DM Drainage & Constructions Pty Ltd ‑v‑ Karara Mining Ltd [No 2]
[2017] WASC 231
•14 AUGUST 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: DM DRAINAGE & CONSTRUCTIONS PTY LTD ‑v‑ KARARA MINING LTD [No 2] [2017] WASC 231
CORAM: BANKS-SMITH J
HEARD: 31 MARCH 2017
DELIVERED : 14 AUGUST 2017
FILE NO/S: CIV 2410 of 2012
BETWEEN: DM DRAINAGE & CONSTRUCTIONS PTY LTD as Trustee for DM UNIT TRUST t/as DM CIVIL
Plaintiff
AND
KARARA MINING LTD
Defendant
Catchwords:
Practice and procedure - Application for separate trial of one cause of action - Whether clear demarcation - Whether overlap in evidence reduces utility - Whether real prospect of saving in cost and time - Whether settlement prospects enhanced
Legislation:
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 32 r 4
Result:
Application refused
Category: B
Representation:
Counsel:
Plaintiff: Mr M D Cuerden SC & Mr G E Nairn
Defendant: Ms P E Cahill SC & Mr D J Pratt
Solicitors:
Plaintiff: Lavan
Defendant: Jackson McDonald
Case(s) referred to in judgment(s):
DM Drainage & Constructions Pty Ltd as Trustee for DM Unit Trust t/as DM Civil v Karara Mining Ltd [2014] WASC 170
Terravision Pty Ltd v Black Box Control Pty Ltd [2014] WASC 261
BANKS-SMITH J:
Introduction
The plaintiff (DM Civil) applies under O 32 r 4 of the Rules of the Supreme Court 1971 (WA) for a trial of preliminary issues. It seeks a preliminary hearing of its 'reprice claim', and although it accepts that determination of the preliminary issue will not resolve the litigation, it contends that the outcome will enhance the prospects of a resolution of this dispute as a whole by compromise.
The application is brought in the context of the parties anticipating that the trial of all issues may otherwise take some four to five months.
The scale of this litigation is such that it is proper to contemplate any preliminary issue or case management process that may assist with its streamlined and efficient resolution. The application is to be considered against the backdrop of case management principles reflected in O 1 r 4A of the Rules of the Supreme Court. However, for the reasons that follow I do not consider this is a matter where a trial of the proposed preliminary issue is appropriate.
The dispute
DM Civil and the defendant (Karara) entered into a contract for DM Civil to construct an operations water package for the Karara iron ore project. The package comprised a water pipeline of some 135 km together with bore field, pump stations, tanks and electrical infrastructure.
The works were undertaken and reached practical completion in September 2011.
The original contract price (being a mixture of lumps sum and rates) was $26.663 million. There were numerous variations. DM Civil has been paid some $54 million ($27 million after adjudications under the Construction Contracts Act 2004 (WA)) and claims to be entitled to a further $23 million excluding interest.[1]
[1] Plaintiff's outline of submissions filed 3 March 2017 [10].
The claims
The claims are made under various heads.
The reprice claim
By the reprice claim, DM Civil asserts (in summary) that Karara directed a resequencing, redesign and acceleration of works. Difficulties in access and unexpected changes in topography required a fundamentally different approach to building the pipeline.[2]
[2] ts 161.
DM Civil says Karara induced it to assume that rather than Karara determine each resequencing or redesign issue as a separate contractual variation claim, there would be a repricing.
It is not necessary to summarise the lengthy pleadings to understand the issues relevant to this application, but the following extracts provide useful context.
In the statement of claim DM Civil pleads as follows:
13BOn 4 February 2011, at a meeting between Sean King of KML and Stephen Hall of DM Civil at KML's offices in Perth, KML advised that DM Civil would be asked to reprice the Works based on a revised construction program that Phil Pass of KML and Martin Hicks of DM Civil were then discussing and negotiating.
...
13GOn 24 February 2011, KML represented to DM Civil, in effect, that (Reprice Representations):
13G.1KML was going to issue a direction to DM Civil whereby:
13G.1.1a revised practical completion date for the Works of 30 September 2011 would apply;
13G.1.2the method and sequence by which the outstanding Works were to be completed by that revised date would be set;
13G.2DM Civil was to review the direction to be issued by KML and submit a revised price for completing the outstanding Works with the revised method and sequences of the Works;
13G.3the reprice would be required to relate as far as possible to the original Contract rates and production, and any change from the original Contract rates and production would need to be demonstrated as a change in scope or a claimable delay or variation under the Contract.
Karara pleads in its defence by way of response:
72.Karara admits paragraph 13B and says further that Sean King of Karara subsequently advised Stephen Hall, Reg Toohey, Bruce Shaw and Tony Spanjers of DM Civil at a meeting on or about 21 February 2011 to the effect that the reprice process was not an opportunity for DM Civil to retender the contract and that DM Civil should apply the contractually agreed rates where applicable.
DM Civil says it undertook the repricing assessment and undertook the varied works over a period of months. It contends that in so doing, it acted to its detriment in that it permitted Karara to delay dealing with unresolved claims, resiled from asserting repudiatory conduct on the part of Karara and did not take steps to protects its position under the terms of the contract by, for example, complying with contractual notice provisions as to claims which otherwise might have applied.[3]
[3] Further re-amended further re-amended substituted statement of claim (Statement of Claim), [13A] ‑ [13U].
DM Civil says Karara did not assess the reprice assessment.[4] It claims by way of relief for equitable estoppel an assessment of the reprice, and says that if such assessment were undertaken, it would be entitled to an additional payment for the works it has performed, being the sum of approximately $23 million.[5]
[4] Statement of Claim [20A].
[5] Statement of Claim [20B], [20C], Schedule L.
Karara contends that it did consider the reprice assessment provided by DM Civil but that it validly rejected it, and denies liability for the reprice claim.[6]
[6] Re‑amended substituted defence to further re-amended further re-amended substituted statement of claim, counterclaim and set-off filed 21 March 2017 (Defence).
In short, the parties do not dispute that there was to be a reprice assessment process. Nor do they dispute that the contractually agreed rates retained some relevance. So much is clear from the pleading extracts above. However, they dispute the manner in which the reprice assessment was to be carried out and the extent to which contractual variation terms were to be applied.[7] They are also in dispute as to whether the repricing was to apply to the entire contractual period or for works from the time of the request for repricing.[8]
Variation claims
[7] Defence [77], [88], [92], [103].
[8] ts 194, 209 ‑ 211; eg Statement of Claim [13GA], [13J], [13L], [13T]; Defence [78], [82], [84], [92].
The variation claims are made in the alternative to the reprice claim. In summary, the variation claims comprise claims for each aspect of the works affected by the rescheduling and redesign. DM Civil says the variation claims will require a claim-by-claim determination of its entitlement to each variation and an assessment of whether there are any time or contractual bars.
DM Civil says Karara has failed to assess the variations in accordance with the Contract or at all and is in breach. It claims an additional sum for the variations. The additional sum claimed is approximately $13 million.[9]
[9] Statement of Claim [27], Schedule L; Plaintiff's outline, attachment A.
DM Civil says the variation claims are subsumed in a practical sense by the reprice claim. If the reprice claim succeeds and the quantification exceeds $13 million, then DM Civil would not pursue the variation claims as payment for the works would be covered by the reprice claim.[10]
[10] ts 165.
Karara denies DM Civil is entitled to any further payments for variations undertaken.[11]
Quantum meruit
[11] Defence [111] ‑ [118].
In the alternative to the variation claims, DM Civil says it is entitled to payment on a quantum meruit basis for the works it has undertaken.[12]
[12] Statement of Claim [31A] ‑ [31C], Schedule L.
Karara denies liability on a quantum meruit basis and repeats its defence as to the variation claims. It also raises a contractual time bar.[13]
Counterclaim
[13] Defence [124] ‑ [125].
Karara counterclaims for what it asserts are overpayments made by it to DM Civil, together with certain interest charges. According to DM Civil, the counterclaim is for some $8.3 million to $9.6 million, depending on methodology.[14] DM Civil says such claims fall to be determined as part of dealing with the variation claims.
[14] Plaintiff's outline, attachment B. Also Defence, annexure A.
Trial of separate questions - legal principles
Order 32 r 4 of the Rules of the Supreme Court provides that the court may order that any question or issue whether of law or fact or partly of law and partly of fact, and whether raised by the pleadings or by agreement of the parties or otherwise be tried separately from any other question or issue.
There is no substantial difference between the parties concerning the principles to be applied. They are usefully collected by Le Miere J in Terravision Pty Ltd v Black Box Control Pty Ltd:[15]
[15] Terravision Pty Ltd v Black Box Control Pty Ltd [2014] WASC 261 [7] ‑ [9].
In AWB Ltd v Cole (No 2) [2006] FCA 913; 233 ALR 453 Young J reviewed the authorities concerning O 29 r 2(a) of the Federal Court Rules 1979 (Cth) which provides that the court may make orders for the decision of any question separately from any other question, whether before, at, or after any other trial. In City of Swan v Lehman Brothers Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86, Rares J at [27] in turn summarised the principles extracted from the relevant authorities by Young J as follows:
'(1)As a general rule the starting point is that all issues of fact and law should be determined at the one time.
(2)A party seeking the determination of separate questions must satisfy the Court that it is "just and convenient" for the order to be made. The order must be made on concrete facts, either established or agreed, for the purpose of quelling a controversy between the parties so as to produce a conclusive or final judicial decision on the issue, which is of a real, not hypothetical, importance to the determination of the controversy.
(3)There are special problems where the separate issue involves a mixed question of fact and law, although it may still be able to be decided as a separate issue. However, care must be taken in precisely formulating the question and specifying the facts upon which it is to be decided.
(4)The court must have all relevant matters before it as a precondition of it being asked to exercise its discretion if the separate question involves the grant or refusal of declaratory relief.
(5)It may still be appropriate to determine a separate question even if it will not resolve all the issues, provided that there is a strong prospect that the parties will agree upon the result when the core of the dispute has been decided or if the decision will obviate unnecessary and expensive hearings of other questions.
(6)Generally speaking an issue will not be appropriate for separate determination if it is simply one of two or more alternative ways in which an applicant or plaintiff frames its case and its determination would leave other significant issues unresolved.
(7)It is relevant to consider whether:
•the separate questions will contribute to the saving of time and cost by substantially narrowing the issues for trial or even lead to the disposal of the proceedings;
•they will contribute to the settlement of the proceedings;
•they will give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of the trial;
•there will be any significant overlap between the evidence adduced on the hearing of the separate question and a trial;
•the questions will prolong, rather than shorten, the proceedings.'
The court should approach the separate trial of issues with caution. In Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 Kirby and Callinan JJ said:
'The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation in the factual matters relevant to one issue are relevant to others, and they all overlap.
The second and related comment is this. A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court's, rather than the parties', interests.
Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. Indeed, that could occur here were this appeal to be allowed and a retrial had in which the remaining issues of causation and damages were decided. Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question [168].'
In Landsdale Pty Ltd v Moore [2009] WASCA 176 the Court of Appeal allowed an appeal against an order for the separate trials of the issues of liability and quantum of damages in an action for negligence. Newnes JA, with whom Buss JA agreed, said that the court should approach each case with the object of eliminating any unnecessary delay or cost and ensuring the efficient and timely resolution of the case, consistent with doing justice to both sides and observed that that is reflected in O 1 r 4A and r 4B of the Rules of the Supreme Court. Newnes JA said:
'But while that will often require a more flexible approach than might have been taken in the past, at the same time it is important that the lessons of the past are not forgotten, and that the court and the parties do not succumb to the immediate attraction of apparently more efficient but less conventional procedures without careful regard to past experience with such procedures [19].'
After referring to Tepko Pty Ltd v Water Board as authority for the proposition that an application for the separation of issues is to be approached with some caution, Newnes JA said at [22] that 'the separate trial of issues will generally only be appropriate in cases where there is a clear line of demarcation between those issues, and the determination of one in isolation from the other is likely to result in a substantial saving in time, inconvenience and expense'.
Current state of the action
The pleadings have been significantly amended and refined since the matter commenced.[16] Lay witness statements and expert reports have been exchanged but the experts are yet to meet to attempt to narrow the issues between them. The matter has not been allocated trial dates but it is likely it will proceed to trial in 2018.
[16] It should be noted in this regard that the statement of claim has been amended since the decision of Beech J in DM Drainage & Constructions Pty Ltd as Trustee for DM Unit Trust t/as DM Civil v Karara Mining Ltd [2014] WASC 170.
DM Civil's position
DM Civil seeks to have the reprice claim determined first. Although initially the application proceeded on the basis that liability and quantum comprised the preliminary issue, during the hearing the approach was modified such that a three stage process was also propounded. If liability for the estoppel cause of action were determined in its favour, it would then seek to have the quantification of that liability determined second. Other matters would be hived off for a third stage.[17]
[17] ts 154.
It says there is significant saving in dealing with the reprice claim first because the relevant expert evidence is limited in comparison with the expert evidence for the valuation claims. Of nine volumes of experts' reports dealing with quantification, it is said that some eight and a half relate to the variation claims and there is conflict between the experts as to virtually every detail.[18]
[18] ts 156.
DM Civil says the quantification of the reprice claim, as against for the variation claims, is conceptually and factually quite different, and for three reasons. First, DM Civil's expert, Mr Gardiner, has quantified the reprice assessment and the variation claims using different methodology. Second, the two assessments result in very different sums. Third, one of Karara's experts (Mr Brown) has not undertaken a reprice assessment at all but has dealt at length with quantification of the variation claims. Karara's other expert (Mr Bell) has dealt with the reprice quantification but in a relatively short manner.[19]
[19] ts 154.
DM Civil contends that the amount of expert evidence required as to the variation claims is properly described as massive in comparison with that required for the reprice claim.[20]
[20] ts 154.
DM Civil says that whilst it does not suggest the reprice assessment and variations assessment can be separated with surgical precision,[21] practical or forensic issues that may arise can still be dealt with in a trial of a preliminary issue. For example, questions as to which parts of witness statements might be read can be clarified by the parties in advance. To the extent there is potential for such practical issues to arise, they must be balanced against the overall cost saving in a preliminary trial in avoiding (potentially) the need to deal with the variation claims and its considerable expert evidence at all.
[21] ts 158.
The cost saving is said to follow from the anticipated reduction in time. A trial of the preliminary issue might take some four or five weeks[22] and it may then lead to a compromise of the action as a whole. Even if the court were not minded to separate liability and relief insofar as the reprice claim is concerned, there would still be a saving if stages one and two of the potential three stage process were required.[23] The second stage, DM Civil contends, would then take some weeks but the variations stage would still take some months.
[22] ts 192.
[23] ts 160.
Karara estimates the length of trial for a preliminary issue on the reprice claim to be two to three months, as compared with three to four months for a trial of all issues. DM Civil says that Karara's estimate of a potential one month reduction is not insignificant, but in any event underestimates the time that would be involved in respect of the variation claims.[24] I note in this regard that DM Civil anticipates calling some nine lay witnesses and two expert witnesses at a preliminary issue trial. Karara would propose to call two lay and two expert witnesses.[25]
[24] Plaintiff's outline [54] ‑ [55].
[25] Affidavit of Gregory Nairn filed 6 February 2017 [11]; Affidavit of Anthony Bereyne filed 21 February 2017 [17].
DM Civil also contends that if the court were to find either for or against it on the reprice claim, then there would be a significant incentive for the parties to reassess their positions, and that may be a tipping point for mediation and potential resolution of the matter without further trial and its concomitant risks.[26]
[26] ts 181.
Karara's position
Karara has two substantial arguments in opposition to the application.
First, it says an assessment of the reprice claim cannot be done in isolation and inevitably requires consideration of the variation claims assessment. Karara submits that as appears from DM Civil's own pleaded case, any reprice assessment was to conform as far as possible with the terms of the contract, including the variation regime. That means that questions are likely to arise as to whether the allowance for particular works can or cannot be assessed in accordance with the variation provisions in the contract. Where the terms can be applied, then the valuation assessment for the particular works must be considered.
Further, detriment must be considered as part of any estoppel argument. In order to assess whether or not there has been any detriment (assuming the reprice representation and reliance are established), then it will be necessary to consider how payment for the works undertaken may have been assessed in accordance with the terms of the contract as against in accordance with the reprice assessment. If all (or most) of the changes in the works could be dealt with in effect by applying the terms of the contract, then, put at a very general level, Karara contends there is no real difference in the quantum that would be payable to DM Civil for those works: what is different is that the parties were in effect relieved from the process of dealing with each variation separately.
The upshot of Karara's submission is that the court necessarily has to draw a conclusion about the quantitative difference between variations submitted individually or by way of a composite.[27] It also follows that there is a tension between the parties as to the relevance of Mr Gardiner's evidence where, according to Karara, he has utilised a methodology that does not properly apply the terms of the contract.
[27] ts 196.
Karara does not accept there is a clear delineation between the reprice assessment and the valuation claims assessment and says it is artificial to proceed on the basis that the court can avoid reference to the (lengthier) valuation claims expert evidence.
The other substantial basis for Karara's opposition to the application is that there is uncertainty as to the outcome and benefit of a preliminary trial. Determination of the reprice claim will not bring the proceedings to an end, regardless of the outcome. At most, there may be an enhanced prospect of settlement sooner rather than later. The potential for a three stage hearing may result in the trial of all issues taking longer than if it were dealt with all at once. Separate blocks of court time must be allocated. At least one and potentially two judgments must be written before reaching the third stage. The prospect of appeals after any of those stages and the prospect of further pleading amendments cannot be disregarded.
There are other matters raised by Karara that of themselves are less significant. For example, during the course of the hearing it became apparent that there was some uncertainty between the parties as to which paragraphs of the pleadings relating to the reprice claim were intended to be addressed in any preliminary issue and those which were hived off. Those differences seemed capable of resolution. However, any uncertainty would need to be addressed and resolved before any trial of the preliminary were to be listed. Karara also raised the prospect of witnesses being recalled because of a staged approach to the trial, but I consider that would be a manageable risk.
Determination
Having carefully considered the competing arguments and the applicable principles, I consider that the potential benefit of resolving only part of these proceedings is disproportionate to the risks inherent in that approach.
It is not appropriate at this stage to determine what approach to expert evidence will ultimately be preferred by the court in assessing the elements of the estoppel claim. The parties have not yet dealt formally with objections to evidence and the experts are yet to confer. There is a real prospect that the variation claims expert evidence will still be relevant, at least in part, to the reprice estoppel claim and consideration of detriment. I accept Karara's submissions in this regard. I do not consider the line of demarcation is clear.
I have taken into account the possibility that if the court were to find that the reprice representation was not made in the specific terms pleaded by DM Civil, the reprice claim may potentially fall away, a possibility raised by DM Civils during the hearing.[28] Superficially, determining the content of that representation appears to perhaps only involve factual evidence. However, it seems to me there is a prospect that evidence as to the variation processes already undertaken at the time of the reprice communications and the ease of any quantification under the contractual terms may well impact on determining the likelihood of the representation having been made in the terms pleaded or otherwise. I cannot at this stage discount the relevance of such evidence. In any event, to the extent there was potential for a determination on that narrow point, it would not see the proceedings resolved as a whole and the large amount of expert evidence for the valuation claims would still need to be addressed and determined.
[28] ts 209 ‑ 210.
I am also concerned that at a practical level, the parties are likely to end up with three hearings that may extend the trial process well beyond a timetable that might apply with one global hearing. I consider this risk to be a real risk.
Against those matters is the potential for settlement. I take into account the prospect that resolution of part of the estoppel claim may assist the parties in mediating the claim. However, the value of that prospect when weighed in the mix is not such as to be decisive. It does not provide sufficient certainty of outcome.
There is too much potential overlap of evidence between the various heads of claim for the first head to be neatly excised. There is too much risk that the attraction of a trial of the preliminary issue is illusory, and that the proposed staged approach will not run smoothly or efficiently.
This is a complex dispute and isolation of a clear preliminary point that might lead to its quick determination is attractive. However, the reprice claim is not such a point.
Accordingly, I dismiss the application.
The application was brought with the commendable ambition of dealing with this dispute in a cost effective manner. This action has numerous small parts. As with many building and construction disputes, subject to any narrowing of approach, the trial will involve an almost line-by-line consideration and chronological reconstruction of works undertaken.
Despite the parties' differences, both are cognisant of the cost of dealing with the dispute and both are alive to the potential for narrowing issues. I consider the appropriate course is for trial dates to now be reserved for a hearing of all issues. The parties should confer as to proposals to manage the trial process and I will adjourn the proceedings to a directions hearing to facilitate the making of any directions that may assist.
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