat referencing this Agreement. For the avoidance of doubt the Supply/ies are limited to the scope of Supplier's activities under this Agreement and excludes Factory Parts, Technical Data and Intellectual Property provided to the Supplier by Supacat.

  1. Clause 19 deals with delay. Clause 19.2 provides:

Subject to the operation of clause 20, Supacat and the Supplier agree the risk of all increased costs resulting from delay in the provision of the Supply and the performance of its other obligations under this Agreement will be managed in accordance with the risk and reward principals [sic] specified in clauses 21.8 to 21.14. The Supplier acknowledges and agrees that the total remuneration of the Supplier for the Supply under this Agreement will be limited to the Price unless amended by clauses 21.8 to 21.14. Supacat's liability to the Supplier whether arising under or in connection with this Agreement, or at law, will be limited to the Price unless amended by clauses 21.8 to 21.14.

  1. Clause 19.3 contains a mechanism for granting extensions of time.

  2. Clause 20 deals with changes to the specification of the vehicles (referred to in cl 20.1 as changes to “the engineering data”). Under cl 20.3, the changes could be requested by BPD “to improve manufacturability or integration”. Clause 20.5 provides:

When change occurs through one of these processes, Supacat and the Supplier will seek to agree an equitable change to the Price (and the target price set out in schedule 3) of the Supply.

  1. Clause 21, dealing with payment, is critical to the resolution of the current dispute. It relevantly provides:

21.1   Against each element of the Supply assigned to the Supplier, is a non-recurring Price and/or a recurring unit Price. These are detailed in Schedule 3.

21.2   Not used.

21.3   The Supplier may invoice Supacat for the Price of an element of the Supply on delivery, payment of which is subject to Completion for that element of the Supply.

21.4   Not Used.

21.5   The Supplier may invoice Supacat for non-recurring Prices following acceptance by Supacat against the milestones specified in Schedule 3.

21.6   Subject to the proper provision of the Supply in strict accordance with this Agreement and the submission of a Valid Tax Invoice, Supacat will pay the Supplier within 30 days of the end of the month of the Invoice Date.

21.7   Payments made by Supacat are on account only and are not:

(a)   evidence of the value of work; or

(b)   an admission of liability on the part of Supacat.

Risk and Reward

21.8   Supacat & the Supplier acknowledge that this Agreement contains risk and rewards to both parties and that risks and rewards should be shared.

21.9    As such, risk and reward shall be managed as follows:

(a)   The agreed Target Price for each part of the Supply shall be as specified in Schedule 3.

(b)   Upon delivery to the Commonwealth the Price for the Supply related to each vehicle shall be calculated from actual labour expended and cost rates for each labour type (Schedule 1) in accordance with the following formula:


Pricen =

Target Pricen + Actual Pricen
2 x Actual Pricen


x (ActualPricen - SCPricen)

where:

n=

is the vehicle number to which that part of the Supply relates

Pricen =

that part of the Price payable by Supacat for the Supply related to the nth vehicle

TargetPricen =

the agreed Target Price for the Supply relating to the nth vehicle as specified in Schedule 3

ActualPricen =

the actual costs for the Supplies relating to the nth vehicle based on actual labour hours spent on that part of the Supply multiplied by the applicable rates specified in Schedule 1 including both effort by Supacat and the Supplier

SCPricen =

The cost of Supacat personnel contributing to the Supplies related to the nth vehicle based on actual manhours multiplied by the applicable supplier rate specified in Schedule 1

(c)   If the cost overrun exceeds the Cap specified in Schedule 1 then all costs incurred above the Cap shall be absorbed by the party responsible for that overrun, determined by Supacat, acting reasonably.

21.10   Any invoices submitted by the Supplier must be calculated using the formula in clause 21.9.

21.11   The Supplier must keep accurate and complete books and records of all costs incurred and labour hours expended in connection with performance of the Supplies in accordance with this Agreement.

21.12   The Supplier grants to Supacat an irrevocable right to access and inspect all books and records of the Supplier kept in accordance with clause 21.11, including granting to Supacat the right to enter onto any premises the Supplier occupies or controls for the purpose of undertaking such inspection.

2.13   Supacat may appoint an auditor to undertake any inspections referred to in the preceding sub clause.

21.14   Where Supacat or its appointed auditor discovers any errors, overstatements or omissions in the Supplier's books and records, and such errors, overstatements or omissions have resulted in the Supplier being paid more than it otherwise would have under this Agreement then:

(a)   Any overpayment will become a liquidated debt immediately due by the Supplier to Supacat; and

(b)   All costs associated with any inspections (either By Supacat or any auditor) will become a liquidated debt immediately due by the Supplier to Supacat.

  1. The “Cap” specified in Schedule 1 was stated to be 10% of the Target Price. As I have already explained, the effect of cl 21.9(c) is that if the price calculated in accordance with the formula set out in cl 21.9 exceeded 110% of the Target Price, then Supacat, acting reasonably, was to determine which party would bear the excess. “Price” is defined to mean “the value of the Supplies as detailed in Schedule 3 of this Agreement and as altered by operation of clauses 21.8 to 21.14”.

  2. Clauses 21.15 of the Assembly Agreement provides for a right of set-off. Clauses 21.17 to 21.20 deal with final payment. Relevantly, cl 21.17 and 21.18 provide:

21.17   Within 60 Working Days after Completion, the Supplier must provide to Supacat a final payment claim "Final Payment Claim" including reference to this Agreement.

21.18    The Supplier must include in the Final Payment Claim an invoice for the Price for the Supplies which the Supplier considers to be due from Supacat in respect of this Agreement.

  1. Schedule 2 to the agreement sets out a statement of work (SOW), the purpose of which was “to communicate to the Supplier the scope of work, the minimum technical requirements for validation and production and standards for work to be carried out under this Agreement and to allocate responsibilities between Supacat and the Supplier”.

  2. The SOW stated (in para 2.2) that in order to meet the intended schedule the first 20 vehicles would be delivered to DDR1 product baseline and would then undergo retrofit to the DDR2 product baseline. Schedule 3 sets out a price and delivery schedule. It contains allowances for facility set up, storage, equipment and contingencies as well as the trial assembly of the reference vehicle (Vehicle 89). It then contains a table setting out the “Target Hours” for each vehicle and proposed delivery dates. The Target Hours for each of the first four vehicles were 384.0. For vehicle 5, they were 218.9. They then decreased for each vehicle in accordance with a “learning curve” which assumed that there would be efficiency gains with the assembly of each subsequent vehicle, although, for reasons that are not clearly explained, the Target Hours for Vehicles 83 to 88 increased from 119.4 for Vehicle 83 to reach 156.7 hours for Vehicle 88. The table also made an allowance for time taken to retrofit the first 20 vehicles, although at that stage the configuration for each vehicle had not been fully designed. Again, the number of hours that were allowed to retrofit each vehicle decreased over time, so that 175 hours were allowed for the first two vehicles (Vehicles 5 and 6) and 64 hours were allowed for the final four vehicles. The table makes provision for a Target Price for each vehicle, but that was expressed to be “$TBA”. It is apparent that it was to be calculated as a product of the Target Hours and the agreed rates for BPD employees working those hours.

  3. Neither the agreement nor the schedules set out with any precision what activities were to count towards Target Hours. However, cl 2.11 of Schedule 2 does provide “All travel and subsistence costs associated with training (whether in Australia or overseas) shall be absorbed by the Party undergoing the training.”

  4. Clause 43 of the Assembly Agreement deals with dispute resolution. Clause 43.1 states that all disputes must be resolved in accordance with clause 43. Clause 43.2 says that a dispute arises “when Supacat … by notice in writing to the Supplier rejects a claim by the Supplier after written notice of that claim has been submitted to Supacat …”. Clause 43.3 provides:

Written notice of any dispute or difference must be given to the other party. That notice must:

(a)   set out the legal basis of the claim;

(b)   set out the facts upon which the claim is based;

(c)   have annexed copies of correspondence and any relevant background material;

(d)   contain detailed particulars of the quantification of the claim; and

(e)   if the claim is made by the Supplier, be signed by its chief executive officer.

  1. Clause 43.5 then provides for a period in which the general managers or Managing Directors (the clause contains contradictory provisions on the matter) are to attempt to resolve the dispute, failing which either party may commence litigation. The reference to “the other party” in clause 43.3 is somewhat curious. Under cl 43.2, a dispute arises when Supacat rejects a claim by BPD. Clause 43.3 must, therefore, be understood as requiring BPD to give a notice containing the information set out in that clause.

Events post Agreement

  1. The project did not go according to plan. There were issues with tolerancing – that is, fitting parts from different suppliers together, although there is a dispute about whether those issues were resolved by the time Vehicle 20 was completed. Supacat was late providing the DDR2 designs, which meant that there was a delay in the provision of some DDR2 parts. On 12 August 2015, Universal Engineering Limited, the company that supplied the chassis frame assembly, went into administration and subsequently liquidation. As a result, there was a delay of several months whilst Supercat UK made arrangements to obtain chasses from other sources. That led to a revised plan under which it was proposed to build the first 12 vehicles to DDR1 standard and the balance to DDR2 standard immediately. It also meant it would be necessary to work on more vehicles at the one time than originally planned. In order to permit that to happen, Supacat leased additional factory space approximately 1.4 kilometres from BPD’s St Mary’s site (referred to by the parties as “the Crane Facility”). Because some parts were not available, it was decided to assemble some vehicles using the parts that were available (referred to by the parties as “DDR2 Lite” configuration) and to complete them once the missing parts became available. The result was that by 27 June 2016, when operations commenced at the Crane Facility, Vehicles 1 to 23 had been built to DDR1 configuration and vehicles 13 to 14 to DDR2 Lite. After the Crane Facility became operational, a number of vehicles (Vehicles 6 and 15 to 21) were built to DDR2 Lite configuration at the Crane Facility, Vehicles 22 on were built to DDR1 configuration at the St Mary’s Facility and Vehicles 22 to 88 were built to DDR2 configuration at the Crane Facility.

  2. Consistently with its contractual rights, Supacat made a number of changes to the design. Those changes were identified in what were known as Engineering Change Orders (ECOs). In all, Supacat issued 158 ECOs, some of which affected assembly time.

  3. In February 2017, retrofitting of Vehicles 1 to 12 excluding vehicle 6 commenced. In fact, BPD only retrofitted four vehicles (Vehicles 8, 10, 11 and 12). The remainder were retrofitted by Supacat.

  4. BPD issued periodic invoices for the work that it did which were calculated by reference to the hours worked and agreed rates for the employees who worked those hours. Each invoice was in a similar form. In respect of assembly work done on a vehicle, it identified the relevant vehicle and broke the work down into a number of categories such as “Fitting and Assembly”, “Management/Supervision” and “Apprentice” (the categories most frequently used). In attached schedules, it provided a breakdown of each of those amounts showing the name of the relevant employee, the dates that employee worked, the hours worked on each day and the charge for that day. The invoice calculated the amount due under cl 19 of the Assembly Agreement and the amount claimed in excess of 110 percent of the price based on the Target Hours. In each case, the invoice claimed 100 percent of the excess. Supacat paid those invoices up until January 2017.

  5. In January 2017, Mr Moore says that he decided to cease approving BPD’s invoices because he considered that BPD was incorrectly applying the risk and reward formula and applying 100 percent of the blame for the overruns to Supacat, whereas his view was that Supacat was not responsible for 100 percent of the problems in the overruns in assembly hours.

  6. There were some discussions between the parties to try to resolve the impasse, the details of which are not in evidence. On 27 April 2017, Ms Selina Tan, an employee of Supacat, sent Mr Findlay an email proposing that BPD resubmit separate invoices for amounts up to the cap and amounts above the cap and offered to pay the former. The email said:

As you are aware Baker & Provan Defence have been submitting invoices to Supacat over the past several months that are in contravention of the Agreement held between the two parties for the REDFIN1B Project. Agreement as to how costs are to be shared between the two parties has yet to be reached.

In the interests of assisting Baker & Provan Defence maintain their cash position, Supacat would like to offer that Baker & Provan Defence resubmit these unpaid invoices such that there is a separate invoices(s) for the amounts up to the cap as calculated per Clause 21.9 of the Agreement and another invoice for amounts over and above the cap value.

Supacat would be happy to settle the account for amounts calculated up to the cap. The remaining invoices(s) for amounts above the cap value will be held for payment until such time as agreement is reached as to how costs are to be shared between the parties.

BPD did not agree to that proposal.

  1. On 5 May 2017, BPD sent a Notice of Dispute (the First Notice of Dispute) to Supacat claiming the full amount of its outstanding invoices which at that time totalled $1,236,279.27. Those invoices related to the months of January, February and March 2017. At the time that the First Notice of Dispute was served, BPD had issued the April invoices. However, they were not yet due for payment and no claim was made in respect of them.

  2. The First Notice of Dispute asserted that the project was substantially more complicated than originally anticipated leading to a substantial increase in man hours brought about by the ECOs and what were described as “Supacat Authorised Modifications” and “Supacat Authorised Rework”. The Notice of Dispute identified a number of other issues including the following:

To record assembly time against individual vehicles, Baker & Provan has assigned one job in our ERP system to a vehicle number at each DDR stage. There have been issues with Supacat requesting or authorising cannibalisation of parts from one vehicle to another and re-allocation of vehicles between vehicle numbers in order to meet delivery requirements. This loads up the hours booked to one job number while other jobs benefit from transfer of vehicles and components with part of the work scope already completed. Where this has occurred we have transferred excess hours to the vehicles that have benefited from the transfer.

  1. The First Notice of Dispute contained a number of detailed attachments. Attachment 1 provided a breakdown of the disputed invoices insofar as they made claims for the costs of assembling a vehicle to DDR1 specification. It identified the relevant vehicle, the Target Hours plus 10 percent for that vehicle and provided a breakdown of the overrun hours said to be attributed to ECOs, “Other Supacat Authorised Modifications”, “Supacat Authorised Rework” and “Other Supacat Issues”. Lastly, it provided brief comments on the “Other Supacat Issues” said to have arisen in relation to the relevant vehicle. A further breakdown of the hours for ECOs, Other Supacat Authorised Modifications and Supacat Authorised Rework was provided in Attachments 2 to 5. Attachment 2 provided a breakdown of the additional hours worked by reference to each ECO. Attachment 3 contained similar information in relation to Supacat Authorised Modifications, including a brief description of each modification. Attachment 4 contained similar information in relation to “Supacat Authorised Rework”, including a brief description of each Authorised Rework. For reasons which were not explained in the evidence, the detailed schedules listed all vehicles and attributed the additional time brought about by each ECO, Other Supacat Authorised Modification and Supacat Authorised Rework to those vehicles as well. Attachment 5 was similar to attachment 1 except that it concerned work to bring the relevant vehicles up to DDR2 specification. In some cases, the item for “Other Supacat Issues” was negative because it sought to make an adjustment for the fact that work was recorded against the wrong vehicle as a result of using the parts for one vehicle to build another. Attachments 6, 7 and 8 contained similar breakdowns to Attachments 2, 3 and 4.

  2. On 18 May 2017, Supacat responded to the First Notice of Dispute. In essence, it claimed that the invoices issued by BPD contained insufficient information to enable Supacat to apportion responsibility for the overrun and gave notice that Supacat intended to exercise its rights under cl 21.12 of the Assembly Agreement to obtain access to BPD’s records and its rights under cl 21.13 to appoint an auditor.

  3. There was correspondence between the parties in an attempt to resolve the dispute, but that attempt was unsuccessful. One email sent by Mr Moore to Mr Findlay, the General Manager of BPD, to which BPD attaches some significance, is an email dated 2 June 2017 attaching a presentation titled “Redfin 1B Acquisition Assembly Costs Review”. That presentation contained an analysis of BPD’s direct costs and overheads and profits based on the original Target Hours, a revision to the Target Hours the parties had been discussing and the expected hours it would take to complete all vehicles. It showed that the direct costs arising from hours worked above the proposed revised Target Hours was projected to be $1,472,772 and stated that “Recovery of additional overhead and profit above the proposed target not appropriate”.

  4. On 12 June 2017, Mr Findlay emailed Supacat invoices for all work done on the remaining vehicles as at 8 June 2017.

  5. Supacat engaged JTP Assurance to carry out the audit foreshadowed in Supacat’s letter dated 18 May 2017. JTP Assurance sent its report to Supacat on 7 July 2017. The principal conclusions of the report were that the timesheets prepared by BPD employees contained insufficient detail to determine whether the time entered was “in line with the contract or out of scope”; that a number of vehicles had been swapped although work continued to be recorded against the same code, with the result that it was not possible to determine the actual number of hours worked on each vehicle; and that there was no overhead or administrative code, with the result that 100 percent of the time was recorded as work on the vehicles.

  6. On 13 July 2017, Supacat sent BPD a letter setting out agreed revised Target Hours in accordance with cl 20.5 of the Assembly Agreement to reflect changes to the engineering data. The revised figures allowed an additional 165.10 hours to assemble the vehicles to DDR1 specification and an additional 71.00 to 83.00 hours to complete the vehicles to DDR2 specification, depending on the configuration the completed vehicle took.

  7. On 14 July 2017, Mr Moore issued the First Determination, which covered all invoices issued by BPD up until June 2017. The total of those invoices (excluding GST) was $5,930,962.86. Using the revised Target Hours and a weighted average rate per hour of $118.30, the total of the Target Prices plus 10 percent cap was $2,937,057.46, leaving an overrun of $2,993,905.39. Mr Moore accepted that $99,644.83 of that amount was the responsibility of Supacat. As to the balance (which he described as “Uncertain Overrun”), he said that there was inadequate information to know who was responsible for the overrun and its cost. Consequently, he adopted a “less scientific” approach which is set out earlier in this judgment of attributing 100 percent of the responsibility to Supacat for the first 12 vehicles and vehicle 89, 75 percent of the responsibility to Supacat for Vehicles 13 to 21 and 50 percent of the responsibility for the balance.

  8. Mr Moore gave in the determination the following explanation for the approach he took:

3.8   The logic behind the approach to Uncertain Overrun is essentially:

3.8.1   Supacat could not see any approach based on a more forensic attempt to scrutinise the (limited / deficient) available information which would not be unduly complex and / or arbitrary, or prone to too much subjectivity;

3.8.2   this points towards a more broad-brush approach;

3.8.3   Supacat accepts that the nature and scale of changes, factory part availability and work instructions in the earlier stage of delivery were such that, even though there are probably elements of cost overrun associated with that stage which are not fairly attributable to Supacat, it is on balance (and taking account of the allocation of deemed responsibility for later stages) expedient and reasonable for Supacat to assume all responsibility for cost overrun associated with this stage; and

3.8.4   as the pace, scale and nature of issues giving rise to cost overruns changed over the course of delivery, factory part supply improved and B&P became more familiar with both the build as a whole and the repercussions of earlier changes etc., it becomes progressively more reasonable for B&P to assume responsibility for avoiding or managing any resulting cost overruns.

  1. On that basis, Mr Moore attributed $1,921,472.18 to Supacat and $1,072,433.21 to BPD. He said that he would write separately setting out the “practical consequences” of that determination.

  2. On 19 July 2017, Mr Moore sent Mr Findlay a further letter setting out Supacat’s calculation of the amount owing to BPD following the First Determination. According to Mr Moore, that amount (including GST) was $1,448,282.78, which Supacat paid. The amount was said to be payment “in full and final settlement of all outstanding B&P invoices for Vehicle Assembly received to date …”.

  3. On 20 July 2017, BPD accepted the revised Target Hours set out in Supacat’s 13 July 2017 letter with a number of qualifications. One of those was that:

These agreed Target Hours are only applicable to activities occurring after this date of agreement [sic].

  1. BPD continued to invoice Supacat for further work done to complete the remaining vehicles in July, August and September 2017. Supacat refused to pay those invoices. On 21 December 2017, BPD served a further Notice of Dispute (the Second Notice of Dispute) on Supacat relating to those invoices. On 23 January 2018, Supacat issued the Second Determination allowing 50 percent of the overrun claimed in those invoices, which totalled $29,706.80 (including GST). It paid that amount.

Did Supacat act reasonably in making the determinations?

  1. The obligation to act reasonably in making a decision of the type in question in this case has two aspects. First, the decision-making process itself had to be reasonable. That meant that the decision had to be taken honestly and fairly and not capriciously, unconscionably or arbitrarily: Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 at [65]. Second, the decision itself had to be reasonable. That is, it had to be within the range of conclusions that a rational person acting reasonably would make: Paragon Finance Plc v Nash [2002] 1 WLR 685 at 701 per Dyson LJ (with whom Astill J and Thorpe LJ agreed). Both aspects involve an objective assessment of the facts: Walton v Illawarra [2011] NSWSC 1188 at [55].

  2. BPD advances various reasons for why Supacat’s determinations were not made reasonably. But essentially it relies on two points. First, it contends that the determinations were not a true attempt to apportion responsibility for the overruns, but rather were engineered to produce the result that BPD would only recover its direct costs of the hours worked in excess of 110 percent of the revised Target Hours. Second, it contends that Supacat did not genuinely engage in the task it was required to undertake. That task required Supacat to consider the actual hours worked on each vehicle, to identify the extent of the overrun and to apportion responsibility for that overrun between it and BPD. The arbitrary division of the vehicles into three categories and the arbitrary percentage apportionment of responsibility for vehicles falling within each of those categories did not satisfy that requirement.

  3. I do not accept the first of these contentions, but I accept the second.

  4. In support of the first contention, BPD points to the presentation attached to Mr Moore’s email dated 2 June 2017 in which Mr Moore concluded that the direct costs incurred by BPD in respect of the hours worked above 110 percent of the Target Hours were projected to be $1,472,772 and in which Mr Moore said it would be inappropriate to permit BPD to recover an amount above that amount in respect of overruns. It submits that the figure of $1,472,772 is remarkably similar to the figure that Supacat agreed to pay BPD as a result of the First Determination – that is, $1,448,282.78. However, without more the similarity is merely that. It does not form a sufficient basis to conclude that Supacat’s determination of the responsibility for the overruns was reverse engineered to achieve a result that BPD would only recover its direct costs. There is no other evidence to suggest that the figure was reverse engineered. Mr Moore denied that it was. There is no reason not to accept that denial.

  5. BPD’s second contention requires a closer examination of the contractual rights and obligations of the parties. Clause 21.3 of the Assembly Agreement permitted BPD to invoice Supacat “for the Price of an element of the Supply on delivery”. It is apparent from reading cl 21.3 together with Schedule 3 that, in the case of the supply of the Vehicles 1 to 20 and Vehicle 89, there would be two elements of supply – one was delivery of the vehicle to DDR1 specification (completion of the trial assembly to DDR1 specification in the case of Vehicle 89); the other was delivery of the vehicle to DDR2 specification. In the case of the other vehicles, it was anticipated that there would be one element of supply, which was the delivery of the vehicle to DDR2 specification.

  6. Each invoice rendered by BPD had to be calculated using the formula set out in cl 21.9: cl 21.10. Supacat was required to pay the invoice within 30 days of the end of the month of the Invoice Date provided the requirements of cl 21.6 were satisfied. However, payments made on invoices were on account only. Under cl 21.17, BPD was required, within 60 Working Days of completion, to provide a Final Payment Claim for the full amount claimed under the agreement. Curiously, the Assembly Agreement does not say what is to happen after presentation of the Final Payment Claim. It appears to be implicit that Supacat would pay any outstanding balance and would be entitled to recover any overpayment, as the case may be.

  7. How the determination contemplated by cl 21.9(c) of the Assembly Agreement fits in with this regime is not entirely clear. Although the clause uses the undefined expression “cost overrun”, and operates where that overrun exceeds “the Cap”, the clause in effect is concerned with the right of BPD to charge an amount above 110 percent of the Target Price. That right depends on an assessment by Supacat (acting reasonably) of whether the additional hours worked by BPD above 110 percent of the Target Hours were the result of something Supacat did or did not do or the result of something that BPD did or did not do. So much is common ground between the parties.

  8. It also appears to be common ground that the exercise required by cl 21.9(c) is to be applied to each “element of the Supply” (to use the words of cl 21.3). That means that the question whether there was an overrun was to be determined by reference to each vehicle – and, as originally drafted, in the case of the first 20 vehicles, by reference to the two stages to which those vehicles were to be built. The position becomes less clear following revision of the program. But it is not necessary to consider those complications. Neither party sought to make anything of the fact that the Cap may apply to different stages of the work on an individual vehicle.

  1. It seems consistent with the structure of the Assembly Agreement that the exercise required by cl 21.9(c) could be undertaken at the time Supacat was presented with an individual invoice or at the time that it was presented with a Final Payment Claim, but not otherwise. As I have said, BPD originally took the position that Supacat had to make a determination under cl 21.9(c) at the time it was presented with an invoice and if it failed to do so before it paid the invoice it should be taken to have made an irrevocable determination that it was 100 percent responsible for the overrun. BPD properly resiled from that position during the course of the hearing. The contention it originally advanced was inconsistent with the fact that payment of any invoice was only on account.

  2. On the other hand, it is difficult to see how a determination under cl 21.9(c) could be made in the abstract or be applied to invoices to which the determination did not relate. The determination under cl 21.9(c) was part of the mechanism for fixing the price payable by Supacat. Price was relevant at two stages. First, it was relevant on the presentation of individual invoices. In the case of those, the price was to be calculated for the elements of the Supply that were the subject of the invoices; and it would be natural to read cl 21.9(c) as applying to those elements of the Supply that were the subject of the relevant invoices. Second, price was relevant at the time BPD lodged its final payment claim under cl 21.17; and presumably at that stage it would have been open to Supacat to make a determination in respect of all invoices. It is difficult to see how, once it made a determination, it would be entitled, acting reasonably, to revisit it. But that question does not arise and can be put to one side.

  3. The analysis of the previous paragraph fits in, albeit somewhat awkwardly, with the dispute resolution mechanism contained in the Assembly Agreement. That mechanism operates where Supacat rejects a claim – relevantly, a claim to be paid a certain amount. In that case, cl 43.3 requires BPD to provide Supacat with certain information. Presumably that information is to be used by the parties to attempt to reach a resolution of the dispute. But where the issue is whether responsibility for a cost overrun should be attributed to Supacat or BPD, It seems reasonable to treat that information as relevant to the determination that Supacat is required to make. Otherwise, there is no mechanism in the agreement setting out how the determination is to be made or permitting BPD to make any representations or submissions to Supacat on what the determination should be.

  4. Even if the conclusion of the previous paragraph is wrong, the requirement to act reasonably would, in the circumstances of this case, carry with it an obligation to give BPD a reasonable opportunity to make submissions on the question of apportionment. It could not be reasonable for Supacat, at some time of its choosing and without giving BPD an opportunity to make representations to Supacat on the issue, to make a determination under cl 21.9(c). In fact, BPD was given an opportunity in this case through its Notice of Dispute to make representations to Supacat in relation to the invoices that were the subject of that notice. But I do not think it could be said that it was given that opportunity in relation to other invoices. There appears to be no evidence that Supacat ever made it clear to BPD that it (Supacat) was considering making an adjustment to all previous invoices and any future invoices and that it intended to set off the results of any adjustment against the unpaid invoices. In Ms Tan’s email dated 27 April 2017, she said that it was the invoices “over the past several months” that were in contravention of the Assembly Agreement and by that email Supacat offered to pay the amount of the invoices up to the Cap. What appeared to be in issue, then, was the amount claimed above the Cap in those invoices.

  5. It is true, as I have said, that a number of the detailed schedules attached to BPD’s First Notice of Dispute covered vehicles not the subject of the invoices in dispute. So, for example, the schedules listing the ECOs that were said to have affected assembly time list each vehicle affected by each ECO and state the effect that the ECO had on assembly time for each such vehicle. Why that was done is not explained in the evidence. However, the First Notice of Dispute did not seek to account for all increases in assembly times except for the vehicles covered by the invoices. In particular, it did not seek to deal with the miscellany of causes summarised under the description “Other Supacat Issues” in the Notice of Dispute. That is not surprising, since the dispute concerned Supacat’s refusal to pay particular invoices.

  6. In my opinion, Supacat’s First Determination was unreasonable for two interrelated reasons. First, it sought to deal with the cost overruns for all elements of Supply. For the reasons I have given, I doubt that it was entitled to do that under Assembly Agreement at the time that it did. But even if it was, acting reasonably, it had to give BPD a reasonable opportunity to set out its (BPD’s) position in relation to each element of the Supply. Supacat did not do that. The fact that BPD in the First Notice of Dispute included, for reasons that are unexplained, some information that went beyond the invoices in question did not relieve Supacat of that obligation.

  7. Second, the First Determination did not make any attempt to address the detailed explanations of the cost overruns contained in the First Notice of Dispute. Supacat submits that that was not unreasonable because it was not possible from BPD’s records to make any assessment of the effect that the matters BPD pointed to had on assembly hours. BPD was required by cl 21.11 to keep “accurate and complete books and records of all costs incurred and labour hours expended in connection with performance of the Supplies …”. It did not do that. It kept no records of the time spent on each of the matters said to have increased assembly hours. Indeed, the allocation of hours to particular vehicles was itself inaccurate. The lack of proper and accurate records necessitated the more broad-brush approach that Mr Moore took. Moreover, Supacat submits that Mr Moore took a conservative approach. His determination of the cost overruns was based on the revised Target Hours, which already took account of the cost overruns arising from the ECOs. In addition, he used a conservative weighted average hourly rate in calculating the cost overruns.

  8. I do not accept that submission. I do not accept that BPD failed to comply with cl 21.11 of the Assembly Agreement in a material respect or that any failure to comply with that clause was relevant to the application of cl 21.9(c). Clause 21.11 required BPD to keep accurate and complete books and records of all costs incurred and labour hours expended. I accept that that obligation included an obligation accurately to account for hours worked against the correct vehicle. I also accept that that became more difficult than might have been expected because the project did not proceed as smoothly as it ought. On the other hand, I do not accept that the obligation imposed by cl 21.11 required BPD to keep a record of precisely what work was performed and how long each item of work took. An obligation to keep an accurate and complete record of labour hours expended is an obligation to keep an accurate and complete record of the hours, not details of the work done. To the extent that BPD failed to comply with that obligation, that failure was important to the application of the formula in cl 21.9(b). But I do not think it was important to the operation of cl 21.9(c). The costs overruns that are relevant to the application of that clause are costs overruns that were properly chargeable. If there were errors in the recording of hours, then Supacat was entitled to be compensated for any overpayment resulting from those errors whether or not there was an overrun. Clause 21.14 gives Supacat a specific right to recover as a debt any amount overpaid as a consequence of those errors. Supacat asserts no such entitlement in these proceedings.

  9. Supacat had an intimate knowledge of the work that was done by BPD on each vehicle and the issues that arose in relation to the assembly of each vehicle. Mr Moore was located at BPD’s St Mary’s premises throughout the duration of the project and it appears that other Supacat employees were located at the site, including Ms Tan. Mr Moore and Ms Tan attended daily meetings with BPD’s employees in Mr Moore’s office at which, according to the affidavit evidence given by Mr Moore, they discussed the following issues:

a.   The plan for the day and any issues which could affect the days build;

b.   Proposed delivery dates;

c.   With reference to a white board which was located in the open office behind my desk, the vehicle numbers currently being worked on and the percentage that they were completed;

d.   Shortage or missing parts;

e.   Quality issues; and

f.   Engineering issues.

Ms Tan prepared a report each week for Supacat UK that summarised the issues that had arisen in the week covered by the report. By the time Mr Moore made the First Determination, Mr Otormin, who also had a detailed knowledge of the project, worked for Supacat. Mr Moore accepted that, to the extent that he did not know something about a particular vehicle, he could have asked others. In my opinion, he was in a position when making his First Determination to address the details of BPD’s explanation of the cost overruns for the invoices that were the subject of the First Notice of Dispute and it was not reasonable for him to refuse to do so on the basis that the relevant information was not available from BPD’s own records.

  1. It is not suggested that any different issue arises in respect of the Second Determination. It follows that that determination also was unreasonable.

Damages

  1. It is the plaintiff who bears the onus of proving to the civil standard that it has suffered damage as a consequence of the defendant’s breach of contract. In order to discharge that onus, the plaintiff must do two things. First, it must adduce sufficient evidence to provide an appropriate basis for the Court to reach a reasonable decision on the question whether the plaintiff has suffered damage as a consequence of the breach of contract. Second, it must establish on the basis of the material before the Court that it is more likely than not that it suffered some or all of the damages it claims: see Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14] per Hodgson JA (with whom Beazley JA agreed). In considering what evidence is sufficient, it is important to have regard to the ability of the parties, particularly the party who bears the onus, to lead evidence on the issue: ibid at [15], citing the well-known statement of Lord Mansfield in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970 that “[A]ll evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”.

  2. Provided the Court is satisfied that there has been an actual loss, the difficulty of assessing damages is not a bar to their recovery; and the Court must do the best it can on the material it has: Fink v Fink (1946) 74 CLR 127 at 143 per Dixon and McTiernan JJ; State of New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133 at [72] per Heydon JA.

  3. It is common ground that an award of damages for breach of contract ought so far as money can do it put the party not in breach in the position it would have been in if the breach had not occurred: Robinson v Harman (1848) 1 Exch 850. In this case, that requires the Court to consider what conclusion Supacat would have reached on apportionment acting reasonably.

  4. BPD’s case on damages is that up until January 2017, it submitted invoices on the basis that all of the cost overruns were the responsibility of Supacat. Supacat paid those invoices without questioning that apportionment. When Supacat did question the apportionment in respect of the invoices issued between January and March 2017, BPD provided a detailed explanation of the hours worked and why the additional hours worked above the cap were the responsibility of Supacat. It was open to Supacat to take issue with those explanations, but it did not do so. Moreover, the attribution of responsibility for the whole of the overrun to Supacat was consistent with the weekly reports that Supacat sent to Supacat UK. None of those reports suggested that any part of the overrun was the responsibility of BPD. None of them, for example, pointed to poor workmanship or inefficient work practices on the part of BPD which might explain part of the cost overruns. If there were matters for which BPD was responsible that Supacat would reasonably have taken into account in apportioning responsibility for the overruns, then it was up to Supacat to raise them. It was not for BPD to try to anticipate what Supacat would reasonably have taken into account and prove that none of them would have led to a different result.

  5. Supacat seeks to answer BPD’s case on damages in three ways. First, it submits that BPD has failed to adduce sufficient evidence from which the Court could conclude that Supacat was entirely responsible for the cost overruns. Second, Supacat points to evidence that BPD was partly responsible for the cost overruns. Third, Supacat relies on expert accounting evidence given by Mr Simon James in relation to damages.

  6. As to the first point, Supacat submits that BPD did not keep adequate records of the time spent in assembling the vehicles and, in particular, the activities undertaken in a way that would permit the Court to reach a proper conclusion in relation to apportionment. Mr Findlay sought in his affidavit evidence to make up for that lack of information by giving a breakdown of the additional time spent by BPD on assembling each vehicle as a result of what were said to be problems caused by Supacat. However, that evidence was rejected because it was plainly based on the hearsay evidence of others. The detailed schedules that were attached to BPD’s First Notice of Dispute were not admissible as business records under s 69 of the Evidence Act 1995 (NSW) to prove how the hours were to be broken down. Those schedules did not form part of the records kept by BPD in the course of, or for the purpose of, its business. They were prepared in connection with a dispute with Supacat. Consequently, in Supacat’s submission, they could not be used to prove that the overrun in Target Hours was its responsibility. In any event, no weight could be given to them because they depended on a reconstruction of events after the fact. Moreover, on a proper analysis of those schedules, they did not account for the total hours for which Supacat had been invoiced. Consequently, they did not prove that Supacat was entirely responsible for the cost overruns.

  7. These criticisms do not provide an adequate answer to the way in which BPD puts its damages claim. What BPD had to do was prove that Supacat acting reasonably would have reached the conclusion that it (Supacat) was responsible for the cost overruns. BPD did not have to prove as an objective fact that Supacat was responsible for 100 percent of the overruns. In my opinion, BPD has pointed to sufficient evidence from which it can be concluded that Supacat, if it had engaged in the assessment it ought reasonably to have engaged in, would have determined that it was responsible for all of the overruns. As I have explained, in the light of that evidence, it was for Supacat to lead evidence of the matters that would still have caused it to apportion responsibility differently. It had an intimate knowledge of the project and was in the best position to lead evidence on what it would have done if it had been required to assess BPD’s Notice of Dispute based on its own knowledge. With some exceptions dealt with below, it chose not to do that.

  8. That conclusion does not involve acceptance of the proposition that the schedules attached to the Notice of Dispute were admissible to prove the facts asserted in them. Rather, what is important is the fact that BPD made the assertions it did in the First Notice of Dispute and Supacat did not seek to refute them, although it had an intimate knowledge of the project itself. Absent any other evidence, that, together with the fact that Supacat’s weekly reports did not raise issues concerning BPD’s performance under the Assembly Agreement and paid BPD’s invoices over an extended period of time without complaint, provide a reasonable basis for concluding that Supacat, acting reasonably, would have concluded that it was responsible for all of the cost overruns.

  9. As I have explained, nothing can be inferred from the fact that the schedules attached to the First Notice of Dispute do not account for all hours involved in assembly of the vehicles. The notice was only directed at the invoices in dispute. The schedules attached to it did not purport to give a complete account of all hours expended in assembling all vehicles.

  10. Supacat relies on two types of evidence to establish that BPD bore at least some responsibility for the cost overruns. First, it points to defects recorded on “snag sheets” that were created in relation to each vehicle. Second, it relies on evidence given by Mr Moore and Mr Otormin.

  11. The “snag sheets” were handwritten records prepared in relation to each vehicle at the time the vehicle was inspected following completion of its assembly. They recorded defects requiring rectification before the vehicles were delivered to the Commonwealth. Supacat submits that the snag sheets demonstrate that the vehicles suffered from some defects that were the responsibility of BPD and that the time and cost spent in rectifying those defects should be attributed to BPD for the purposes of apportioning responsibility for the cost overruns.

  12. The difficulty with this submission is that it is not possible from the snag sheets to draw any conclusions concerning the responsibility for the defects. The descriptions of the defects are short and often cryptic, at least to someone lacking the relevant expertise to interpret them. It was open to Supacat to lead evidence on what conclusions, acting reasonably, it would have reached on the basis of the snag sheets, but it chose not to do so. Ms Glover, who appeared for Supacat, did seek to cross-examine Mr Findlay on whether various items shown on the snag sheets could be regarded as the responsibility of BPD. In many cases, Mr Findlay denied that they were or said that he was unable to express an opinion without knowing more about the particular defect. Even in the few cases where Mr Findlay accepted that the defect was the responsibility of BPD, there is no evidence concerning how long it would have taken to rectify that defect.

  13. In addition, there is no evidence that Supacat could reasonably have formed the view that the time and costs taken to correct those defects contributed to the cost overruns. As I have explained, the Assembly Agreement gives no guidance on what activities should be taken into account in making the determination required by cl 21.9(c). However, it is to be presumed that in fixing the Target Hours some allowance was made for correcting defects, just as it is to be expected that some allowance would have been made for design changes and tolerancing issues. Consequently, in order to attribute part of the cost overruns to defects requiring rectification at the end of the assembly of a vehicle, it would be necessary for Supacat to form some view on whether the defects were unexpectedly frequent or serious to say that they contributed to the cost overruns. There is no evidence before the Court from which it could be concluded that Supacat acting reasonably would have reached that conclusion. That is evidence that Supacat ought to have led if it wished to rely on the point.

  1. Similar issues arise in relation to the evidence given by Mr Moore and Mr Otormin. Mr Moore says in his affidavit evidence that he became aware from the daily meetings that common problems in the assembly included the following:

Common problems in the assembly which I became aware of during the daily meetings included:

a.   Incorrectly fitted sub-assemblies;

b.   Bolts not torqued properly;

c.   Lack of toque [sic] marks on bolts and incorrect configuration bolts and washers;

d.   Wrong configuration parts fitted (e.g. C2 parts on a Troop vehicle etc.);

e.   Parts that should have been fitted simply not fitted (lack of understanding of the different variant configurations);

f.   Wiring looms not routed correctly;

g.   Damaged parts (e.g. heavy sub-assemblies such as armour panels damaged during installation);

h.   Poor workmanship issues resulting in incomplete work and/or damaged parts;

i.   Debris in the trucks, swarf, random fasteners and tools; and

j.   Incomplete paperwork. Almost every truck was presented for acceptance by Supacat with at least some issues with the paperwork.

Mr Moore also says that BPD did not employ an adequate, dedicated stores person to manage the store it kept of factory parts. But Mr Moore’s evidence is expressed at such a high level of generality that it provides an inadequate foundation for a conclusion that, having regard to those matters, Supacat, acting reasonably, would have attributed some specific proportion of the cost overruns to BPD. The evidence, for example, gives no indication of which vehicles were affected by the problems identified or any estimate of time that the problems would have taken to rectify, although they were matters on which Supacat was capable of forming a view. There is no explanation of how BPD’s failure to employ a dedicated stores person contributed to the cost overruns.

  1. Similar problems arise with Mr Otormin’s evidence, although he does give some specific examples of cases where BPD was responsible for an increase in assembly hours. Mr Otormin says that towards the beginning of the project there was an influx of new staff with limited technical expertise which resulted in errors in the assembly process including:

a.   Incorrect washers on the blast armour;

b.   Incorrect bolts on armour and cab; and

c.   Communications cables being incorrectly routed.

According to Mr Otormin’s evidence, those errors affect vehicles 10, 11, 12, 13, 14 and 15. One difficulty with this evidence is that Mr Moore had apportioned responsibility for cost overruns in the first 12 vehicles entirely to Supacat. Another difficulty is that Mr Otormin expresses no view on the effect that those errors had on assembly time. Rather, he states that the hours spent undertaking rework is not identifiable from BPD’s records.

  1. Mr Otormin gives evidence that he observed work being done on a private vehicle at the Crane facility and that he observed employees “sitting around a plastic table at the back of the factory talking for extended periods of time”. He also gives evidence that “it was rare that when I walked into the factory, the BPD employees would be working”. However, in cross-examination, Mr Otormin conceded that it was likely that that work on the private vehicle was done after the overtime shift had ended; and there is no evidence Supacat was charged for hours where no work was done. In addition, it appears to be common ground that the Target Hours were agreed on the basis that the mechanics working on the vehicles would achieve 80 percent efficiency. Consequently, this evidence does not provide an adequate foundation for concluding that Supacat, acting reasonably, would have attributed some of the responsibility for the overrun to BPD.

  2. Mr Otormin also gives two examples of where vehicles needed to be reworked because of errors on the part of BPD. One concerned the exhaust on Vehicle 78 which was incorrectly adjusted and had to be reworked, which Mr Otormin estimated took four hours and ten minutes. The other concerned the wrong assembly of Vehicle 44 as a troop vehicle rather than a C2 vehicle, requiring it to be disassembled and reassembled in the correct configuration. Mr Otormin estimated that that work took two days. However, there is no evidence before the Court on how Supacat would have taken those matters into account or what a reasonable apportionment would have been in light of them. On the face of it, the number of hours involved appears to be minimal in the context of the case. For those reasons, I would not reduce BPD’s claim for damages to take account of them.

  3. That leaves Mr James’s evidence. Mr James is an accountant. He analysed the invoices sent by BPD and the timesheets completed by BPD employees and pointed to a number of discrepancies between the two. The principal discrepancies he identified were (1) that the time sheets recorded a total of 57,289.59 hours worked on the project whereas BPD invoiced Supacat for a total of 54,692.42 hours; (2) there were discrepancies between the invoices and timesheets in relation to the rates charged for employees, the principal example of which was that Mr David Mizzi’s timesheets showed a chargeout rate of $146.35 whereas he was actually charged at the rate of $116.82; (3) there were large discrepancies in the time spent on each vehicle; and (4) the invoices included 721.39 hours of work done by persons who, according to Mr Otormin, were not engaged in the assembly of the vehicles.

  4. The first two points are clearly to Supacat’s benefit. They arose from the fact that the hours recorded on the timesheets were reviewed by a supervisor and adjusted before included in invoices sent to Supacat. The third point arose from the fact that hours worked were incorrectly recorded against the wrong vehicle. As I have explained, that appears to have arisen from poor record keeping on the part of BPD and the fact that it became necessary to work on multiple vehicles at the same time and to use parts meant for some vehicles on others. As to the fourth point, Mr Findlay explained in his affidavit evidence that the relevant employees were Baker & Provan employees who had specialist skills that were engaged to repair and rework parts and assemblies with Supacat’s agreement. Mr Findlay gives an explanation of the work done by each employee. He was not cross-examined on the evidence he gave and I accept it. The work was invoiced for separately by BPD.

  5. Mr James also analysed the snag sheets and timesheets and sought to reach conclusions about who was responsible for the cost overruns. He points to a number of discrepancies in the documents and expresses his conclusions in these terms:

Given the lack of detail and inaccuracies in the information provided by BPD to Supacat, it would be impossible for any party who was not involved with the matter directly with intimate knowledge of each vehicle being built, to determine with any certainty the responsibility for any overruns.

  1. It is not clear what Supacat ultimately seeks to make of Mr James’s evidence. Two themes run through its submissions, which are reflected in the evidence given by Mr James. One is that BPD’s invoices were inaccurate. Another is that BPD retained and provided to Supacat inadequate information from which a determination of responsibility of the overruns could be made. Neither point, however, provides an answer to BPD’s case.

  2. Nowhere does Supacat articulate the precise findings it says the Court should make concerning the inaccuracies in the invoices or how they should affect its determination of responsibility for the overruns, acting reasonably. The principal discrepancies can be explained and were largely in Supacat’s favour. Moreover, as I have already explained, to the extent that there were inaccuracies in the invoices or a failure on the part of BPD to keep adequate records to permit the invoices to be audited, it seems to me that that is not something that would justify some different apportionment of responsibility for overruns than one that would otherwise be made. If Supacat was wrongly invoiced for work or if BPD failed to keep adequate records, then any loss Supacat suffered as a consequence was a loss for which Supacat was entitled to make a claim and was a loss that arose irrespective of any cost overruns. But Supacat was not entitled to seek redress for those losses by adjusting its assessment of the responsibility for the cost overruns.

  3. I have already dealt with Supacat’s second point. Its determination under cl 21.9(c) was not to be made solely by reference to information available from BPD’s records. It was to be made having regard to all the facts and, in particular, its own detailed knowledge of the project.

Conclusion and orders

  1. It follows from what I have said that I am satisfied that BPD has proved that acting reasonably Supacat would not have apportioned any responsibility for the cost overruns to BPD. Accordingly, there should be judgment for the amount claimed.

  2. BPD claims interest on all amounts unpaid that were the subject of the First Determination from the date of that determination (that is, from 14 July 2017) and interest on all amounts unpaid that were the subject of the Second Determination from the date of that determination (that is, from 23 January 2018).

  3. The total amount owing following the First Determination was $1,190,820.98. Interest on that amount from 14 July 2017 is $185,588.60, making a total of $1,376,409.58. The total amount owing following the Second Determination was $29,706.80. Interest on that amount from 23 January 2018 is $3,765.82, making a total of $33,472.57 and a grand total of $1,409,882.15.

  4. There is no apparent reason why Supacat should not pay BPD’s costs. However, the parties should be given an opportunity to seek some other costs order if they consider it appropriate.

  5. Accordingly, the orders of the Court are:

  1. Judgment for the plaintiff in the sum of $1,409,882.15;

  2. Order that the defendant pay the plaintiff’s costs of the proceedings;

  3. Liberty to either party to apply to vary order (2) within 14 days of the date of this judgment.

**********

Decision last updated: 12 June 2020

Actions
Download as PDF Download as Word Document
Cases Citing This Decision

0

Cases Cited

8

Statutory Material Cited

1

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288
Walton v Illawarra [2011] NSWSC 1188
Ho v Powell [2001] NSWCA 168