DM Drainage & Constructions Pty Ltd as trustee for DM Unit Trust Trading as DM Civil v Karara Mining Ltd [No 4] - [2019] WASC 52

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   DM DRAINAGE & CONSTRUCTIONS PTY LTD as trustee for DM UNIT TRUST TRADING AS DM CIVIL -v- KARARA MINING LTD [No 4] [2019] WASC 52
CORAM:   VAUGHAN J
HEARD:   18 FEBRUARY 2019
DELIVERED          :   19 FEBRUARY 2019
PUBLISHED           :   22 FEBRUARY 2019
FILE NO/S:   CIV 2410 of 2012
BETWEEN:   DM DRAINAGE & CONSTRUCTIONS PTY LTD as trustee for DM UNIT TRUST TRADING AS DM CIVIL
Plaintiff
AND
KARARA MINING LTD
Defendant

Catchwords:

Evidence - Admissibility of expert evidence - Turns on own facts

Legislation:

Nil

Result:

Leave granted subject to certain amendments

Category: B

Representation:

Counsel:

Plaintiff	:	F C Corsaro SC & C L Donald
Defendant	:	P Cahill SC & D J Pratt

Solicitors:

Plaintiff	:	Lavan Legal
Defendant	:	Jackson McDonald

Case(s) referred to in decision(s):

Nil

VAUGHAN J:

(These reasons were delivered orally. They have been edited to correct matters of grammar and infelicity of expression.)

Background

Yesterday I heard argument concerning intended expert evidence of the plaintiff's expert Mr Gardiner. The argument concerned:
(1)the plaintiff's application for leave to rely on Mr Gardiner's supplementary expert report dated 11 February 2019; and
(2)unresolved objections to various matters within a spreadsheet by which Mr Gardiner seeks to give part of his expert evidence ‑ document DMC.084.0001.0001.
Mr Gardiner is a civil engineer by profession. I accept that he has expertise in the following relevant areas:
(1)cost estimation;
(2)tender design and management; and
(3)cost engineering and claims management.
Such expertise arises out of some 35 years' experience in construction and project management in a range of civil and mechanical projects. Mr Gardiner's curriculum vitae demonstrates that he has undertaken roles in cost engineering, project delivery, project management and claims management for major road, rail, port, mining and oil and gas projects.
In his March 2016 report Mr Gardiner gave his opinion as to a 'notional assessment of DMC's 21 April reprice'. Mr Gardiner described the nature of the task as follows:
5.1.1The Brief 'Section 2A: assessment of Reprice Claim' at paragraph 2 requires me to 'carry out a notional assessment of DMC's 21 April 2011 Reprice as at that point in time' assuming that I 'stood in the shoes of KML following receipt of DMC's 21 April 2011 reprice'.
5.1.2The Brief also requires that, in giving my opinion, consideration is to be given to various facts and assumptions described at paragraphs 2.1 to 2.3 and paragraphs 2.3.1 to 2.3.5 of the Brief, noting that the final paragraph of Section 2A states: 'For the avoidance of doubt you are not obliged to accept the matters referred to in paragraph 2.3 above. If, for example, you have reason to disagree with those matters, you are entitled to take a different approach provided that you give your reasons for so doing'.
In section 5.2 of his March 2016 report Mr Gardiner provides a background and methodology to his notional assessment. Section 5.3 details further general analysis, reasoning and opinion. A conclusion ‑ in a monetary amount - is set out at section 5.4.
At par 5.2.8 of the March 2016 report, Mr Gardiner says as follows:
I have prepared the notional assessment in the form of an extended version of the Rev 2 Pricing excel spreadsheet 'DMC.062.0003.4182 (DMC Rev 2 Pricing Schedule).xlsx, which I have renamed … a hard copy of which is enclosed at Appendix C1.
That spreadsheet has now been superseded by document DMC.084.0001.0001, to which I have previously made reference.
At par 5.2.9 and par 5.2.10 of the March 2016 report Mr Gardiner then explains as follows:
5.2.9In this spreadsheet I have inserted new columns K, L, M, N, O and P adjacent to the line items which constitute DMCs Reprice. These new columns provide the following information in relation to the notional assessment:
a)In column K I have recorded my analysis reasoning and opinion and, where applicable, supporting calculation(s), corresponding to each item in the DMC Reprice which has been identified by green shading in columns A to F by DMC as having been amended, added or deleted by DMC relative to the Rev 1 Pricing;
b)In columns L to O I have inserted the corresponding quantity, unit of measure, rate and amount which is consistent with the notional assessment in column K (using yellow shading) to identify any differences between the notional assessment and the Rev 2 Pricing;
d)The total of all amounts in column O is the cost value of all items where I have made an entry in column K plus the cost value of all items unchanged since the Rev 1 Pricing, and is therefore directly comparable to the Total Revised Price of $75,012,775.54 cents (Excl. GST) in DMC's Rev 2 Pricing.
e)In column P I have calculated the item by item difference (if any) between the amount in column O (i.e. based on this notional assessment) and the amount in column F (i.e. based on DMC Rev 2 Pricing).
5.2.10The sum of all the amounts in column O therefore represents my 'notional assessment of DMCs 21 April 2011 Reprice as at that point in time'.
The spreadsheet in document DMC.084.0001.0001 is a very long document. It comprises some 1345 line items. Quite often, however, the reasoning given for Mr Gardiner's notional assessment is relatively sparse. For example:
(1)item 95 contains the following:
Overall, the E/O rate for duration of 18 weeks (not 28 weeks) is considered reasonable and justified.
(2)item 108 contains the following:
Overall this cost considered to be justified and reasonable.
The defendant objected to that evidence and to another approximately 80 other iterations of similar such evidence. In substance the objection as given is based on a lack of articulated reasoning process. The specific text the subject of objection is identified in item 1 of Annexure B to the objection schedule filed 15 February 2019. That should be read with the defendant's version of document DMC.084.0001.0001 in which the challenged evidence is marked in orange. Some of the impugned evidence is at worksheet 'Tender Rev 2 (KML Quantities)'. Other is at worksheet 'Variations ‑ Provisional Quantities'.
Oral argument as to those objections was heard on 5 February 2019. In the course of argument, at ts 3530 to ts 3531, I questioned the nature of the evidence. Was it simply Mr Gardiner's way of saying that on the notional assessment he would allow the amount? Or was it being put forward as evidence of actual reasonableness? I asked senior counsel for the plaintiff to inform me of the basis on which the evidence was proposed to be lead and understood. Senior counsel was unable to answer that directly. He stated (at ts 3531 to ts 3532):
The task [Mr Gardiner] … was asked to undertake is a notional assessment. He has allowed, on the basis of a notional assessment, these items by saying, 'It's reasonable and fair.' As to whether some of this masks reasonableness in the other sense, if I had had more time to deal with this document, I would have been able to tell your Honour.
Senior counsel for the plaintiff sought the opportunity to adduce a further report from Mr Gardiner to deal with the outstanding objections. I determined that, given the breadth of the objections, the preferable method of proceeding was to provide the plaintiff with an opportunity to put forward Mr Gardiner's reasoning process and then consider the objections to the spreadsheet in light of the additional reasons. I did not grant leave to adduce additional expert evidence. It was necessary to see whether the further report might prejudice the defendant based on the terms of the further report.

Mr Gardiner's further report dated 11 February 2019

The further report was provided on 11 February 2019.
The defendant has not raised any issues as to prejudice in dealing with the further report. Accordingly, issues of that type may be put to one side. It is said, however, that the further report has its own issues as to admissibility. Once that is understood - and various parts of the further report are struck out - the defendant contends that its remaining objections on the March 2016 report, in the form of the two worksheets within document DMC.084.0001.0001 to which I have made reference, ought to be upheld. The suggestion is that, with two exceptions, the relevant sections stand or fall with the sections of the further report to which objection is taken.
The further report dated 11 February 2019 is a detailed document with 35 pages of close type. In substance it is in three parts.
First, in a section headed 'Introduction', Mr Gardiner sets out his general approach in the notional assessment. The defendant refers to this as 'Section 1' of the further report.
Second, in a section headed 'Supplementary Information', Mr Gardiner deals with each of the line items to which an objection was taken in respect of document DMC.084.0001.0001 as to a lack of articulated reasoning process. The defendant refers to this as 'Section 2' of the further report.
There is a third part - headed 'Adjustments to Reprice Spreadsheet' - to which no objection is taken. I understand this to refer to adjustments to the reprice spreadsheet which need to be corrected as a matter of accuracy. This has resulted in a reduction of Mr Gardiner's notional assessment.
In terms of his general approach Mr Gardiner's further report contains the following:
4.My understanding of the brief was to undertake a notional assessment of the reprice standing in the shoes of KML following receipt of the reprice and assessing the reprice from KML's point of view at the time, in accordance with the assumptions and parameters in paragraph 72 of the Facts to be Assumed (Attachment D to the Brief). The process I followed in preparing my notional assessment of the reprice is set out at paragraph 5.2.7 of my March 2016 report. In doing so, I also formed an opinion as to whether, irrespective of the notional assessment from KML’s point of view, I considered the line item, based on my knowledge and experience of the work involved or services performed, was objectively fair and reasonable. I set out the criteria that I adopted in coming to those opinions below.
5.In giving my opinion on the line items in the reprice, I used various expressions to convey that I considered an item as an item I would have allowed, standing in KML’s shoes, and as also being objectively fair and reasonable.
6.Generally, I used the expression 'reasonable and justified' to convey my opinion that:
(a)I would have allowed the amount, quantity or item standing in KML's shoes and making the notional assessment from that point of view, and
(b)I objectively considered the quantity, amount or item as objectively fair and reasonable, and consistent with a fair and reasonable price for the work or services involved.
At par 7, in referring to the specific formulations employed in document DMC.084.0001.0001, Mr Gardiner says that the different expressions were generally meant to convey the same opinion, ie that he would allow the line item, assessing it from the defendant's point of view. Mr Gardiner also says that the amounts he allowed he 'considered to be objectively fair and reasonable in any event'.
Accordingly, as to my question for senior counsel for the plaintiff on 5 February 2019, it is not just that the amounts are amounts that Mr Gardiner would allow under the notional assessment. It is also Mr Gardiner's opinion that the various items are 'objectively fair and reasonable'. The latter informs the former.
At par 8 of Mr Gardiner's further report he sets out various assumptions and criteria he adopted in undertaking the assessment of the reprice. This is stated:
8(d)If I considered the project records or other records justified both the requirement for the line item, and the validity of the claim, I allowed it as claimed.
8(e)If I considered the project records or other documents did not justify some part of the claim, or if I considered it from my own knowledge and experience that the amount or quantity claimed was not reasonably justified, I made my own assessment based on the project records and documents and knowledge of what the industry or market would consider to be objectively fair and reasonable for the item in question.

The first objection to the further report

The defendant's first objection in relation to the further report is as follows:
Mr Gardiner's opinion (in addition to and irrespective of his 'notional assessment from KML's point of view') about whether the line items in the reprice were 'objectively fair and reasonable':
(a)is irrelevant to the pleaded issues in this action;
(b)does not disclose the process of reasoning by which Mr Gardiner determines that an item, work or price is ‘fair’; and
(c)as a consequence, one cannot ascertain whether Mr Gardiner's opinion as to what is ‘fair’ is properly the subject of expert opinion and/or is outside of Mr Gardiner's expertise and experience.
The objection is made as to the last two sentences of par 4, par 6(b) and the last two lines of par 7 in Section 1 of the further report. I would have also thought it extends to the following words in par 5, namely, 'and as also being objectively fair and reasonable'. There are then some 84 specified objections as to the use of the language 'objectively fair and reasonable' in Section 2.
In opposing the objection the plaintiff says that the evidence is relevant to a pleaded issue in the form of its quantum meruit claim. Reference is made to the use of the term 'fair and reasonable' in many authorities that have considered a quantum meruit claim. The base difficulty with that submission is that Mr Gardiner's notional assessment of the 21 April reprice has never been advanced on that basis. It is to support the equitable estoppel reprice claim, rather than the quantum meruit claim.
The quantum meruit plea is at par 31C.1 of the statement of claim. It is in terms that the plaintiff is entitled to recover a reasonable sum for 'work performed'. Necessarily that involves a retrospective assessment. The same sort of plea is made as to the alternate 'Liebe v Molloy' implied contract claim in par 31C.2 of the statement of claim. But it is clear that in large part the notional assessment comprised in the reprice is prospective, not retrospective.
More fundamentally, for both the quantum meruit claim and 'Liebe v Molloy' claim, par 31C.4 of the statement of claim particularises the claimed entitlements in terms of Schedule L. Schedule L, at pars 9 to 10, values the so-called reasonable sum claimed by reference to other parts of Mr Gardiner's March 2016 report. It is not the plaintiff's pleaded case that the quantum meruit and 'Liebe v Molloy' claims are to be assessed by reference to the notional assessment of the 21 April reprice.
In oral submissions senior counsel for the defendant submitted that the further report identified that Mr Gardiner was seeking to give evidence of two quite separate components: (1) the opinion on notional assessment; and (2) the opinion on fairness and reasonableness. See ts 4006 to 4007, 4009, 4010, 4032 and 4033. If that is right, and the latter could only go to the quantum meruit claim or the 'Liebe v Molloy' claim, then it is said that the opinions as to 'objectively fair and reasonable' were outside the pleaded case.
Senior counsel for the plaintiff suggested, however, that, read fairly, that was not the purport of Mr Gardiner's further report. There was, as senior counsel for the plaintiff put it, no bifurcated, separate process. Instead, having regard to the objections debated on 5 February 2019, Mr Gardiner was seeking to explain his views on reasonableness to support the notional assessment he had reached. See ts 4017 to 4019 and 4023.
It seems to me that, looked at as a whole, Mr Gardiner's evidence as to whether amounts were objectively fair and reasonable can be understood in the way senior counsel for the plaintiff suggests. That appears most readily in par 8(e) of the further report. In any case, an opinion on whether an item is reasonable might be logically probative, directly or indirectly, of whether, on the notional assessment, an item in the reprice ought to be allowed. On that basis evidence of reasonableness - if otherwise admissible - is relevant to a pleaded issue.
I am satisfied that, as a matter of expertise, Mr Gardiner is able to give opinion evidence of: (1) what work was reasonably required; and (2) what that work may reasonably be priced at. Accordingly, subject to proper articulation of the necessary reasoning process to demonstrate that the opinion is the product of Mr Gardiner's specialised knowledge, the reasonableness evidence is evidence that Mr Gardiner can give; and, moreover, the evidence is relevant to a pleaded issue.
I have difficulty, however, in understanding how Mr Gardiner can give evidence that a particular price was 'objectively fair and reasonable'.
Mr Gardiner is an engineer. I do not understand how he has any specialised skill or knowledge to give opinion evidence as to what is objectively fair. I am not satisfied that Mr Gardiner can give evidence of that nature. This might not matter much. In argument I questioned what the reference to 'fair' added. Senior counsel for the plaintiff said, candidly, 'probably nothing' (ts 4020). In any case I would reject Mr Gardiner's evidence to the extent that he purports to give evidence that a particular item was 'objectively fair'.
So, for example, in pars 10 and 11 in Section 2 of the further report I would strike out the words 'objectively a fair and' and 'also objectively fair and' respectively. Appropriate changes throughout Section 2 would need to be made in conformity with restricting the evidence to reasonableness. Likewise in Section 1.
I do not intend to do these now in court. Strike outs should be made in conformity with these reasons. If there is a remaining question between the parties as to whether modification is required, that may be referred to me.

The second objection to the further report

The defendant's second objection is in these terms:
Mr Gardiner's statements that he 'assumed that KML was responsible for paying DMC for a change in the physical works … and that KML was responsible for principal-caused delays' is unclear and ambiguous. Mr Gardiner does not elucidate the nature of the assumed responsibility (contractual, equitable, other) or its basis.
I do not accept that objection. The assumption is as stated. To the extent it is unclear or ambiguous it affects the cogency of the evidence not its admissibility. Plainly, however, to the extent that there is a lack of clarity or ambiguity, I will consider that in assessing the weight that is to be accorded to Mr Gardiner's evidence.

The third objection to the further report

The defendant's third objection is in these terms:
Mr Gardiner's opinion about what 'KML acting reasonably’ would have done: (a) is irrelevant to the pleaded issues in this action; and (b) is outside of Mr Gardiner's expertise and experience.
The objection is as to the following statement on page 3 in Section 1 of the further report:
I formed the view that KML, acting reasonably, would have established the following things as set out below, either by asking DMC to provide information to verify the line item, or by its own inquiry from its own records.
The same objection is then advanced as to various line items in Section 2 of the further report. Mr Gardiner states what the defendant, acting reasonably, would have done. An example appears at par 10(e) in Section 2 of the further report:
I considered that from KMLs point of view, acting reasonably, KML would take responsibility for the requirement for DMC to work the extended time that it worked on site, and it was reasonable from KML's point of view to allow that if DMC was required to work for a longer period than it had allowed for at the time of contract, DMC should be properly and reasonably compensated by payment of a fair and reasonable sum to cover its additional costs.

The statements are not advanced by way of assumption. Rather, as senior counsel for the plaintiff explained at ts 4025, it is a suggestion that reasonable inquiry on the part of the defendant would have established the things that Mr Gardiner was able to establish. It is suggested that it would have been reasonable for a party, in the position of the defendant, in the circumstances to assume responsibility for that line item in the reprice.
To the extent Mr Gardiner is opining on what, by reasonable inquiry, the defendant might have established as to factual matters, he is not applying his specialised knowledge. If, however, the statement is concerned with Mr Gardiner's view as to a behavioural norm or standard of conduct the statement is outside his area of expertise. In either case, it is not admissible as expert opinion. I would uphold objection 3. Accordingly, the relevant references need to be struck from the further report. That goes for the statement on page 3 in Section 1 and the many references repeated throughout Section 2.

Remaining objections to document DMC.084.0001.0001

This leaves the residual objections to document DMC.084.0001.0001 as were stood over on 5 February 2019.
The bulk of those, identified within objection 1 in Annexure B to the objection schedule filed 15 February 2019, are on the basis of lack of articulated reasoning process. The defendant says that the objection is pressed and that the relevant sections stand or fall with the objections to the further report previously identified above. I have refused the further report insofar as it purports to give evidence of objective fairness. But I would allow evidence directed to reasonableness. There are no separate remaining objections as to reasonableness in the context of the further report. Accordingly, the further report stands as to the expert opinions as to reasonableness. In those circumstances, given the defendant's concession that this objection as to document DMC.084.0001.0001 stands or falls with the earlier objections, the further general objection falls away.
That said, in many respects the opinions proferred as to reasonableness are based on reasoning that is sparse or little more than assertion. In the absence of a specific objection raising the lack of articulated reasoning process as to the various 'reasonableness' conclusions in the further report I will not uphold this tranche of objections. But the question of weight will remain to be the subject of argument in closing submissions. I should make it plain that where the reasoning for the reasonableness opinion is deficient, I will closely consider what, if any, weight ought to be accorded to the statement of opinion.
The final two matters are the objections to identified statements in rows 97 and 983 of the worksheet 'Tender Rev 2 (KML Quantities)' in document DMC.084.0001.0001.
Reading row 97 with the further explanation at pars 15 to 17 in Section 2 of the further report, I am satisfied that there is sufficient exposition of Mr Gardiner's reasoning process. I will permit the challenged evidence in row 97 with the further explanation in pars 15 to 17 of the further report.
The same is not the case for row 983. The part of row 983 the subject of challenge is as follows:
We therefore considered that the shortfall rate of $18.58/metre (i.e. $36.76/m - $18.18/m) (and not 16.31/m) is attributable to the additional hardness of material and is an appropriate, reasonable and justified E/O rate for compensation.
The objection is as follows:
… lack of articulated reasoning process as to nature and application of standard of 'justified and reasonableness' … Application of subjective standards that is outside area of expertise in any event … also, lack of articulated reasoning process for conclusion that shortfall rate is 'attributable to the additional hardness of material'.
Mr Gardiner's further report deals with row 983 at pars 232 to 234 of Section 2 of the further report. Those paragraphs, ignoring things otherwise inadmissible for reasons already given, provide as follows.
232I allowed $2,524,019 for this line item.
233I formed the opinion that from KML's point of view, KML should allow $2,524,019 for extra over costs to 4.2.1 - 4.2.5 and 4.2.7.1 - 4.2.7.6 due to the additional hardness of the trench material and change in design of pipeline and that $2,524,019 was a reasonable time to allow for this line item; because:
(a)The re-design increased the depth of excavation (changing scope of work by KML) and with increased depth there is, from my experience an increased likelihood of harder material or rock being encountered and requiring to be excavated;
(b)Excavation up to time of reprice indicated that rock had been encountered at locations where the geotechnical report had not indicated rock;
(c)The production rates of excavation equipment decreases with the increased strength of material to be excavated;
(d)With reduction in production rate of excavation there is an increased cost of excavation per linear metre (i.e. cost of machine, operator and support team stay the same, however linear metres excavated reduces increasing the rate per linear metre for excavation);
(e)The re-design also changed the design of the pipeline from a pipeline that was at a constant depth below the existing ground surface (Contract Drawings) to a pipeline of constant grade over a defined length which was varying depth below the existing ground surface. This change in design resulted in a change in the methodology of excavation of the pipeline which, in my opinion would also reduce excavation production rates;
234I adopted a similar reasoning in coming to the opinion that the line item was also reasonable
Nowhere in that part of the further report is there any explication of Mr Gardiner's reasoning process in reaching a shortfall rate of $18.58 per metre. Nor that such a rate, as opposed to some other rate, is attributable to the additional hardness of material.
In submissions it was stated by senior counsel for the plaintiff that the statement could not be read in isolation. I was referred to the plaintiff's 10 May 2011 letter. It was also said that Mr Gardiner had adopted DMC’s methodology. There are two difficulties with that submission. First, Mr Gardiner does not say that is what he has done, although an inference to that effect could be drawn from the various spreadsheets to which I was referred after the hearing. Second, Mr Gardiner gives no evidence to explain why, based on his specialised knowledge, DMC’s methodology is reasonable.
Accordingly, I would uphold the objection to the parts of row 983 that are identified in orange in the relevant worksheet in document DMC.084.0001.0001. There is an absence of articulated reasoning process to identify:
(1)why the plaintiff's methodology has been adopted as appropriate;
(2)how the rate of $18.58 per metre has been arrived at; and
(3)why that rate, rather than some other rate, is attributable to the additional hardness of material.

Conclusion

I will hear from counsel as to the orders required to give effect to these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Research Associate to the Honourable Justice Vaughan
22 FEBRUARY 2019