BGC Contracting Pty Ltd v The Pilbara Infrastructure Pty Ltd
[2007] WASC 200
•30 AUGUST 2007
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: BGC CONTRACTING PTY LTD -v- THE PILBARA INFRASTRUCTURE PTY LTD [2007] WASC 200
CORAM: TEMPLEMAN J
HEARD: 22 AUGUST 2007
DELIVERED : 30 AUGUST 2007
FILE NO/S: CIV 1783 of 2007
BETWEEN: BGC CONTRACTING PTY LTD
Plaintiff
AND
THE PILBARA INFRASTRUCTURE PTY LTD
Defendant
Catchwords:
Practice and procedure - Setting aside default judgment - Defendant's solicitor places incorrect file number on appearance - Registry accepts appearance - Whether appearance entered - Construction of termination deed and subsequent correspondence - Defendant's intention to plead judgment amounts were unreasonable, unnecessary and contrary to parties' agreement - Relationship between agreement and termination deed - Defendant's admission - Whether correspondence without prejudice - Whether defence on merits
Legislation:
Rules of the Supreme Court 1971 (WA), O 2, O 12, O 21
Result:
Application dismissed
Injunction discharged
Category: B
Representation:
Counsel:
Plaintiff: Mr M C Hotchkin
Defendant: Mr N W McKerracher QC & Mr S R Boyle
Solicitors:
Plaintiff: Hotchkin Hanly
Defendant: Clayton Utz
Case(s) referred to in judgment(s):
ACN 076 676 438 Pty Ltd (In Liq) v A‑Comms Teledata Pty Ltd [2000] WASC 214
Bates v Queensland Newspapers Pty Ltd [2001] QSC 83
Gregory v Philip Morris Ltd (1988) 80 ALR 455
Harkness v Bell's Asbestos and Engineering Ltd [1967] 2 QB 729
Johnston v Vintage Developments Pty Ltd [2006] FCAFC 171
Metroinvest Ansalt v Commercial Union Assurance Co Ltd [1985] 1 WLR 513
TEMPLEMAN J: On 14 August 2007, the plaintiff in this action entered judgment for some $13.66 million and costs, in default of the defendant's appearance to the writ. The writ had been issued on 3 August and served the same day.
As a result of the judgment, the plaintiff was entitled to payment of the judgment sum from monies held by its solicitors in a trust account. The defendant had deposited funds in that account as security for the performance of its obligation to pay the plaintiff for work carried out under an agreement to which I shall refer below.
Later on 14 August, I heard an application by the defendant for an interim injunction to restrain the plaintiff from disbursing any part of the judgment sum.
The application was made ex parte, but on notice to the plaintiff's solicitors, who were able to attend, albeit at very short notice.
The basis for the application was that the judgment had been obtained irregularly because (it was said) the defendant had entered an appearance.
For reasons which I then gave ex tempore, I considered that the plaintiff had obtained its judgment regularly, but that the defendant appeared to have a good defence to the claim. I therefore granted an interim injunction and gave directions which included the filing of affidavits by the plaintiff, so that the issues could be explored properly.
On 16 August, in compliance with those directions, the defendant filed a chamber summons in which it sought, inter alia, to have the judgment set aside and an extension of time within which to enter an appearance.
Although on 14 August I considered that the defendant had not entered an appearance, I did not intend to prevent the defendant from making further submissions to the contrary, which it has now done. I therefore return to that issue.
Did the defendant enter an appearance?
The writ names BGC Contracting Pty Ltd as plaintiff and The Pilbara Infrastructure Pty Ltd as defendant. When issued, the writ was given the number CIV 1783 of 2007.
Having been duly served on 3 August, the latest time by which an appearance could have been entered was 4 pm on 13 August.
By O 12 r 1(4) of the Rules of the Supreme Court 1971 (WA), an appearance is entered by "properly completing a memorandum of appearance as defined by Rule 2". I emphasise that the document is to be completed properly.
Order 12 r 2(2) provides that a memorandum of appearance "must be in Form No 6". That form is set out in Vol 2 of Seaman on Civil Procedure in Western Australia, [6030]. It requires the names of the parties and the action number to be given.
In the present case, the defendant's solicitors completed a Form No 6, but they did not do so properly. The form identified the parties correctly but, in error, gave the action number as CIV 1395 of 2007. As appears from the Court records, that is an action between parties who have no connection with the parties to this action.
At 5.59 pm on 13 August, the defendant's solicitors sent a copy of the Form 6 to the Court Registry, by facsimile, under cover of a letter asking that the memorandum of appearance be entered. That request was out of time, the Registry having closed almost two hours earlier. I note that the memorandum was dated 14 August.
On the morning of 14 August, the defendant's solicitors dispatched an articled clerk to the Registry to lodge the memorandum of appearance. The articled clerk was the first customer when the Registry opened for business at 9 am. The memorandum was accepted over the counter and was stamped "Appearance Entered".
By O 12 r 2(1), a memorandum of appearance is a request to the Registrar to enter an appearance for the defendant(s) specified in the memorandum. In the present case, the Form 6 did contain such a request.
Order 12 r 3 sets out the procedure to be followed on receipt of a memorandum of appearance. It provides:
"On receiving the requisite documents the proper officer must in all cases affix to the copy of the memorandum of appearance an official stamp showing the date on which he received those documents, enter the appearance in the Cause Book, and then return the copy of the memorandum to the person entering the appearance and the copy memorandum so stamped shall be a certificate that the appearance was entered on the day indicated on the official stamp."
It appears that in the present case, the Form 6 was accepted by the Registry staff on the assumption that it was in proper form. However, the procedure set out in O 12 r 3 was not followed. The memorandum of appearance was not stamped only with the date, pending the entry of appearance; it was stamped "Appearance Entered".
The defendant therefore submits that because its solicitors had requested the Registrar to enter an appearance for the defendant, and because the memorandum had been accepted and stamped "Appearance Entered", that must be taken to be the fact.
I do not accept that submission. That is because the Form 6 had not been completed properly. The defendant's solicitors did not, therefore, tender "the requisite documents" for entering an appearance in action CIV 1783 of 2007. In fact, the Registry staff entered an appearance in action CIV 1395 of 2007.
In effect, the Court was misled (unintentionally, of course) into issuing the certificate, by reason of the error made by the defendant's solicitors. That being so, the defendant cannot rely on the certificate. Subject to O 2 r 1, to which I shall refer below, it is a nullity: there is no action CIV 1395 of 2007 between the present parties.
This conclusion is consistent with that reached by Parker J in ACN 076 676 438 Pty Ltd (In Liq) v A‑Comms Teledata Pty Ltd [2000] WASC 214, at [19], where his Honour made a similar observation about a pleading which had not been filed regularly.
In the present case, the plaintiff's solicitors had entered judgment in default of appearance before the error emerged. The solicitors did so on the express instructions of their client, having put the defendant's solicitors on notice and having been instructed also not to agree to an extension of time in which to enter an appearance.
Judgment was therefore entered regularly, after a search of the Court record which showed (correctly) that no appearance had been entered in this action.
Can the memorandum of appearance be saved by Order 2 r 1?
The defendant submits that the error in its memorandum of appearance should be regarded as an irregularity, falling within O 2 r 1(1); an irregularity which should not nullify the document, or its effect.
Order 2 r 1(1) provides:
"Where in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of anything done or left undone, been a failure to comply with the requirements of these Rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein."
I accept that this rule is applicable in the present circumstances. However, the rule does not take effect automatically. That is made clear by r 1(2), which provides:
"Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings, or any document, judgment or order therein or exercise its powers under these Rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit."
In other words, an irregularity and its consequences will stand until and unless the Court makes an order under r 1(2).
Metroinvest Ansalt v Commercial Union Assurance Co Ltd [1985] 1 WLR 513 illustrates the application of these rules. In that case, the plaintiffs sought to accept money paid into court by the defendant, but did so by a notice which did not comply with the prescribed form. It was held that the plaintiff's failure resulted in an irregularity which continued until and unless the Court exercised its powers under the English O 2 r 1(2), which is in the same terms as our rule.
As Slade LJ put it, at 523:
"… the plaintiffs … would plainly have required a dispensation under Ord 2, r 1(2) before they could have relied upon the notice of acceptance so as to demand payment from the proper officer of the court as of right."
In the present case, the plaintiff's entry of judgment in default of appearance was regular, because no appearance had been entered. And an appearance could not be entered now, unless the judgment was set aside. That being so, in the circumstances of this case, if the defendant had made application under O 2 r 1(2) - which it has not - the same considerations would arise as are relevant to the exercise of the discretion to set aside a default judgment obtained regularly.
Is the memorandum of appearance saved by Order 21 r 10?
Order 21 r 10 (known as the Slip Rule) provides:
"Clerical mistakes in judgments or orders, or errors arising therein from any accidental slip or omission, may at any time be corrected by the Court on motion or summons without an appeal."
The defendant submits that the rule is applicable in the present case. However, in my view, that is not so. As noted above, a memorandum of appearance is a request to the Registrar. It is not a "judgment or order" which, if irregular, can be rectified under this rule.
The defendant relies on the decision of the English Court of Appeal in Harkness v Bell's Asbestos and Engineering Ltd [1967] 2 QB 729 where both O 2 r 1(1) and the Slip Rule were considered. At 735 ‑ 736, Lord Denning MR said:
"Every omission or mistake in practice or procedure is henceforward to be regarded as an irregularity which the court can and should rectify so long as it can do so without injustice. It can at last be asserted that 'it is not possible for an honest litigant in Her Majesty's Supreme Court to be defeated by any mere technicality, any slip, any mistaken step in his litigation.' "
I accept that to be the position in this jurisdiction also. However Harkness is an entirely different case. There, the problem had arisen because a registrar made an order which was not in the proper form and which, under the relevant rules, could only have been made by a judge in chambers. The Court of Appeal held that proceedings before the registrar were not a nullity, but merely a failure to comply with the rules and could be corrected under O 2 r 1(1). Further, the error in expressing the order was a mistake which could be cured by the application of the Slip Rule.
There is nothing in the judgments to suggest that the defendant would have been prejudiced by correcting the errors. Prejudice is not mentioned in the summary of the submissions made by counsel for the defendant: page 732.
In contrast, in Bates v Queensland Newspapers Pty Ltd [2001] QSC 83, the Court declined to correct an irregularity under the Queensland equivalent of O 2 r 1, when to do so would have caused prejudice to the defendant. The correction would have involved the substitution of a plaintiff outside the limitation period, when the defendant could never have been liable to the plaintiff named initially. That plaintiff "was not a legal personality and could not sue" [22].
An irregularity of a different kind was cured under the Federal Court equivalent of O 2 r 1 in Johnston v Vintage Developments Pty Ltd [2006] FCAFC 171. The irregularity was the joinder of a defendant to an existing proceeding without the requisite leave being obtained. The relevant documents had been filed and accepted by the Registry as part of the Court record.
The Court held that there was no prejudice to the defendant, because if leave had been sought, there could be no doubt that it would have been granted [33].
In the present case, the question which arises is whether the judgment, obtained regularly by the plaintiff in default of appearance, should now be set aside.
Should the default judgment be set aside?
The Court is given jurisdiction by O 13 r 10 to set aside or vary any judgment entered in default of appearance "on such terms as it thinks just".
The practice which is followed under this rule is well settled. It is set out conveniently in Seaman (supra) at [13.10.6]:
"The general rule is that when a judgment in default has been regularly entered, it is not to be set aside unless the Court is satisfied that there is a defence on the merits, and instances of departure from the general rule are rare. The application should be supported by affidavit evidence which discloses a defence on the merits and explains the failure to comply with the rules and any delay in bringing the application: Palmer v Prince [1980] WAR 61 at 62 (FC). The defendant must present a credible defence demonstrating that, if the default judgment were set aside and the matter were argued on its merits, the defendant would have a real prospect of success: Parker v Transfield Pty Ltd [2000] WASCA 382 … at [3], [58], [59]. … It is a rare case in which the Court will decline to set aside a judgment entered in default of appearance when there is a defence on the merits and the failure to enter an appearance has been explained: Crayden v Ottaviano [2003] WASCA 20 … at [1], [53], [55]."
In the present case, there has been no significant delay by the defendant in attempting to enter an appearance. In my view, because the defendant was entitled to enter an appearance at the last possible moment, the only relevant (and insignificant) delay is from 4 pm on 13 August 2007, 5.59 pm that day, or until 9 am the following morning.
The real issue, therefore, is whether the defendant has a defence of sufficient merit to justify the exercise of the discretion to set aside the judgment: does it have "a real prospect of success?" In the course of argument on this point, it emerged that there is no dispute as to the relevant facts. Although both parties regard their respective positions as impregnable, that is because they disagree about the true construction of a deed and subsequent correspondence which form the basis of the plaintiff's claim.
It is, of course, necessary to construe these documents in the context of the factual matrix in which they came into existence. That matrix is clear from the documents themselves, and from the affidavit evidence of Peter James Thomas, a director of the defendant who is also its chief financial officer.
An affidavit was filed for the plaintiff, made by its Chairman of Directors, Walter Leonard Buckeridge. However, at least in part, this affidavit contains evidence of the parties' contractual intentions and is therefore inadmissible to that extent.
For the avoidance of doubt, I have reached my conclusions without regard to Mr Buckeridge's affidavit.
Against that background, I turn to the history of the matter.
The parties enter into an alliance agreement
On 14 July 2006, the parties entered into an agreement known as "TPI Rail Alliance Agreement". TPI is the abbreviation for The Pilbara Infrastructure Pty Ltd, the defendant. The plaintiff is referred to as "BGC".
The recitals to the Agreement provide as follows:
"ATPI wishes to construct a railway line to support its proposed iron ore mine and facilities in the Pilbara region of Western Australia (Project) and wishes to have BGC supply and install the Rail Earthworks (Works).
BTPI has determined that an alliance focussing on an integrated project team motivated by a strong incentive based delivery approach is needed to deliver the Works and meet TPI's objectives for the Project.
CTPI has selected BGC as its construction contractor for the Works in accordance with this Alliance Agreement.
DTo manage development and delivery of the Project, representatives of TPI and Worley Parsons will operate jointly in a team known as 'Team 45', comprising personnel from their respective organisations, working together as an integrated management team.
EIn order to achieve outstanding performance results in each of our Alliance Objectives in the performance of the work under the Alliance Agreement the parties have agreed to form the TPI Rail Alliance in the manner and on the terms set out in this Alliance Agreement."
In par 4 of its statement of claim, the plaintiff pleads:
"4.The TPI Rail Alliance Agreement contained the following material express terms:
(a)The Plaintiff was entitled to be paid by the Defendant its direct costs of providing services under the TPI Rail Alliance Agreement (clause 8.1(a));
(b)The Plaintiff was also entitled to be paid by the Defendant a fee calculated as set out in sub‑paragraph (d), (clause 8.1(b)) (Fee);
(c)The Plaintiff was also entitled to be reimbursed by the Defendant for any Goods and Services Tax imposed upon the Plaintiff (GST) (clause 8.1(d));
(d)The Fee was 14% of the direct costs as reported by the Plaintiff's JD Edwards Cost Reporting System and was to be paid progressively to the Plaintiff pending calculation of the final Fee in accordance with Schedule 6 (clause S5.2, Schedule 5);
(e)The Plaintiff was to be paid the direct costs plus 14% for each month as invoiced (clause S5.4, Schedule 5); and
(f)The Plaintiff's final Fee would be adjusted in accordance with Schedule 6 (clause S5.2, Schedule 5)."
The defendant has filed a minute of defence in anticipation of the judgment being set aside. In par 4 and par 5 of the minute, the defendant pleads:
"4.As to paragraph 4(a) to (c) of the Statement of Claim the Defendant says that clause 8.1 of the TPI Rail Alliance Agreement provided that the Plaintiff's entitlement to payment was limited to, amongst other amounts:
(a)Direct Costs as that term is more particularly defined in the TPI Rail Alliance Agreement;
(b)a fee; and
(c)reimbursement of GST.
5.The Defendant admits paragraph 4(d) of the Statement of Claim but says that the fee payable to the Plaintiff was to be determined by the Defendant and the Plaintiff upon completion of the whole of the Works under the TPI Rail Alliance Agreement or upon the earlier termination of the TPI Rail Alliance Agreement (clause 5.5 of Schedule 5)."
The TPI Rail Alliance Agreement is in evidence. The provisions to which reference is made in the statement of claim and the minute of defence are summarised accurately. Thus, the effect of the Agreement was that the plaintiff was entitled to be paid by the defendant its direct costs of providing services, and a fee, which would be adjusted in accordance with sch 6.
The principles for the determination of direct costs are set out in detail in sch 4 of the Agreement.
Schedule 5 to the Agreement sets out the basis on which the fee is to be paid. So far as relevant, sch 5 provides:
"S5.1 The Fee payable to BGC is intended to deliver to BGC the only contribution under our Alliance Agreement, other than Gainshare, to the costs and expense of its corporate overhead structure and its corporate profit expectations.
Amount of Fee
S5.2Subject to S5.3, the Fee will be fourteen per cent (14.0%) of the Direct Costs (excluding TPI direct costs) as reported by BGC's J D Edwards cost reporting system, and will be paid progressively to BGC pending calculation of the final Fee in accordance with Schedule 6, as more fully explained in S5.4.
S5.3BGC will place at risk a proportion of its Fee up to a limit of 10.0% of Direct Costs, such that the Fee will at no time be less than 4.0%, as detailed in Schedule 6. To avoid doubt, there is no limit on BGC's entitlement to Gainshare.
Interim Fee Payments
S5.4BGC will record the Direct Costs using BGC's J D Edwards cost reporting system. Each month BGC will invoice TPI the Direct Costs so recorded plus 14.0% for BGC's corporate overhead and profit. TPI shall pay to BGC the amount so invoiced within seven (7) days after receipt of each invoice.
Determination of Fee
S5.5At the times determined by the ALT, TPI and BGC shall determine the Fee in accordance with this Schedule 5 and Schedule 6, and the ALT may resolve that a reconciliation be made between the parties to settle the final amount of the Fee to the date of such reconciliation by means of a payment by one party to the other, as the case may be. In the absence of such resolution and reconciliation, the final amount of the Fee will be determined upon completion of the Works or upon the termination of this Alliance Agreement, whichever is the earlier."
The reference in S5.1 to "Gainshare" is to sch 6, which sets out a "Gainshare Regime". In essence, this regime provides a mechanism for adjusting the fee payable to the plaintiff by comparing the target direct costs and the actual direct costs.
The Alliance Agreement is terminated
On 30 May 2007, the parties entered into a deed ("the Deed of Termination") to bring the TPI Rail Alliance Agreement to an end.
The Deed of Termination is in evidence. The recitals to the deed refer to a dispute which had arisen between the parties in respect of delays and cost increases to the railway construction project. The recitals state that the parties have agreed that:
"the TPI Agreement can be brought to an end with neither Party having any liability to the other Party or any Related Party to that other Party, arising from or in relation to the performance of the TPI Agreement or the conduct of the Project except as provided in this Deed."
In par 6 of the statement of claim, the plaintiff pleads that the Deed of Termination contained the following material express terms:
"(a)A final accounting of payments properly due to the Plaintiff under the TPI Rail Alliance Agreement based on the rights of the Plaintiff up to and including the day of termination was to be carried out (clause 4.1);
(b)Payment to the Plaintiff under clause 4.1 was authorised to be made from the trust account of Hotchkin Hanly Solicitors;
(c)The Plaintiff was to submit its Final Claim within 7 days of the date of the Termination Deed (clause 4.2(a));
(d)The final payment claim was to be assessed and paid by the Defendant with [sic, within] 14 days of the receipt of the Plaintiff's Final Payment Claim (clause 4.2(b));
(e)The Defendant was to supply reasons for any difference between its payment and the amount claimed by the Plaintiff (clause 4.2(b));
(f)If the Plaintiff disputed the difference between the Defendant's payment and its claim, the Plaintiff and Defendant were to negotiate in good faith to resolve any dispute (clause 4.2(a));
(g)If a dispute was not resolved in 10 days of the commencement of negotiations under clause 4.2(c), either party may refer the dispute to arbitration (clause 4.2(d));
(h)Schedule 6 of the TPI Rail Alliance Agreement was not to apply in the assessment of the final payment claim (clause 4.1);
(i)The parties otherwise released each other forever and discharged each other from all claims however arising (whether directly or indirectly) from:
(i)The TPI Rail Alliance Agreement and the performance of the terms of the TPI Rail Alliance Agreement;
(ii)The security deed (as pleaded below); and
(iii)The Project and the provision of any services in relation to the Project, as defined in the Termination Deed (clause 5.1)."
This summary of the Deed of Termination is accurate. It is largely admitted by the defendant in par 11 of its minute of defence. However, the defendant's admission is qualified by noting (correctly) that cl 4.2(b) of the Deed of Termination obliged the defendant only to make payment of the amount which it (the defendant) considered to be due to the plaintiff, this not necessarily being the amount claimed by the plaintiff.
Further, although the defendant admits that sch 6 of the TPI Rail Alliance Agreement was not to apply in the assessment of the final payment claim (as pleaded in (h) above) it contends that:
"Schedule 5 of the TPI Rail Alliance Agreement and in particular clause 5.5 of Schedule 5 applies to the determination of the Plaintiff's entitlement to any fee."
The plaintiff's final payment claim
It is common ground that on 7 June 2007, the plaintiff submitted its final payment claim under the TPI Rail Alliance Agreement pursuant to cl 4.2(a) of the Deed of Termination, in an amount of $94,663,493.93 (exclusive of GST) plus a fee of $3,252,889.15: statement of claim, par 7, minute of defence, par 12.
In par 8 of the statement of claim, the plaintiff pleads that:
"On 11 July 2007 the Defendant notified the Plaintiff in writing that it had assessed the direct costs owing to the Plaintiff as $88,252,132."
The plaintiff then alleges that the fee payable is $12,355,292, being 14 per cent, which the defendant has "wrongfully refused to pay". That is the amount (exclusive of GST) in respect of which the default judgment was entered.
In par 13 of its minute of defence, the defendant denies par 8 of the statement of claim. For reasons to which I shall refer below, the defendant contends that the letter of 11 July 2007 on which the plaintiff relies was written "without prejudice" and should not have been referred to in the pleading.
The plaintiff accepts that its claim to the fee of $12,355,292 stands or falls on the defendant's letter of 11 July 2007. It is therefore necessary to consider that letter in the context of the correspondence between the parties, commencing with the final payment claim submitted by the plaintiff to the defendant on 7 June 2007.
Correspondence concerning the plaintiff's final payment claim
The plaintiff's letter of 7 June was addressed to the defendant's project manager. It attached a final claim in the sum of $26,257,686.49 "in respect of all costs incurred on the TPI Rail Alliance Agreement up to and including 31 May 2007". The letter contained an explanation of the basis on which the claim had been calculated. Although no transaction report had been included in the claim (because the defendant's staff had direct access to the relevant information), the plaintiff said it would deliver such a report to the defendant, so that it could be checked.
As noted above, by cl 4.2(b) of the Deed of Termination, the defendant was to pay to the plaintiff the amount it considered to be due in respect of the final claim.
The defendant responded by letter dated 21 June 2007 to the plaintiff's directors. In the letter, the defendant expressed the belief that the total of the final claim should be $74,087,485.98 (including GST). This included an assessment of 4 per cent of profit. The amount so assessed by the defendant was said to be $18,362,848.61 less than the amounts it had paid previously to the plaintiff. The defendant therefore requested repayment of this amount within the next five working days.
The plaintiff disputed the defendant's assessment of the position. In those circumstances, cl 4.2(c) of the Deed of Termination required the parties to "use reasonable endeavours acting in good faith to resolve any dispute between them … by joint discussions".
In compliance with that obligation, the parties negotiated. The course of the negotiations is set out in Mr Thomas' affidavit of 16 August 2007. Mr Thomas was involved personally in the negotiations. His evidence has not been disputed.
Mr Thomas says that on 26 June, he and a colleague met representatives of the defendant at Port Hedland. It was then agreed that the defendant would provide a CD‑ROM which supported its assessment of the plaintiff's costs as set out in the defendant's letter of 21 June.
Subsequently, it was arranged that Mr Thomas' colleague and an assistant accountant of the defendant would meet the plaintiff's Contracting Representatives at their offices in Hazelmere. The outcome of that meeting and subsequent correspondence was that the plaintiff would provide the defendant with invoices in amounts over $10,000.
Mr Thomas goes on to say that after receiving further information, "a higher amount of [the plaintiff's] direct costs was verified via invoices": par 17. Mr Thomas says at that stage, the validity of the invoices was not challenged nor did the defendant challenge whether the invoices represented "lowest possible cost" under the terms of the TPI Rail Alliance Agreement. I shall refer to the significance of that matter in due course.
The defendant's letter of 11 July 2007
Against that background, Mr Thomas sent the letter of 11 July 2007 on which the plaintiff relies in the statement of claim. Because of the importance of the letter, I set it out in full. The references in the letter to BGC are to the plaintiff and the references to TPI are to the defendant.
"RE: DEED OF TERMINATION FINAL CLAIM
We advise that TPI has assessed the total cost due to BGC for work performed under the Alliance Agreement ('Alliance'), based on the Corvu summary, invoice copies and transactional records provided by BGC since 12 June 2007 and having regard to the Deed of Termination. This analysis includes all costs to 31 May 2007 which BGC claims to be $118,708,021.08 (incl GST).
Our assessment of the final claim, examined invoices and labour related costs within the transactional records. Payments that were for services after 31 May 2007 were excluded from our assessment. We have given BGC the benefit of BGC's own estimate of accruals to 31 May 2007.
Without prejudice to its legal entitlements, The Pilbara Infrastructure Pty Ltd (TPI) is prepared to pay an amount of $97,077,344.79 (incl GST). This is TPI's assessment of BGC's direct costs associated with the earthworks Alliance. TPI and Fortescue have suffered significant financial damage as a result of the failed performance in the rail earthworks under the BGC Alliance. As a result, TPI considers that BGC should only be reimbursed its direct costs with no profit. This is in accordance with the key principles of the Alliance, ie that is win‑win or lose‑lose, ie that one party should not benefit at the others expense.
Details of how this amount is calculated are attached.
TPI considers that this amount is substantially in excess of what BGC would be legally entitled to receive under the Alliance. Such an entitlement would be based on whether costs have been incurred reasonably and in accordance with the Alliance. In this respect, we note the following:
(a)in incurring costs, BGC has breached its common law obligation to incur costs reasonably. Under the Alliance, the rail earthworks was heading toward a significant over spend in its original $167 million budget. Had TPI continued with the Alliance, the total earthworks cost for rail would have been well in excess of $350 million. In terms of the Alliance, BGC has breached Alliance Principles by failing to 'spend dollars wisely' (clause 1.3(d) and to do what was 'best for business' (clause 1.3(i)). This includes failing to provide performance which was value for money for TPI and failing to facilitate outstanding performance in our Alliance objectives, such as to deliver at lowest possible cost (clause 1.4(a)) and achieve or better cost and production targets (clause 1.4(f));
(b)the breaches of the Alliance by BGC were wilful defaults under the Alliance in that BGC ought reasonably to have known they were a breach of Alliance Principles;
(c)TPI has suffered losses arising from BGC's wilful defaults (being excessive costs and expenses) and is required to indemnify TPI under clause 17.6(a) of the Alliance;
(d)TPI is entitled to payment from BGC of any amount for which BGC is to indemnify TPI (clause 8.2(b)); and
(e)in making any payment to BGC under the Alliance, TPI may set‑off any amount owing to it by BGC (clause 8.11).
Previously through claims 1 ‑ 10, TPI has paid to BGC $92,450,334.59. In completing the final claim for BGC, TPI authorises the release of $4,627,010.20 from the trust account. We request the remaining funds held in Trust to be released within the next 5 working days."
The effect of the letter of 11 July 2007
It is to be noted that although the letter was written in the course of negotiations, it is not marked "without prejudice".
It is well settled that correspondence which is properly conducted on a "without prejudice" basis in the course of negotiations conducted for the purpose of compromising a dispute, is inadmissible without the consent of both parties. They have a joint privilege: see Cross on Evidence (7th Aust ed) [25350].
However, if there is an issue about whether the document in respect of which privilege is claimed was properly marked "without prejudice", it is necessary to examine the true nature of the communication contained in the document: Gregory v Philip Morris Ltd (1988) 80 ALR 455; 475.
In the present case, I consider the letter of 11 July is to the following effect:
(1)The plaintiff has claimed $118,708,021.08 (including GST).
(2)On the basis of the information provided to the defendant by the plaintiff, the defendant has assessed the claim at $97,077,344.79 (including GST).
(3)"Without prejudice to its legal entitlements" the defendant is prepared to pay that amount.
(4)The defendant contends that because it has "suffered significant financial damage as a result of the failed performance" of the plaintiff, the plaintiff should be reimbursed only its direct costs but should not be entitled to any profit.
(5)The defendant relies on alleged breaches of the TPI Rail Alliance Agreement summarised under par (a) to (e).
(6)The defendant authorises the release of $4,627,010.20 from the trust account. This is the amount which, when added to the $92,450,334.59 already paid by the defendant, totals the amount of $97,077,344.79 which the defendant is prepared to pay "without prejudice to its legal entitlements".
The defendant must therefore be taken as agreeing to pay the amount of $97,077,344.79 without prejudice to its entitlement to claim that in fact, by reason of breaches of the TPI Rail Alliance Agreement, the plaintiff is entitled to a lesser amount. In particular, the defendant contends that the plaintiff would not be entitled to any fee.
The plaintiff responded to the letter of 11 July by a letter of 13 July in which it acknowledged that the amount of $4,627,010.20 would be received on "a without prejudice basis".
The letter went on to dispute the defendant's assessment of the plaintiff's final claim and notified the defendant that it sought urgent discussion with a view to resolving the dispute.
The letter went on to say that the dispute must be resolved by 23 July "being 10 days after today's commencement by this letter of negotiations". That was said to be the period of 10 days prescribed by cl 4.2(c) of the Deed of Termination.
It is not necessary to refer to the content of the negotiations which took place subsequently. It is sufficient to note that the parties were unable to resolve their differences and that on 13 August 2007 the plaintiff referred the dispute over the fee to arbitration. It did so on the basis that the defendant had assessed the amount it owed to the plaintiff as $88,252,132 but had refused to pay the fee.
In par 16 of its minute of defence, the defendant alleges that in the course of discussions following the 21 June letter:
"the Plaintiff [sic, defendant], on a without prejudice basis, made an offer of payment of an amount inclusive of GST in full and final satisfaction of the Plaintiff's entitlements under the TPI Rail Alliance Agreement."
That offer is said to have been contained in the letter of 11 July.
However, for the reasons set out above, it is clear that payment was not authorised on the basis that it was in full and final satisfaction of the plaintiff's claim. Indeed, Mr Thomas does not suggest in his affidavit that he wrote the letter of 11 July on that basis.
It follows, that the letter of 11 July was not written entirely without prejudice. The plaintiff was entitled to rely on it as the defendant's assessment of the plaintiff's direct costs, but without prejudice to the defendant's right to rely on breaches of the TPI Rail Alliance Agreement.
There is therefore no merit in the defence pleaded in par 16 of the minute of defence.
The plaintiff's claim for its fee
The plaintiff's claim is based solely on the proposition that it is entitled to a fee of 14 per cent of its direct costs, pursuant to cl S5.2 of sch 5 to the TPI Rail Alliance Agreement. The plaintiff contends that since the defendant has admitted the amount of the direct costs, it has no defence to the claim for a fee.
The defendant contends that it has admitted only that on the information provided by the plaintiff, its direct costs amount to $97,077,344.79 (including GST). But, as noted above, that admission has been made without prejudice to the defendant's right to claim otherwise. The defendant contends that the plaintiff breached the TPI Rail Alliance Agreement by failing to comply with certain provisions identified in par 8 of the minute of defence, which is in the following terms:
"8.The Defendant says further that the TPI Rail Alliance Agreement also contained terms to the effect that:
(a)in performing its obligations under the TPI Rail Alliance Agreement the Plaintiff would:
(i)not unreasonably or unnecessarily incur costs (clause 1.3(d));
(ii)share gains and losses with the Defendant (clause 1.3(h));
(iii)use a best for business approach (clause 1.3(i));
(b)an objective of the TPI Rail Alliance constituted by the TPI Rail Alliance Agreement comprising the Plaintiff and the Defendant were to, amongst other things, deliver the project at the lowest possible cost (clause 1.4(a));
The Defendant will refer to the TPI Rail Alliance Agreement at the trial of the matter for its full term and effect."
In fact, the minute of defence does not contain any allegation that the plaintiff breached those terms. Nor is any such allegation made directly in Mr Thomas' affidavit. He apparently relies on the allegations of breach set out in his letter of 11 July 2007.
Does the defendant have a defence?
I am prepared to accept, for present purposes, that it would be possible for the defendant to particularise breaches of the provisions of the TPI Rail Alliance Agreement on which it relies. However, I do not think this would advance the defendant's position.
I take that view because of the provisions in cl 4.3 and cl 5.1 of the Deed of Termination. They are as follows:
"4.3Nothing in this Deed operates to release or discharge either Party from the obligation to make a payment as is agreed, or is as determined by arbitration, by way of a final accounting, in respect of which no party shall be entitled to have regard to any breach or alleged breach of the TPI Agreement or the Security by the other (except in so far as any part of any payment claims are not permitted under the TPI Agreement). For the avoidance of doubt TPI shall not seek to deduct or set‑off against final payment to BGC any damages howsoever arising.
5.Release
5.1Each of BGC and TPI release and forever discharge the other from all Claims howsoever arising (whether directly or indirectly) from:
5.1.1the TPI Agreement and the performance of the terms of TPI Agreement;
5.1.2the Security and the performance of the Security; and
5.1.3the Project and the provision of any services in relation to the Project."
In my view, claims of the kind foreshadowed by Mr Thomas in his letter of 11 July 2007 fall precisely within cl 5.1.1 and cl 5.1.3. Furthermore, cl 4.3 prohibits the defendant from following the course it now seeks to pursue, of deducting or setting off against the plaintiff's final claim, damages said to have risen in the course of performance by the plaintiff of its obligations under the TPI Rail Alliance Agreement.
Schedule 4 to that Agreement contains complex provisions relating to the determination of the plaintiff's direct costs. Viewed objectively, I can see the potential for dispute about whether expenditure should properly be included under that head. However, there has been no dispute of that kind. The defendant's assessment of the direct costs was considerably less than that advanced by the plaintiff, but the plaintiff has accepted the defendant's assessment. And that assessment was made without prejudice only to a legal entitlement which, in my view, does not exist. The defendant is therefore bound by its admission as to the amount of the plaintiff's direct costs.
Since the Gainshare provisions of sch 6 of the TPI Rail Alliance Agreement have been excluded from the calculation of the plaintiff's fee, I can see no defence to the plaintiff's contention that it is entitled to be paid 14 per cent of the amount of direct costs identified by the defendant.
The defendant relies also on cl S5.5 of sch 5 to the TPI Rail Alliance Agreement, which is set out above: minute of defence, par 5. This clause provides for the payment of a fee upon completion of the works or termination of the Agreement, whichever is the earlier. The works were not completed. And the Agreement has been terminated on terms which preclude the defendant from relying on prior breaches of that Agreement.
I therefore see no merit in par 5 of the minute of defence.
The defendant then pleads in par 9 that a term was to be implied into the TPI Rail Alliance Agreement:
"to the effect that the Plaintiff would only be entitled to reimbursement of costs that it incurred if those costs were reasonably and properly incurred."
No breach of such a term is pleaded. However, if such a term was to be implied, and breaches were proved, the defendant would be precluded from relying on them by cl 5.1 of the Deed of Termination.
Conclusion
For the above reasons, I conclude that there is no merit in the defendant's defence, with the result that the application to set aside the default judgment should be dismissed and the injunction discharged.
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