Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3)
[2012] VSC 99
•30 MARCH 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
TEC LIST
No. S CI 2007 06949
No. S CI 2007 02025
| DURA (AUSTRALIA) CONSTRUCTIONS PTY LTD (ACN 004 284 191) | Plaintiff |
| v | |
| HUE BOUTIQUE LIVING PTY LTD (FORMERLY SC LAND RICHMOND PTY LTD) (ACN 106 117 506) & ORS | Defendants |
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JUDGE: | DIXON J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 3-7, 10-14, 17–21, 24-28 OCTOBER; 2-4, 7–9, 11, 14-18 NOVEMBER 2011 | |
DATE OF JUDGMENT: | 30 MARCH 2012 | |
CASE MAY BE CITED AS: | DURA (AUSTRALIA) CONSTRUCTIONS PTY LTD v HUE BOUTIQUE LIVING PTY LTD (No. 3) | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 99 | |
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Contract – building engineering and related contracts – principal served notices to show cause for substantial breach on contractor– whether substantial breach of obligation under cl 30.1 to use the standard of materials or provide the standards of workmanship required by the contract – whether substantial breach of obligation under cl 30.3 to comply with superintendent’s directions - whether substantial breach of obligation under cl 33.1 to proceed with the work with due expedition and without delay – whether notices invalid because defective in content or form, wanting particulars, or being prolix and confusing – general conditions of contract AS 2124–1992, clauses 30, 33, 44.
Contract – building engineering and related contracts - content of the contractual requirement of cl 33 to proceed with the works with due expedition and without delay – obligation to work to approved construction program – whether grounds for unapproved extensions of time relevant - general conditions of contract AS 2124–1992, clauses 33, 35.
Contract – building engineering and related contracts – whether principal obliged to act reasonably in serving show cause notices - whether contractor failed to show reasonable cause why principal should not exercise a right under cl 44.4 to take the work remaining to be completed out of the hands of the contractor - principal’s obligations when evaluating response of contractor to a show cause notice - whether principal obliged to act reasonably in serving notice to take the works out of the hands of the contractor - general conditions of contract AS 2124–1992, cl 44.
Contract – building engineering and related contracts – principal serves notices to take the works out of the hands of the contractor – whether principal repudiated contract.
Contract – building engineering and related contracts – principal takes the works out of the hands of the contractor - principal completes the project works to an enhanced scope of works – principal served on contractor a costs to complete certificate - whether cost to complete certified a cost of the works provided for under the contract – whether costs to complete certificate final and binding or reviewable for error – whether principal entitled to common law damages in addition to debt due under certificate – where no claim made for liquidated damages – entitlement of principal to delay damages at common law - general conditions of contract AS 2124–1992, cl 44.
EVIDENCE – admissibility – opinion evidence – exception under s 79 – requirements for admissibility - Evidence Act 2008 (Vic) ss 55, 56, 76, 79.
PRACTICE AND PROCEDURE – expert evidence taken by concurrent evidence sessions following joint conclaves – late objection to admissibility of expert evidence – conditional admission of evidence - ruling reserved to judgment – whether good reason to defer ruling - circumstances include pre-trial case management of large proceeding by trial judge directed to preparation of expert evidence by concurrent evidence sessions following joint conclaves - Civil Procedure Act2010 ss 8, 9, 49 - Supreme Court (Miscellaneous Civil Proceedings) Rules 2008 Order 3 Chapter II (Technology Engineering and Construction Cases) (TEC Rules) - Practice Note No. 2 of 2009 The Technology Engineering and Construction List.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr TJ Margetts SC with Mr R Andrew of counsel | Noble Lawyers |
| For the Defendants | Mr D Levin QC with Ms K Stynes of counsel | Freehills |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Issues for determination................................................................................................................... 7
Liability issues............................................................................................................................... 7
Notices to show cause - general issues....................................................................................... 7
The directions notice.................................................................................................................. 8
The expedition notice................................................................................................................. 9
Defects notice........................................................................................................................... 11
Matters arising after the notices.............................................................................................. 11
Quantum issues........................................................................................................................... 12
Contract not terminated.......................................................................................................... 12
Contract terminated................................................................................................................. 14
Disputed variations................................................................................................................. 14
Scaffolding............................................................................................................................... 15
Quantum Meruit/Restitution.................................................................................................. 15
Other Quantum matters.......................................................................................................... 16
Expert Evidence................................................................................................................................ 17
The application during trial to exclude expert evidence...................................................... 17
Case management conferences................................................................................................. 19
Reasons for deferring ruling on the objections to experts........................................................ 21
Objection to expert evidence – principles applying............................................................... 25
Objections to expert evidence – rulings on admissibility..................................................... 32
Mr Martin............................................................................................................................... 32
Mr Grant Holman................................................................................................................... 33
Joint reports and supervised assistance with reports............................................................... 33
Programming experts................................................................................................................. 37
Mr J Browning......................................................................................................................... 37
Further evidence of Mr Browning’s specialised knowledge..................................................... 38
Mr D Andrews......................................................................................................................... 39
Building consultant experts....................................................................................................... 44
Mr R Lorich............................................................................................................................. 44
Mr J Atchison.......................................................................................................................... 46
Mr R Bonaldi........................................................................................................................... 49
Quantity Surveyors..................................................................................................................... 51
Mr A Shah and Mr R Vapp..................................................................................................... 51
Mr Peter Clack......................................................................................................................... 54
Mr N Faifer.............................................................................................................................. 56
Non-expert Witnesses..................................................................................................................... 63
Dura’s witnesses.......................................................................................................................... 63
Hue’s witnesses........................................................................................................................... 69
Matters relevant prior to contract.................................................................................................. 73
Scaffolding PS representations...................................................................................................... 73
Odourvac system........................................................................................................................... 74
The Course of the building project.............................................................................................. 75
A. Provisional sum claims made for scaffolding in Progress Claims................................. 75
Requests for scaffold information............................................................................................. 76
Hue’s response to the scaffold claims....................................................................................... 78
Removal of scaffolding............................................................................................................. 79
The explanation at trial............................................................................................................ 80
B. Programming.......................................................................................................................... 83
Was there approval of a comprehensive construction program?............................................. 85
The explanation at trial............................................................................................................ 89
Was approval of the construction program unreasonably withheld?...................................... 90
C. Delays and extensions of time.............................................................................................. 92
D. Quality Assurance.................................................................................................................. 98
The emergence of defective work and materials..................................................................... 101
The provisions of the contract that concern materials and work........................................... 102
Defects list 1........................................................................................................................... 103
Defects list 2........................................................................................................................... 107
Fire rating issues.................................................................................................................... 110
Plasterboard issues generally................................................................................................. 112
Plastering defects other than fire issues................................................................................. 117
Mechanical services............................................................................................................... 119
Defects list 3........................................................................................................................... 120
Other general defects issues................................................................................................... 121
Unit 29 redesign.................................................................................................................... 122
Render.................................................................................................................................... 122
Defects list 4........................................................................................................................... 124
Inspection on 23, 28 August 2006......................................................................................... 126
On site quality control by Hue.............................................................................................. 126
Hue’s decision to serve notices to show cause....................................................................... 128
Content of the notices to show cause..................................................................................... 133
What are the requirements as to the form of a notice to show cause under cl 44 of the contract............................................................................................................................................................ 137
What did Hue serve?.................................................................................................................... 137
Contractual requirements for a show cause notice...................................................................... 140
Dura’s contentions about the directions and defects notices....................................................... 140
Legal requirements for a valid notice.................................................................................... 143
Authority to give directions......................................................................................................... 153
Did Hue act unreasonably in giving the defects and directions notices?.................................... 156
Dura’s contentions about the expedition notice.......................................................................... 160
Progress and programming of the works – legal requirements for an expedition notice 161
The language of the clause........................................................................................................... 161
The cases....................................................................................................................................... 162
Clause 33.1 construed.................................................................................................................. 167
Was there substantial breach?..................................................................................................... 171
General issues............................................................................................................................ 171
Was there substantial breach – the directions notice?......................................................... 172
Was there substantial breach – the defects notice?.............................................................. 179
The Sign-offs by Mr Alexander............................................................................................. 179
Cross-examination of Mr Maaser.......................................................................................... 182
Cross-examination of Mr Brunner........................................................................................ 188
Other defects.......................................................................................................................... 191
Was there substantial breach – the expedition notice?........................................................ 194
The lay evidence..................................................................................................................... 194
The expert evidence................................................................................................................ 196
Evidence of Dave Andrews.................................................................................................... 199
Dura’s response showing cause.................................................................................................. 204
Generally.................................................................................................................................... 204
Response to the defects notice................................................................................................. 205
Response to the directions notice............................................................................................ 207
Response to the expedition notice.......................................................................................... 209
Developments during the show cause period.......................................................................... 210
Hue’s deliberations on the show cause materials.................................................................... 211
Hue’s consideration of cause shown...................................................................................... 215
Legal requirements of evaluating cause shown....................................................................... 221
Hue takes the project from Dura................................................................................................. 223
Did Hue repudiate the contract?................................................................................................. 223
Events following 23 October 2006............................................................................................... 225
Opening up the works of Dura............................................................................................... 230
The costs to complete certificate................................................................................................. 234
Enhancement works..................................................................................................................... 236
Defective works............................................................................................................................ 238
Dura’s challenge to the certificate........................................................................................... 240
Global assessment.................................................................................................................. 240
The superintendent’s task under cl 44.6................................................................................ 243
Challenging the costs to complete certificate......................................................................... 245
Hue’s other claims.......................................................................................................................... 251
Common law damages............................................................................................................. 251
Funds in trust following adjudication................................................................................... 257
Final orders...................................................................................................................................... 258
HIS HONOUR:
Introduction
By a contract dated 15 December 2004 between Dura (Australia) Constructions Pty Ltd (Dura) and Hue Boutique Living Pty Ltd (Hue), Dura agreed to construct a four level apartment block of 29 apartments, with a basement car park in Lord Street, Richmond. The price for the works was $8.45 million and the contract incorporated general conditions of contract AS 2124-1992.
The principals of Dura and Hue, Messrs Khor and Chu, met in 2000 and became friends. In 2003, they identified the Lord Street site for a property development. Messrs Khor and Chu agreed that Dura would take an interest in the development and would be the builder. Contributed equity, about 30%, and borrowed funds financed the project, using a unit trust structure. There were 10,000 units in the trust. Dura took 2,000 units, Hue took 7,000 units, and China Phoenix, associated with Mr Chu, took 1,000 units. The trust was named SC Land Richmond. Hue, originally called SC Land Pty Ltd, is the trustee. Hue was the registered proprietor of the development site, a trust asset. Deferred until judgment in this proceeding are issues in dispute that arise out of this arrangement, the subject of a separate proceeding.
The contract was not put to tender, but negotiated between the parties. Aspects of these negotiations remain relevant in the dispute.
Dura commenced the project works on 28 October 2004 having agreed to achieve practical completion within 70 weeks. The superintendent extended the date for practical completion to 18 October 2006, on assessment of Dura’s claims for extensions of time (EOT claims). Hue’s architect, Jackson Clements Burrows (JCB) by Mr Anthony Chan, served as contract superintendent in the initial stages of the works.
By February 2006, the relations between the parties were under pressure. Hue was concerned about the rate of progress, the quality of the work, and the quantum of progress claims, particularly for some provisional sum items. During March 2006, Hue engaged Mr Luciano Pozzebon of Charter Keck Cramer and appointed him as the superintendent’s representative. In April 2006, the superintendent issued a substantial defects list to Dura. Defects had been noted in the site meeting minutes. This marked a change in procedure. At this time, Mr Pozzebon was also seeking a satisfactory construction program for the project. He was concerned about sequencing and co-ordination of works activities, and assessment of progress and delay claims. Mr Pozzebon advised Hue that the date for practical completion was not achievable and the project appeared to be about six months behind schedule.
The period of February to April 2006 was a turning point in relations between the parties. Hue was entertaining serious, and grounded, concerns that Dura’s contractual performance might not be satisfactory, and Dura did not allay these concerns. Dura contended at trial that Hue’s ‘intervention’ in the works from April 2006, particularly the conduct of Mr Pozzebon, was inappropriate, almost obsessive, and it interfered with the orderly execution of the works.
In May 2006, in meetings with the unit holders in the SC Land Trust (which included Dura) the project financiers, St George Bank, suggested to Hue that the significant disparity between submitted progress claims and the assessments of those claims by its quantity surveyor required explanation. Mr Khor attended these meetings and Mr Chu heard directly from him what Mr Pozzebon was telling him - the project was behind schedule, unlikely to be completed until about February 2007.
The architects were monitoring the quality of the workmanship. Hue asked the consultants engaged on the project, such as Maurice Farrugia & Associates, the structural engineers, and MacCormack, the services engineers, to conduct additional inspections of the works. On 12 July 2006, Hue appointed Mr Pozzebon as superintendent. In August 2006, Hue engaged Wood & Grieve, electrical, hydraulic and mechanical engineers, to independently assess the works, and assist in identifying defects that required rectification. Hue appointed Dominic Borgia of DLB Project Management to assist the superintendent with a weekly report on the progress of the works. Mr Pozzebon informed Dura that Hue’s serious ongoing concerns with Dura’s quality control, poor workmanship, and sub-standard overall finish quality required the appointment of a superintendent’s representative. Hue engaged Trent Alexander, of Tangent Pty Ltd trading as Liquid Lines, in that role, assisted by Ken Alexander and others from Liquid Lines.
The consequence was an increasing flow of paperwork in each direction: correspondence and requests for information (RFIs) were sent by Dura while Hue and its consultants served defects lists, Architect’s Instructions (AIs) and Superintendent’s Directions (SIs). There were progress claims, adjudications of progress claims under the Building and Construction Industry Security of Payment Act 2002 (Vic), EOT claims, variation requests, and extensive correspondence and reports. The dispute between Dura and Hue was expanding.
On 8 September 2006, Hue served four notices on Dura under cl 44.2 of the contract, alleging that Dura was in default by separate substantial breaches of the contract and requiring Dura to show cause in writing why Hue should not exercise a right under cl 44.4 (notice to show cause). The allegations of substantial breach made against Dura were that it had:
(a)failed to produce evidence of insurance cover as required by cl 21 of the contract;
(b)failed to proceed with the works with due expedition and without delay in breach of cl 33.1 of the contract (the expedition notice);
(c)failed to comply with a direction of the superintendent under cl 30.3 in breach of cl 23 of the contract (the directions notice); and
(d)failed to use the standard of materials or provide the standards of workmanship required by the contract in breach of cl 30.1 of the contract (the defects notice).
Dura responded to Hue on each of the notices, attempting to show cause. Hue accepted that due cause had been shown that Dura held insurance as required by the contract. However, Hue determined that Dura had not shown reasonable cause in respect of the other notices.
On 20 September 2006, Hue served Dura with a notice under cl 44.4 of the contract to take out of Dura’s hands the whole of the works remaining to be completed. That evening, Hue locked Dura out. Interim injunctions brought temporary respite, and during this time the works continued, notably plasterboard sheeting installation. On 23 October 2006, Hue re-took, and has retained, possession of the site.
Immediately after taking over the works on 23 October 2006, Hue commenced a detailed audit of Dura’s work to identify whether the works were compliant with the contract specifications and drawings. Between 26 October and 23 November 2006, Hue documented, with photographs, videos, reports from consultants, and a visual audit (meaning that plasterboard was not removed and underlying works were only inspected where openings allowed access) of Dura’s works. Hue considered that, in particular, the plasterwork was poor and that, generally, there were significant defects in the structural, services, and mechanical works, and that the works may be in breach of the Building Code of Australia (BCA), particularly in relation to fire rating, threatening the issue of an occupancy permit.
In November 2006, Hue appointed a project manager, Mr Peter Clack and a new builder, Liquid Lines, to complete the project. Mr Pozzebon remained as superintendent and JCB as project architect and these men formed a project control group that monitored the project, and advised Hue about its completion. Hue also varied the design and specification of the building project.
In November and December 2006, Hue’s project control group considered the need to open up the works to inspect the underlying work, but the extent of demolition required was not readily apparent. The plasterwork was considered substandard in every unit. Dura had not used the specified fixings, creating non-compliance with the specifications for flatness, squareness, and plumb. However, Hue’s consultants had been raising concerns about the underlying works, for example, that the mechanical and electrical services were sub-standard, and that proper fire protection may not have been achieved. To rectify defective works behind plasterboard first required that the plasterboard be removed. Hue determined that demolition would be required to rectify the works to achieve the contractually specified standards.
In February 2007, incremental removal of plasterboard occurred, with consultants inspecting the works revealed. The consultants considered the works beneath the plasterboard to be systemically defective, and Hue decided to proceed with substantial demolition and stripping out of Dura’s works.
The contract with Liquid Lines incorporated the drawings, as revised during the course of the project, from Dura’s contract. It also incorporated a separate bundle of drawings detailing works (referred to as the enhancement works), which had not formed part of the scope of Dura’s contract. The work of Liquid Lines included demolition and rectification of work done by Dura, completion work, and enhancement work.
The project reached practical completion on 22 January 2008. The superintendent then certified the costs of completion of the project, which formed the basis of the final accounting between Dura and Hue.
Numerous issues emerged in a complex dispute between the parties. To assist the court, the parties prepared four Scott Schedules that dealt with the following matters:
(a)defects in the works identified pre- 23 October 2006;
(b)defects in the works identified post- 23 October 2006;
(c)EOT claims; and
(d)disputed variations.
Dura contends that Hue repudiated the contract and it accepted that repudiation, terminating the contract. Dura claimed damages for breach of the contract, alternatively, on a quantum meruit, reserving its election as to the basis on which judgment be entered until the award of the court on each basis is known.
Dura's Contract Claim
Subtotal
Detail
Total
Entitlement on repudiation $3,177,462.79 Original contract sum $8,450,000.00 Agreed variations $624,740.49 Disputed variations $662, 473.54 Adjusted contract price $9,737,214.03 Value of works completed on 23-10-06 $8,714,236.63 Value of original contract works completed $7,427,022.60 Value of variation works completed $1,287,214.03 Total value of works completed $8,714,236.63 Paid by the Principal $6,209,725.00 Owing to the Contractor $2,504,511.63 Add GST $250,451.16 Add bank guarantees cashed $422,500.00 $3,177,462.79 Add interest from 30-11-06 to 18-3-10 $786,025.58 Total Loss and Damage (to 18 March 2010) plus contract interest continuing to accrue and compounding at 6 monthly intervals until judgement $3 963 488.37 Dura's Quantum Meruit claim Value of completed works $9,159,911.29 Paid by the Principal $6,209,725.00 $2,950,186.29
Hue counterclaims that exercise of its contractual rights was justified. The contract continued to govern the relations between the parties. It was not terminated. Hue incurred the costs of completion of the project, after giving credit for enhancements over and above the contract works. Hue counterclaims for the debt due on the cl 44.6 certificate and, additionally, damages as follows -
HUE's Counterclaim
Subtotal
Detail
Total
Final certificate $4,457,308.00 Being
costs to rectify$3,694,654.00 costs to complete (excluding enhancements $2,240,236.00 less value of uncompleted work -$1,882,793.00 Plus GST $405,209.70 Damages for Breach of contract $3,376,782.46 $7,936,017.93 Being
payments to unpaid Dura subcontractors$204,326.96 retentions paid to Dura subcontractors $49,883.50 additional consultants costs $421,236.88 additional financing costs $2,047,416.12 breach of scaffolding warranty $653,919.00 Alternatively, if Dura succeeds in its claim $4,989,456.20 $4,989,456.20 rectification costs $3,694,654.00 Additional consultant's costs $161,073.75 Additional superintendence costs $29,730.49 Additional financing costs $1,103,997.96
For the reasons that follow, I have determined that Hue succeeds on its counterclaim on the superintendent’s certificate and Dura’s claim fails.
Issues for determination
The issues that need to be determined include procedural issues, principally the admissibility of the opinions of various experts, as well as the substantive issues in the proceeding. Before proceeding to state my rulings and reasons on the procedural issues, I will set out the substantive issues on which the trial proceeded. In determining the dispute, I have not needed to consider all issues.
Liability issues
Notices to show cause - general issues
What are the requirements as to the form of a notice to show cause under cl 44 of the contract? Were either of the directions notice or the defects notice served on 11 September 2006 defective in form because -
(a)the directions notice and the defects notice each did not specify with sufficient particularity the alleged items of defective workmanship and/or materials to identify the substantial breach(es) about which Dura was required to show cause?
(b)the directions notice and the defects notice each were confusing, prolix, and obtuse?
(c)the directions notice included and relied on matters which did not constitute directions lawfully given under cl 30.3 of the contract?
(d)if the said notices were defective in form, did Dura, by responding to the notices, waive such defects?
Generally, was Hue entitled to act under cl 44.4 of the contract? Was it an implied term of the contract that Hue act reasonably in serving notices to show cause? What did Hue serve?
Did Hue fail to act reasonably because either of the directions notice or the defects notice was confusing, prolix, and obtuse? Did Hue fail to act reasonably in relation to the expedition notice because -
(a)the substantial breach alleged in the expedition notice was that Dura had failed to proceed with the works with due expedition and without delay to meet a date for practical completion of 18 October 2006; and
(b)Dura was entitled to a further extension of the date for practical completion beyond 18 October 2006.
The directions notice
In relation to the directions notice, as at 11 September 2006, had Dura failed to comply with any directions of the superintendent under cl 30.3?
If so, did such failure to comply constitute a substantial breach of the contract that entitled Hue to serve the second notice?
If so, did:
(a)Dura show reasonable cause why Hue should not exercise a right under cl 44.4 to take out of the hands of Dura the work remaining to be completed.
(b)Hue, in serving a notice under cl 44.4 taking the works out of the hands of Dura, act
(i)wrongfully;
(ii)in breach of cl 44.4; or
(iii)reasonably (if it was required to so act)?
The expedition notice
What is the content of the contractual requirement of cl 33 to proceed with the works with due expedition and without delay?
If relevant to considering the preceding issue, was Dura entitled, on or prior to 11 September 2006 or 20 September 2006 to claim for an extension of time in relation to the issues identified in Scott Schedule 2, and in particular:
(a)the excavation of rock and contaminated soil required for the construction of the basement of the apartments (EOT4);
(b)the revision of the unit type H layout (units 22, 23, 24, 25, 27 and 28) pursuant to AI 65 (Unit H Variation);
(c)modification of the structural engineering design to unit 29, pursuant to AI 108 (Unit 29 EOT);
(d)Notices of Delay from its electrical subcontractor, LEN Electrical, concerning electrical drawings the subject of Variation Quotation VQ 58;
(e)the Odourvac system;
(f)the failure to weatherproof unit 29, once removed from the contract works by AI 163; and
(g)any delay by the superintendent in responding to RFI-59 concerning disposal of condensate wastewater from the airconditioning units and the proposed location of any tundishes.
If yes to the preceding issue, had Dura validly claimed an extension of time in accordance with the contract for any, and if so which, of the events identified in Scott Schedule 2?
If yes to any claim identified in response to the preceding issue, had the superintendent properly determined the said claim under the contract?
In respect of claims that the Date for Practical Completion can be fairly extended beyond 18 October 2006 for the purposes of the expedition notice, are such claims defeated by Dura’s -
(a)failure to dispute the superintendent's rejection of EOT 4;
(b)failure to make a claim that complied with cl 35.5 of the contract in respect of any ground for an EOT because it failed –
(i)or refused to respond to requests for information from the superintendent;
(ii)to show how it would be delayed in reaching practical completion; or
(iii)to take all proper steps to prevent delay and minimise or avoid the consequences of delay;
(c)failure to make a claim in compliance with the contract for the Unit H variations;
(d)failure to claim any EOT in respect of notices of delay from its electrical subcontractor concerning electrical drawings the subject of VQ 58;
(e)failure to claim any EOT other than two claims for half day extensions in respect of Unit 29 issues; and,
(f)failure to dispute the superintendent’s decision on any or all claimed EOTs, or otherwise to comply with the contractual dispute resolution process?
In relation to the expedition notice, as at 11 September 2006, in what way, if any, had Dura failed to proceed with the works with due expedition and without delay?
Did the facts, as found in answer to the preceding issue, constitute a substantial breach of the contract entitling Hue to serve the expedition notice?
If so, did Hue, in serving a notice under cl 44.4 taking the works out of the hand of Dura, act
(a)wrongfully;
(b)in breach of cl 44.4; or,
(c)reasonably (if it was required to so act)?
Defects notice
In relation to the defects notice, as at 11 September 2006, and having regard to Scott Schedule 1, in what way, if any, had Dura failed to use the standard of materials or provide the standards of workmanship, required by the contract?
If so, did the failures referred to in the defects notice, subject to any response by Dura, constitute a substantial breach of the contract entitling Hue to serve the defects notice.
If so, did:
(a)Dura fail to show reasonable cause why Hue should not exercise a right under cl 44.4 to take out of the hands of Dura the work remaining to be completed; and,
(b)Hue act reasonably in exercising its rights under cl 44.4 of the contract?
Matters arising after the notices
On 20 September 2006, did Hue undertake an evaluation of the responses of Dura to the notices to show cause?
Was it an implied term of the contract that Hue act reasonably in assessing whether Dura had shown cause in response to a notice and in exercising any right under cl 44.4 of the contract?
On 20 September 2006, given the responses of Dura to all of the notices to show cause, was Hue entitled to:
(a)conclude that Dura had failed to show cause; and,
(b)serve upon Dura a notice pursuant to cl 44.4 of the contract taking the uncompleted work out of Dura hands?
If Hue was not entitled to serve the cl 44 notice, did Dura validly terminate the contract by acceptance of Hue’s repudiation?
On taking possession of the project site on or after 23 October 2006,
(a)having regard to Scott Schedule 4, at that date had Dura undertaken the works which it had undertaken in compliance with the contract; and,
(b)if no to (a), was it necessary to undertake demolition of part of the works to establish the extent of the non-compliance of the works undertaken by Dura with the contract requirements?
If yes to (b), did Hue wrongfully demolish part of, and if so what, works undertaken by Dura?
Following service of the cl 44.notice, were:
(a)the actions taken by Hue; and
(b)the costs incurred and now sought by Hue;
actions that Hue was entitled to take; and/or costs properly incurred?
Quantum issues
Contract not terminated
In completing the project works after 23 October 2006, using a scope of the works that resulted in material enhancements, did Hue incur a cost to complete (and if so, to what value) over and above the cost of the works provided for under the contract?
If Hue was entitled to serve the cl 44 notice, what sum (if any) is due from Dura to Hue under cl 44.6 of the contract? Hue claims the sum of $4,457,308 that it alleges comprises the cost to rectify and complete the works (not including enhancements).
Does the superintendent’s final certificate conclusively determine the sum due from Dura to Hue?
(a)Is Dura entitled to challenge the final certificate on the grounds that it is -
(i)not prima facie evidence of its contents; and/or,
(ii)not final and binding?
(b)Did the superintendent -
(i)wrongly include the value of items of alleged defective works to the debit of Dura and/or incorrectly value such items of defective work;
(ii)wrongly assess the value of the works set out in Dura's payment claim 26 dated 23 October 2006 as completed by Dura as at 23 October 2006; and
(iii)wrongly assess the value of enhancements to the scope of works post October 2006, allowing $933,112.00 (ex GST), when he ought to have allowed $1,346,568 (ex GST)?
If the contract was not terminated by Dura -
(a)Is the amount due to Hue limited to the sum ($4,457,308) certified by the final certificate under cl 44.6 of the contract?
(b)If not, what (if any) further loss and damage suffered by Hue because of Dura’s breach(es) of the contract are recoverable. Hue claims a further $3,376,782.46 for damages for breach of contract comprising payments to unpaid Dura subcontractors, retentions paid to Dura subcontractors, additional financing costs and damages for breach of the scaffolding provisional cost warranty.
Contract terminated
If Dura validly terminated the contract, is Dura only entitled to claim for the value of works undertaken by it pursuant to and in conformity with the contract, whether Dura claims its monetary entitlement as unpaid monies under the contract or as a quantum meruit?
If Dura validly terminated the contract, what loss and damage (if any) has Dura suffered?
(a)Is Dura entitled to claim $3,177,462.79, being:
(i)the value of the contract works and approved variations completed as at the date of termination less progress payments plus GST and the value of bank guarantees cashed;
(ii)disputed variations;
(iii)the disputed scaffolding provisional sum;
(iv)alternatively, $2,950,186.29 on a quantum meruit; or,
(v)alternatively, restitution of $771,751.20 or $2,950,186.29
(b)Is Dura obliged to give credit for defective and/or non-compliant works as at 23 October 2006 and if so in what sum?
Disputed variations
Is Dura entitled to any sum for variations, as set out in Scott Schedule 3, having regard to Dura’s –
(a)lack of compliance with cl 40 of the contract;
(b)failure to allege, or establish, the matters under ss 37 or 38 of the Domestic Building Contracts Act1995 (Vic); and,
(c)failure to issue a notice of dispute in relation to any or all variations now disputed, or otherwise comply with the contractual dispute resolution process?
Scaffolding
Did Dura warrant to Hue that it calculated the scaffolding works provisional sum with reasonable care and skill (warranty)?
If Dura gave the warranty, had Dura calculated the scaffolding works provisional sum with reasonable care and skill?
If Dura had not calculated the scaffolding works provisional sum with reasonable care and skill, what loss and damage (if any) has Hue suffered because of the breach of warranty?
If Hue did not suffer loss and damage, is Hue entitled to nominal damages for the breach of warranty?
Did Dura represent to Hue that the scaffolding works provisional sum was a reasonable pre-estimate of the works (representation)?
If so, by making the representation, did Dura engage in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth)?
If so, did Hue suffer loss or damage by Dura making the representation?
Quantum Meruit/Restitution
Is Dura able to make any claim on a quantum meruit or otherwise under restitution principles where there is a valid and subsisting contract?
If the preceding issue is answered in the affirmative, what sum is Dura entitled to claim on a quantum meruit or otherwise under restitution principles?
In the event that Dura is found (not) to have terminated the contract, what loss and damage (if any) has Hue suffered because of Dura’s breaches of the contract (over and above any sum certified as owing by the superintendent under cl 44.6)? Hue claims $1,294,802.20 comprising additional consultant costs incurred in relation to the defective and non-conforming works and superintendence and additional financing costs. Is Hue entitled to set off such claims?
Other Quantum matters
Is either Hue or Dura entitled to an order for release of the trust monies (or any part thereof) pursuant to s 47(3)(b) of the Building and Construction Industry Security of Payment Act 2002 (Vic)?
In the event that:
(a)Dura has validly terminated the contract by acceptance of a repudiation by Hue; and
(b)Dura is only entitled to claim for work undertaken in conformity with the contract (whether as monies due under the contract or as a quantum meruit); and
(c)the value of the work undertaken by Dura must be reduced by the cost of rectification incurred to bring the said works into conformity with the contract;
is the best evidence of the cost of rectification Mr Clack’s evidence and, if so, is the proper calculation of Dura’s claim as follows:
Cost to rectify and complete the works
(Not including enhancements valued at $933,112 (excl GST))
$5,934,890
Minus the value of uncompleted works
($1,882,793)
Total amount owing (excl GST)
$4,052,097
Total amount owing (incl GST)
$4,457,308
Expert Evidence
Each side relied extensively on expert evidence. On the issues of delay, programming and want of due expedition, Dura sought to rely on the opinions of Mr John Browning of Accuform, and Hue relied on those of Mr Dave Andrews of Tracey Brunstrom and Hammond (TBH). As will later become clear, when programming issues became contentious during the course of the project, Mr Andrews had provided advice to Hue. Dura, for its part, took advice from, but did not call Mr Ashley Wikman of Knowles (Aust) Pty Ltd, preferring to tender evidence from Mr Browning. Hue objected to the admissibility of Mr Browning’s evidence. Dura did not object to the admissibility of Mr Andrew’s evidence in accordance with my directions, but in final address, counsel for Dura contended that one of Mr Andrews’ reports was inadmissible. Hue also objected to the evidence of Mr Martin.
The application during trial to exclude expert evidence
Hue objected to the absence of evidence that Mr Browning had any specialised knowledge based on training, study or experience, and to Mr Martin’s evidence as irrelevant. Hue took objection, well into the trial, as the time for taking the expert’s concurrent evidence drew imminent. Then, over following days, both parties took objection to the admissibility of most of the evidence of 12 experts. I had, during pre-trial case management conferences, directed the parties to identify and resolve admissibility issues about expert evidence for good reason. By day 17 of the trial, conclaves had been held and joint reports, mostly, had been prepared. Without substantial delay and waste of resources, matters of form or of procedure that might resolve some admissibility issues were no longer possible.
On 25 October 2011 (day 17 of the trial), Hue gave notice of objections not just to Mr Browning and Mr Martin, but also to Messrs Shah, Vapp, Gairns, Lorich, Faifer and Barber. Dura gave notice of objections to Messrs Clack and Holman. Time was reserved, on day 19 of the trial, to deal with the objections before concurrent evidence sessions commenced. When Dura notified further objections, it added Messrs Atchison and Bonaldi, but not Mr Andrews, to its list.
I heard submissions about the evidence of Messrs Martin and Browning and ruled that Mr Martin’s evidence was inadmissible. I deferred ruling on the admissibility of Mr Browning’s evidence and taking submissions on the admissibility of the evidence of other experts until final address, instead making procedural directions and reserving the publication of the reasons for those directions to this judgment.
In Dasreef Pty Ltd v Hawchar,[1] the High Court stated that a failure to demonstrate that an opinion expressed by a witness is based on the witness's specialised knowledge based on training, study or experience is a matter that goes to the admissibility of the evidence, not its weight. Generally, trial judges confronted with an objection to admissibility of evidence should rule upon that objection as soon as possible. However, I did not immediately rule the evidence of Mr Browning inadmissible. I made directions under s 49 of the Civil Procedure Act2010 (Vic) as to how all objections to expert evidence would be resolved, which in the light of the objections now being taken to virtually all experts, left the parties on an equal footing. What I did not and will not do, is approach the issue of expert evidence conditionally admitted as a question of weight. I deferred the issue of admissibility but will now rule on the issue in respect of each witness. Only in respect of admitted evidence will I consider what weight is to be given to any expert opinion.
[1][2011] HCA 21, (2011) 243 CLR 588, at [42], [135].
The majority in Dasreef thought it unsatisfactory that the litigants not know what evidence in support of a claim was admissible or what evidence the opposing party had to meet, if the trial judge did not rule on admissibility when challenged. In that case, the inadmissible evidence, taken by the trial judge on a voir dire, was used for purposes for which it was not admissible and for which it may be doubted that the plaintiff had sought to tender it.[2] The circumstances here differ from those in Dasreef, and there was good reason to defer the ruling in this case. Counsel for Hue was correct in observing that it is a rare case where a party feels obliged on day 17 of a case managed proceeding to make critical observations of so many of the opposing party’s experts.
[2]Ibid at [19]–[20].
The process for and content of the objections taken raised interrelated issues of procedure and admissibility of the evidence, on which I heard argument not just during the trial but also during several case management conferences.
Case management conferences
This proceeding is governed by Order 3 - Technology Engineering and Construction Cases, of Chapter II of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2008 (TEC Rules) and Practice Note No. 2 of 2009 The Technology Engineering and Construction List (TEC List). When allocated control of these proceedings for trial by the Judge in Charge,[3] I called a case management conference that was held on 4 November 2010. At that initial conference, I proposed expert conclaves and concurrent evidence. The parties had not then served all reports on which they intended to rely. At a further conference on 15 December 2010, I indicated in detail the procedure for expert conclaves and concurrent expert evidence that I required. The parties’ legal advisers at that time recognised that there may be issues arising, for example, about the apparent qualifications of an expert, or the instructions given, and materials briefed, to an expert, or the form or content of the expert’s reports that ought to be raised or resolved prior to any conclave between competing experts. These matters were to be postponed until the following August, after the time allowed by the court’s directions for expert evidence to be exchanged had expired.
[3]See R 3.02 TEC Rules and paragraph 18 of the TEC List Practice Note.
By the next case management conference in July 2011, both parties were assuring the court that the proceedings would be ready for trial on 3 October 2011 and all experts had been ‘identified’, although the process for preparation for expert concurrent evidence, joint conclaves being required, was delayed. I drew attention to the prospect of objections to matters such as expertise, instructions given, assumptions made, or the form of reports and the potential for such issues to affect preparation, procedures, or a fair trial. I directed notice, by 26 August 2011, of any objections to expert evidence. The parties suggested conducting the conclave process during September, with expert conclaves leading to joint reports completed before the trial started.
At the next case management conference on 29 August 2011, a want of attention to preparation was evident. Dura sought to amend its pleadings while Hue was explaining its delay in serving the statement of Mr Pozzebon. By this time, I had begun to appreciate that many experts had a long involvement with the dispute as adviser/consultants. The parties could not then deal with objections to expert reports. No expert conclaves had yet been organised. It appeared that organising the experts was married to the task of preparing Scott Schedules, which, in hindsight, was impractical in the available time. The parties assured me they would deal with grouping the experts and organising conclave sessions.
By the case management conference on 5 September 2011, the emerging issue was identifying the extent to which experts in the same discipline had received appropriate instructions and opined on like issues, permitting conclaves to occur. Late service of Mr Pozzebon’s comprehensive statement placed Dura’s advisers under additional stress. Dura contended that delay affected the preparation of the Scott Schedules and, in turn, the expert conclaves. In retrospect, I do not think that was the case at all. There was no interaction between the experts and the Scott Schedules at trial. The concerns about the Scott Schedules were illusory. There appeared to be a lack of application of resources to trial preparation sufficiently in advance of the trial, or insufficient resources being applied when the task is left to the last opportunity. It became clear that the party’s advisers did not reach, or inform the court about, concluded views that expert evidence was objectionable until after the trial was running. By the time of the next case management conference, on 19 September 2011, some experts were apparently seeking to prepare reply statements requiring further investigation or instruction before completion. Although expert conclaves could not occur before the trial started, the opportunity remained while the court heard lay evidence about the project.
As the trial date loomed, other issues emerged. Dura foreshadowed serving further expert reports, from Mr Barber, in relation to services engineering issues, necessitated by late service of a report by Mr Holman. There were debates about fault. Mr Holman’s firm, Wood & Grieve Pty Ltd, had contemporaneous involvement in the project with several discovered reports. Yet Freehills dated its instruction letter to Mr Holman after the time for service of expert reports had expired. Dura submitted that until the late service of Mr Holman’s report it had no idea that Hue would call Mr Holman. Neither party’s position seemed immune from criticism. Tactical skirmishing between solicitors over such issues may well fall foul of the overarching obligation to co-operate in the conduct of a civil proceeding under s 20 of the Civil Procedure Act 2010 (Vic). Ultimately, Messrs Barber and Holman worked co-operatively through the issues in a joint conclave and produced a joint report that effectively narrowed services engineering issues. At the case management conference, the parties informed me that the conclave process was ‘underway’. Hue took no objection that Mr Browning was not appropriately qualified or that his reports were inadmissible under Part 3.3 of the Evidence Act 2008 (Vic), although Hue did object that Mr Gairns was an inappropriate person to meet with Mr Andrews.
When the trial started, no expert conclave had taken place and the precise scope of the evidence in some expert disciplines was uncertain. Neither party had foreshadowed the objections to admissibility that were to come. On 6 October 2011, Messrs Vapp and Thomas met, compiling a joint report. On that same day, Messrs Vapp, Shah, Faifer, and Thomas met and prepared a joint report. Messrs Atchison, Bonaldi, Lorich, and Faifer met on 11 October 2011 and produced a joint report. On 12 October 2011, Messrs Andrews, Browning and Gairns met and produced a joint report. Messrs Barber and Holman met on 18 October and 3 November 2011, also producing a joint report.
Reasons for deferring ruling on the objections to experts
The litigants in these proceedings have received intensive case management, resulting in disclosure of the substance of evidence in chief, both lay and expert evidence, prior to trial. Joint conclaves between experts proceeded on the objectionable evidence. That occurred because the parties, despite the invitation of the court to deal with any objections prior to trial, each elected to defer contending that the other’s expert evidence was inadmissible until during the trial. To the extent that the outcome is unsatisfactory in the sense discussed in Dasreef,[4] it was the choice of the parties. It did not result in use of the evidence for a purpose not intended by the tendering party, nor did it preclude the parties from understanding the basis on which expert opinion evidence was relevant to the issues in the proceeding. The evidence did not emerge on a voir dire during the trial.
[4]I am mindful of the observations of the majority at [19]–[20] and of Heydon J at [123]–[124], which is one reason why I have discussed above, in some detail, the course of case management and the opportunities that this process afforded to the parties. The issues identified remain relevant but in these circumstances they are not determinative.
Dura’s counsel belatedly conceded that the evidence in chief of Mr Browning’s qualifications was unacceptable. Dura had not sought to provide evidence of Mr Browning’s qualifications at any earlier stage, or to call evidence from another programming expert. Mr Gairns, for example, although having participated in the programming conclave, was not called at trial. There was no application from Dura at any stage after the time permitted by pre-trial directions had passed for leave to supplement the expert evidence on this issue from other sources. As admissibility issues had been ignored in case management conferences prior to trial, any deficiency in the expert evidence arising from evidence being ruled inadmissible could be seen either as a matter of chosen risk for the tendering party or a matter of forensic tactics for the objecting party. Prior to trial, objections to admissibility may have been capable of cure without prejudice or unfairness. Neither party took that opportunity yet on day 19 of the trial, each party was moving to strike out the other’s expert evidence.
With the trial running, several procedural issues became relevant. The parties might be held to the strategic decisions taken in trial preparation. Mr Browning and Mr Gairns had both participated in the programming conclave, with a joint report to be tendered in due course. That report now exists. Likewise, other groupings of experts met in conclaves. Joint reports from conclaves flowed from the initial, exchanged, reports stood without objection when the conclaves were scheduled and when the trial commenced. Properly interpreting the joint reports could depend, at least in part, on reference to the original objectionable report. The questions of prejudice or unfairness in the trial were wider than the issues arising about Mr Browning’s evidence. Not only was the evidence of virtually every expert now under challenge, but the applications appeared likely to take considerable time, perhaps three days, possibly delaying the scheduled concurrent evidence sessions.
While one ground of objection in relation to Mr Browning was discrete, in the sense that it affected the whole of his evidence, with other experts, the objections concerned the application of the proper basis rules and the transparent reasoning rule. There was a prospect that striking out part of a report would inevitably lead to other considerations, such as applications to lead further evidence in chief or evidence from other witnesses or to adjourn the trial. The parties had agreed to broad time limitations, not a strict chess-clock system, to complete the trial. A substantial portion of hearing time had been consumed in dealing with the objections to Messrs Martin, Browning and Gairns. The question arose whether the just, efficient, timely and cost efficient resolution of this proceeding might be better served by dealing with objections to admissibility in final submissions.[5]
[5]Compare Rhoden v Wingate [2002] NSWCA 165, at [61]–[73] (Heydon JA).
I concluded that this was the preferable course. First, in the context of the parties being substantially advanced in trial, having agreed to conduct the trial within time constraints and on the basis that the lay evidence on both sides had been taken and all that remained was the taking of the concurrent evidence of the experts followed by final submissions, the deferral of my ruling was not likely to lead to the unsatisfactory result evident in Dasreef. By case management, I intended to avoid the disruption to the trial by applications to lead further evidence in chief, call other witnesses, or to adjourn the trial, particularly where such applications might have led to delay, expense, and waste of court resources. Although Hue contended in final address that uncertainty remained about the scope of the expert evidence that it needed to address, Hue expressed no specific concern.
Second, the rules of evidence applied in trial proceedings are now stated in the Evidence Act. I bear in mind the general rule, identified by the High Court, that inadmissible evidence should be immediately rejected. In relation to evidence, a trial court’s power to control its processes and conduct is not affected by the Evidence Act except as appears expressly or by necessary intendment.[6] The court is empowered to order and direct the procedures for and conduct of a trial, including in relation to evidence.[7] In so doing, the court is invited to further the overarching objective of the Civil Procedure Act by having regard to matters such as:[8]
[6]s 11 (1).
[7]s 49(3)(j) Civil Procedure Act2010, other relevant matters are also set out in the section.
[8]s 8, the sub-paragraph references follow the relevant sub-paragraphs of the section.
(a) the just determination of the civil proceeding;
(c) the efficient conduct of the business of the court;
(d) the efficient use of judicial and administrative resources;
(f) the timely determination of the civil proceeding;
(g) dealing with a civil proceeding in a manner proportionate to—
(i)the complexity or importance of the issues in dispute; and
(ii)the amount in dispute.
Further, I may consider:
(c)the degree of promptness with which the parties have conducted the proceeding, including the degree to which each party has been timely in undertaking interlocutory steps in relation to the proceeding;
(d)the degree to which any lack of promptness by a party in undertaking the proceeding has arisen from circumstances beyond the control of that party;
(e)the degree to which each person to whom the overarching obligations apply has complied with the overarching obligations in relation to the proceeding;
(f)any prejudice that may be suffered by a party as a consequence of any order proposed to be made or direction proposed to be given by the court.
The balance between case management considerations and the dictates of a fair trial is not always apparent. The court cannot lose sight of the fundamental requirement to conduct fairly a trial in accordance with the principles of natural justice and procedural fairness, but the parties to commercial litigation expect courts to determine disputes both quickly and fairly. For the reasons that I have stated, these considerations are apposite to the exercise of my discretion and favoured the deferral of taking submissions on the admissibility of expert evidence to final submissions and ruling on the applications in my judgment. In the end, the parties completed the trial in the agreed time. Had that not been achieved, the negative effects of delay and waste of court resources would have been considerable.
Objection to expert evidence – principles applying
I will first set out the principles that are relevant when considering the admissibility of expert opinion, commencing with the relevant parts of the Evidence Act 2008 (Vic) and then rule on the admissibility of the evidence of each of the experts in turn.
Section 76 provides:
Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.
Section 79(1) provides an exception to that admissibility rule.
If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.
In Dasreef,[9] the majority stated that when considering opinion evidence, admissibility is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made.[10] A two-stage inquiry is required. The first inquiry is why the evidence is relevant.[11] As the majority observed:
Section 76(1)[12] expresses the opinion rule in a way which assumes that evidence of an opinion is tendered "to prove the existence of a fact” …. the opinion rule is expressed as it is in order to direct attention to why the party tendering the evidence says it is relevant. More particularly, it directs attention to the finding, which the tendering party will ask the tribunal of fact to make. In considering the operation of s 79(1) it is thus necessary to identify why the evidence is relevant: why it is "evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding". That requires identification of the fact in issue that the party tendering the evidence asserts the opinion proves or assists in proving.
[9][2011] HCA 21, (2011) 243 CLR 588 (22 June 2011) at [31].
[10]Ibid at [37].
[11]Relevance is governed by Part 3.1 of the Act.
[12]of the Evidence Act 1995 (NSW), cf s 76 of the Victorian Act.
If relevance is established, at the second stage of the inquiry admissible evidence must satisfy two criteria. The witness who gives the evidence must have ‘specialised knowledge based on the person's training, study, or experience’. The opinion expressed in evidence by the witness must be ‘wholly or substantially based on that knowledge’. It is ordinarily the case, as Heydon JA (as his Honour then was) said in Makita (Australia) Pty Ltd v Sprowles,[13] that ‘the expert's evidence must explain how the field of “specialised knowledge” in which the witness is expert by reason of “training, study or experience”, and on which the opinion is “wholly or substantially based”, applies to the facts assumed or observed so as to produce the opinion propounded’.
[13][2001] NSWCA 305; (2001) 52 NSWLR 705, 744 [85], approved in Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 at [37].
Judges and academic commentators have referred, perhaps loosely at times, to ‘rules’, notably the ‘basis rule’, for admissibility at common law drawn from the cases. Admissible expert opinion must demonstrate not just that the opinion, and the experts reasoning of it, has a proper basis in the witness’ specialised knowledge, but also that the opinion, and reasoning, has a proper basis in assumed or observed facts. In the latter sense, the ‘basis rule’ can refer to three distinct requirements (or ‘rules’) for admissibility of an expert opinion. In Dasreef,[14] Heydon J identified, or allocated, convenient titles to these requirements. Firstly, the ‘assumption identification’ rule requires that the expert disclose the ‘facts’ and ‘assumptions’ which found the expert's opinion. Often called the ‘basis rule’ but more conveniently referred to as the ‘proof of assumption’ rule is the second requirement, that the ‘facts’ and ‘assumptions’ stated by the expert be proved before the opinion is admissible. Thirdly, the requirement is a statement of reasoning showing how the ‘facts’ and ‘assumptions’ related to the opinion stated so as to reveal that that opinion was based on the expert's expertise, which may be called the ‘statement of reasoning’ rule.
[14](2011) 243 CLR 588, [61].
In Dasreef, the majority concluded that having regard to the expert’s evidence of his training, study and experience, there was no footing on which the primary judge could conclude that an opinion expressed by the expert was wholly or substantially based on specialised knowledge.[15] Thus, the evidence was inadmissible for non-compliance with the expertise basis rule. That conclusion disposed of the appeal. Other cases say more about the factual basis rule - the connection between an admissible opinion and the assumed or observed facts - that demonstrate the relevant considerations guiding the practical application of these ‘rules’.
[15](2011) 243 CLR 588, [39]–[40].
In HG v R,[16] Gleeson CJ, accepting that an expert’s report may be based on assumed facts, stated:
An expert whose opinion is sought to be tendered should differentiate between the assumed facts upon which the opinion is based, and the opinion in question. …. the provisions of s 79 will often have the practical effect of emphasising the need for attention to requirements of form. By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience, the section requires that the opinion is presented in a form which makes it possible to answer that question. [Footnotes omitted]
In Makita,[17] Heydon JA, following an extensive review of the authorities, stated:
... if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of 'specialised knowledge'; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be 'wholly or substantially based on the witness's expert knowledge'; so far as the opinion is based on facts 'observed' by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on 'assumed' or 'accepted' facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of 'specialised knowledge' in which the witness is expert by reason of 'training, study or experience', and on which the opinion is 'wholly or substantially based', applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v R, on 'a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise'. [Footnotes omitted][18]
[16][1999] HCA 2; (1999) 197 CLR 414, 427 [39]–[44].
[17](2001) 52 NSWLR 705, 743-4 [85].
[18]See also ASIC v Rich & Ors [2005] NSWCA 152; (2005) 218 ALR 764; Paino v Paino [2008] NSWCA 276; (2008) 40 Fam LR 96; Hancock v East Coast Timber Products Pty Limited [2011] NSWCA 11 (15 February 2011).
In ASIC v Rich & Ors,[19] the precise requirements of the ‘basis’ rule were in issue. Spigelman CJ concluded that Heydon JA's reasoning in Makita conforms to the statement of Gleeson CJ in HG. Gleeson CJ also stated that to be admissible expert opinion, the evidence must identify the factual basis that the expert was assuming to be true ‘so that [the factual basis] could be measured against the evidence; and it would have required or invited demonstration or examination of the scientific basis of the conclusion’. Following an extensive analysis of the reasoning of Heydon JA in Makita, Spigelman CJ (with Giles and Ipp JJA agreeing) concluded:
… the starting point for Heydon JA's detailed analysis of the case law on admissibility does not suggest any focus on the true historical process by which the expert first formed the relevant opinion. The focus of attention - the 'prime duty' - is to ensure that the court, as the tribunal of fact, is placed in a position where it can examine and assess the evidence presented to it. That can occur without adopting the true factual basis approach. What Heydon JA identified as the expert's 'prime duty' is fully satisfied if the expert identifies the facts and reasoning process which he or she asserts justify the opinion. That is sufficient to enable the tribunal of fact to evaluate the opinions expressed.
More recently, in Hancock v East Coast Timber Products Pty Limited,[20] this analysis was accepted.
[19]Ibid.
[20][2011] NSWCA 11 (15 February 2011) (Beazley JA with Giles and Tobias JJA agreeing).
In Dasreef, the respondent submitted that there was no ‘basis rule’ required by s 79, a contention that Heydon J rejected. Heydon J’s analysis identifies that each of the ‘rules’[21] exists, as a matter of authority at common law and correctly so as a matter of principle, and his Honour explains the function that the rule serves in establishing whether opinion evidence is admissible. Heydon J then turned to the contention that the three common law ‘rules’ were not taken up in s 79. His Honour observed that Gleeson CJ, in the passage that I have extracted above from HG, rested the continued existence of the assumption identification rule on an implication from the terms of s 79. Heydon J concluded that the requirement that the opinion be based wholly or substantially on specialised knowledge is an explicit precondition of admissibility that, like other preconditions under s 79, is to be established by the party tendering the evidence. It is to be established in examination in chief (during the trial or on voir dire), not in cross-examination or in non-evidentiary documents required by rules of court for other purposes. His Honour identified[22] six reasons why that proposition was sound in principle that I need not set out here.
[21]a reference to the three sub-rules of what I have characterised as the factual basis rules.
[22](2011) 243 CLR 588 at [101].
Next in respect of the proof of assumptions rule, Heydon J held that an opinion tendered under s 79 is inadmissible, unless there was evidence capable of proving matters sufficiently similar to the assumptions made by the expert to render the opinion of value, admitted or to be admitted before the end of the tendering party's case. This conclusion required analysis of the ‘determinative significance’ of observations made by the Australian Law Reform Commission.[23] This analysis is lengthy, with his Honour concluding:
A construction of s 79 which holds that there is no proof of assumption rule in relation to s 79 tenders is difficult to reconcile with the practical exigencies pursuant to which parties conduct their cases. It is necessary for trials to be conducted in a businesslike and efficient way. That is a matter of context pointing to the view that there is a proof of assumption rule with which those tendering expert opinion evidence must comply by reason of ss 55, 56 and 79 read against the background of the common law.
[23]Australia, The Law Reform Commission, Evidence, Report No 26, (1985) vol 1 at 417 [750].
Heydon J also accepted that ample authority correctly supports the statement of reasoning rule:[24]
… it is not enough for evidence tendered under s 79 merely to state the expert's qualifications in a field of expertise and the conclusion. It is necessary to avoid the insidious risk that the trier of fact will simply accept the opinion without careful evaluation of the steps by which it was reached, and hence the evidence must state the criteria necessary to enable the trier of fact to evaluate that the expert's conclusions are valid. The evidence must reveal the expert's reasoning – how the expert used expertise to reach the opinion stated. It is not enough for evidence tendered under s 79 merely to state the expert's qualifications in a field of expertise and the conclusion. Admissibility does not depend on the reasoning being accepted as correct; that is a matter for consideration at the end of the trial. But admissibility does depend on the reasoning being stated. ... There is nothing in s 79 which suggests that the corresponding common law rule has been abolished. And the language of s 79 positively supports its continuance: without a statement of the expert's reasoning it is not possible to say whether the opinion is wholly or substantially based on the specialist knowledge claimed. [Citations omitted]
[24](2011) 243 CLR 588 at [129].
Finally, Heydon J noted the important interdependence of these three rules:
If the assumed facts are not stated, no reasoning process can be stated and the opinion will lack utility; if there is no evidence, called or to be called, capable of supporting the assumed facts, no reasoning process, even if stated, will have utility; and even if there are facts both assumed and capable of being supported by the evidence, they will lack utility if no reasoning process is stated. In each instance, a lack of utility results in irrelevance and inadmissibility.
In Dasreef, all members of the court held that the doctor’s opinion evidence was inadmissible, however the majority considered the correct disposition of the appeal was to dismiss it without costs. Heydon J would have remitted the matter to the Court of Appeal. That the majority did not consider it necessary to discuss the factual basis rules does not, in my view, preclude a trial judge from drawing assistance in resolving admissibility questions under s 79 from what I consider, with respect, to be the erudite, and practical, analysis that Heydon J has provided.
The leading decision is that of the Full Court of the Supreme Court of Western Australia in WMC Resources Ltd v Leighton Contractors Pty Ltd.[108] This decision has been considered in, and supported by, more recent cases such as AGL Victoria Pty Ltd v TXU Networks (Gas) Pty Ltd[109] and Yarraman Pine Pty Ltd v Forestry Plantations Queensland.[110] WMC Resources concerned a mining contract at an open-pit nickel mine at Mt Keith in Western Australia and valuations made by WMC of work executed by Leighton Contractors that constituted variations under the contract between them. By the terms of that contract, WMC had the power to value those variations ‘in its sole discretion’. The court was asked to determine whether that power should be interpreted as giving WMC an express right to make a final and binding determination such that an arbitrator had no power to substitute his own valuation for the valuation of WMC.
[108]WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489; (2000) 16 BCL 53.
[109]AGL Victoria Pty Ltd v TXU Networks (Gas) Pty Ltd [2004] VSC 225.
[110]Yarraman Pine Pty Ltd v Forestry Plantations Queensland [2009] QCA 102.
Leaving aside contracts which by express language, or otherwise, preclude review for error, for Ipp J,[111] the question whether a certifying provision should be interpreted as being final and binding turned on whether the determination involved a ‘discretionary judgment’. Non-discretionary judgments may be subject to review by a tribunal (whether arbitral or judicial). Non-discretionary certificates are generally based on detailed fixed and objective criteria in the contract as to how the values of amounts to be certified under interim and final certificates are to be determined. Such fixed and objective criteria are usually in the form of detailed schedules of rates or bills of quantities or specifications. These criteria enable the certifier to merely measure an item of work, assess its quality, and apply the rate provided by the contract for that item. In the event that an incorrect value is determined, this will be a breach of contract and a court or arbitrator will have the power to set aside the decision and determine the correct amount.[112] In this sense, Ipp J held that the, ‘valuer does not exercise a discretionary judgment in valuing the work. It is a mechanical exercise’[113].
[111]With Kennedy and White JJ agreeing.
[112]WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489, at [18].
[113]Ibid at [16].
Only those determinations that involved a discretionary judgment could be capable of being final and binding. Such valuations are those that may involve making decisions where no fixed or readily available standard criteria exist. There may be several possible methods of assessing value, each giving widely different results, but each being reasonable. Many subsidiary factors relevant to the valuation may be uncertain, many contingencies may have to be taken into account, a wide range for legitimate decision may be open, and opinions may legitimately differ as to virtually all of the relevant issues.[114]
[114]Ibid at [23].
The court identified the principles applicable to the review of discretionary valuations by a third party certifier such as a superintendent.[115]
Firstly, by the contract, the parties agree to be bound by a valuation made in terms thereof. Therefore, if the valuation complies with the contract, they are bound thereby. Because of the discretionary nature of the valuation, the contract will not require the valuation to be "correct". There will indeed be no uniquely correct valuation. The valuation will merely have to be within the terms of the contract.
Secondly, a court will not set aside a valuer's determination merely on the ground that it is "incorrect" or that it reveals errors. The determination will only be interfered with if it is not made in terms of the contract; a mere mistake in the valuation will ordinarily not be a departure from the terms of the contract.
The court concluded on the facts before it that the process of valuing variations would require the valuer to take into account a myriad of differing and complex factors that could in no way be considered ‘mechanical’.[116] His Honour held, ‘in my opinion, [the determination] involves a series of discretionary judgments or, at least, a vast number of decisions having substantially discretionary elements’.[117] Ipp J concluded from the discretionary nature of the express valuation provisions, that the parties intended that determinations under the variations clause would be final and binding.
[115]Ibid at [35] – [42].
[116]Ibid at [32].
[117]Ibid at [33].
WMC Resources was cited to this court in AGL Victoria Pty Ltd v TXU Networks (Gas) Pty Ltd.[118] In AGL Victoria, AGL owned a gas transmission network and TXU owned a gas distribution network. At the connection points between the transmission and distribution networks, gas meters were installed. Gas meters were also installed at the connection points between the distribution networks and customers. The quantity of gas measured by the meters formed the basis for payment for the consumption of gas and a reconciliation amount was determined between the parties. Over a two-year period, a particular meter was unaccounted for and consequently a significant volume of gas was not invoiced. Once AGL became aware of the problem, it requested VENCorp, which between AGL and TXU was responsible for certifying the reconciliation of the meters, to re-certify the reconciliations to take into account the gas unaccounted for. TXU objected, stating that the earlier calculations by VENCorp were final and binding. Byrne J reviewed the authorities, including WMC Resources and held that the calculations by VENCorp were ‘more than a mere mechanical exercise’.[119] Byrne J noted that that the actual amount of unmetered gas may never be known and may be incapable of precise determination. In such a case, the attribution to [a factor in the reconciliation] of any value might always be said to be incorrect. Perhaps VENCorp could never issue an effective reconciliation amount. His Honour concluded that the calculation by VENCorp of the reconciliation amount ‘cannot be challenged … for error of the kind presently disclosed’.[120]
[118][2004] VSC 225 (2 July, 2004).
[119]Ibid at [51].
[120]Ibid at [56].
The Queensland Court of Appeal in Yarraman Pine Pty Ltd v Forestry Plantations Queensland[121] also followed this approach to judicial review of contractual certification.
[121][2009] QCA 102, at [43].
AS 2124-1992 makes no express requirement that the superintendent’s certificate is to be ‘final and binding on the parties’. The clause constitutes a certified sum as a debt due to principal or contractor, as the case may be. It is necessary to consider whether the clause requires that a ‘mechanical exercise’ be undertaken in ascertaining the costs incurred or if it allows the superintendent the degree of discretion that supports a construction that the costs certificate is not subject to review for error.
Clause 44.6 does not incorporate into the process any schedule for ascertainment of the costs or fixed, objective criteria, (such that there is no discretionary element in the certification) whereupon there can only be one uniquely correct value. Although the superintendent is required to certify the amounts, setting out the calculations employed to arrive at the sum certified, that provision does not reduce the exercise to a mechanical one or avoid the need for the superintendent to exercise discretionary judgments. I do not accept that cost accounting is merely a mathematical calculation free of the need for discretionary judgment. Further, I reject the characterisation advanced by Dura that all Mr Clack made was a subjective, or capricious, allocation. As I have stated above, Mr Clack’s judgment, when allocating costs - for example, from an invoice for the work of a trade to elemental categories separated into rectification, completion and enhancement - involved his professional skills. The proper allocation was a discretionary judgment, made in a reasoned way, and based on disclosed methods considering the source information, found in the project documents, and instructions from the project architect and owner.
I am satisfied that the resultant certificate, involving discretionary judgment by the superintendent who, adopting Mr Clack’s work, ascertained the costs as required by cl 44.6, followed the process contemplated by the contract and that process is not open to review for error. It is final and binding.
I would add, in case it becomes necessary to consider the issue, that Dura has not demonstrated any error by Mr Clack in the process by which he ascertained the costs that make up the certificate. Dura’s prime objection was that the certificate erroneously incorporated enhancement costs in the costs to complete its work, but its submission focussed on the global approach adopted to assessing rectification costs. Dura invited me to analyse this issue by reference to a particular item, bathtubs, contending that the cost of installing new bathtubs, plainly an enhancement, were included in the costs of rectification or completion. If I accepted that fact, Dura contended that the global basis of the claim precluded identification of the appropriate allowance to vary the certificate. The bathtubs are not a good example for Dura. I have noted above that the conclave of Messrs Holman and Barber accepted the bathtubs as defectively installed. I have also accepted the evidence of Messrs Chu and Pozzebon. I consider the cost of installing new bathtubs was rectification, not enhancement. The rectification costs were part of the costs incurred by Hue in completing the works. It is not to the point, on a contention that the certificate erroneously incorporated enhancement costs, that the rectification costs were calculated globally as the remaining costs after deducting the other components of the total costs incurred by Hue in completing the works. There was no error by Mr Clack in ascertaining the enhancement costs for two reasons. First, I have set out above why I accept Mr Clack’s methodology in determining and costing enhancements as appropriate. Second, I have rejected as inadmissible, alternatively, unreliable Mr Faifer’s evidence about enhancement costs. Appropriately, the enhancement costs ascertained by Mr Clack were properly excluded from the amount certified as owing by Dura.
It follows that Hue is entitled to rely on the superintendent’s cl 44.6 certificate to claim the sum certified, $4,457,306.70 as a debt due to it.
Hue’s other claims
Common law damages
For convenience I will set out again the component heads of Hue’s damages claim
Damages for Breach of contract $3,376,782.46 Being
payments to unpaid Dura subcontractors$204,326.96 retentions paid to Dura subcontractors $49,883.50 $531,237.09 additional financing costs $2,039,344.68 breach of scaffolding warranty $653,919.00 $3,478,711.23
In view of the manner of resolution of the issues in this proceeding, it is unnecessary to consider further the breach of the scaffolding warranty.
In respect of payments to Dura subcontractors, Dura did not dispute the evidence of Mr Wong, and Mr Clack, that Hue paid $626,826.96 to subcontractors. The agreed amount of the bank guarantees cashed by Hue on 14 December 2006 was $422,500, leaving a net payment by Hue of $204,326.96. There was no issue about the quantum of the sum claimed. The position in respect of retention sums held by Dura and claimed by subcontractors to be payable to them was a little different. The amount claimed was $49,883.50 and there was no application to amend the claim. The evidence suggested other amounts. Mr Clack’s evidence was that refunded retentions totalled $59,697.30 but Mr Wong put the total at $63,178.67. These different assessments were never reconciled. In the circumstances, I assess the quantum of the retentions paid to Dura subcontractors at the amount claimed.
Mr Hon Wong proved Hue’s additional financing and security costs at $2,047,416.12 which was not, as to the quantum of the claim, challenged by Dura. I assess the quantum of this head of damage in the sum claimed.
Dura took a different point. Dura’s submission acknowledged that Hue is generally entitled to claim common law damages for any loss or damage caused by Dura’s breach. However, Dura contended that by proceeding under cl 44.4, Hue chose a path that precludes common law rights. Hue could elect to affirm the contract while taking the work out of Dura’s hands or to terminate the contract. As either option is inconsistent with the continued right to enjoy the other, this is a true election.[122] Thus, Dura submitted that Hue lost the right to claim damages on termination of the contract by its election. Conversely, had Hue terminated the contract, it would have been unable to take the benefit of a cl 44.6 certificate. Dura contends that the principal cannot claim common law damages for termination and enforce a cl 44.6 certificate. Dura’s submission contrasts cl 44.10, which specifies that the parties’ rights and liabilities on termination ‘shall be the same as they would have been at common law had the defaulting party repudiated the contract and the other party elected to treat the Contract as at an end and recover damages’ with the absence of a like provision if the principal exercises the right under cl 44.4(a) to take the works from the contractor. Dura submits that to permit Hue to claim common law damages in addition to the certificate under cl 44.6 would be contrary to the expressed intention of the parties.
[122]O’Connor v SP Bray Ltd (1936) 36 SR (NSW) 248, 257-63 (Jordan CJ); Sargent v ASL Developments Ltd (1974) 131 CLR 634, 655 (Mason J); see also Commonwealth of Australia v Verwayen (1990) 170 CLR 394.
This contention is misconceived. While cl 44.10 articulates the rights of the innocent party to claim damages against the defaulting party on termination, cl 44.6 does not address that question. By cl 44.6, the parties have agreed to a process to certify the sum due when the contract continues with the works taken from the contractor. The certification is not of the damages that the principal is entitled to recover following on an antecedent breach of contract by the defaulting contractor, it is no more than the certification of two matters:
(a)costs incurred by the principal in completing the work that was taken out of the hands of the contractor; and
(b)the amount which would otherwise have been paid to the contractor had it completed the works.
The cl 44.6 procedure is silent as to the entitlement to damages that may have accrued to the principal by the substantial breaches of the contract that constituted the default under cl 44.2. Loss and damage may flow from such breach and not form part of the costs incurred by the principal in completing the works. It is trite to observe that a right to damages for loss caused by breach of contract arises irrespective of whether the contract is terminated. Loss caused by a breach of contract is compensable if the innocent party continues to require performance of the contract.[123] Clause 44.1 expressly reserves common law rights. It provides that if a party breaches the contract nothing in cl 44 shall prejudice the right of the innocent party to recover damages or exercise any other right.
[123]Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286, 300; Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444, 450; Progressive Mailing House v Tabali Pty Ltd (1985) 157 CLR 17, 31.
Once it is accepted, as is the case, that the claimed heads of damage are caused by the defaults that were the subject of the notices to show cause and may fairly and reasonably be considered to arise naturally from such breaches, such losses may be recoverable in addition to any debt certified as due under a cl 44.6 certificate. Recovery may be denied in at least two circumstances that may be presently relevant. First, there may be other provisions of the contract, which remains the source of obligations between the parties, governing responsibility for such loss. Second, if the expenses that constitute the claimed heads of damage form part of the costs incurred by the principal in completing the work, the principal suffers no loss when paid the debt due under the certificate. To claim part of the costs to complete as a certified debt and part as damages is to mount a collateral challenge to the certificate.
I am satisfied, for the reasons that follow, that Hue’s heads of damage, additional to the certified debt, form part of the cost incurred by it in completing Dura’s work.
Dealing firstly with the payments to Dura subcontractors, these costs ought to have been ascertained as part of the principal’s costs to complete the work. Mr Clack, when he was first engaged, negotiated with Dura’s subcontractors, and made payments to them expressly to enable Liquid Lines to re-commence the works. Mr Clack was plainly aware why Hue incurred those expenses. Mr Clack did not include such costs in his assessment, which appeared focussed on the expenses invoiced by Liquid Lines rather than the costs incurred by Hue. It is likely that Mr Clack when ascertaining the total cost erroneously ascertained the total cost incurred by the principal as he seems to have focussed on ascertaining the total cost paid to Liquid Lines. Hue, like Dura, cannot challenge the superintendent’s certificate for error, but it neither directly seeks to do so nor asserts that it can. Hue will be compensated for the cost incurred by it in completing the work by the sum certified as a debt due to it. It cannot separately assert a right to this head of damages and thereby collaterally impugn the finality of the certificate. It is not entitled to judgment in a greater sum than the certified debt by an award of damages representing payments to Dura’s subcontractors. Put another way, had Dura paid the sum certified in 2008, it would have had a good defence to Hue’s claim for these damages on the ground that the loss formed part of the costs to complete the works, and it had discharged its debt by paying on the certificate. For the reasons already given, Hue could not challenge the finality of the certificate.
There is also a claim for a head of damage comprising additional consultants and superintendence costs, as set out in schedule 5 of Hue’s counterclaim. Mr Wong’s evidence established the quantum of this head of claim, also not challenged by Dura, in the sums particularised. This evidence was not detailed. It is apparent from the pleading schedule that these costs were paid to the consultants identified in these reasons for work in 2006 and early 2007. There was no further definition of the scope and purpose of the consultants’ retainers. I consider these costs formed part of Hue’s expenses in identifying the scope of the rectification and completion work. I refuse this claim for the same reasons as I refused the claim for moneys paid to Dura’s subcontractors.
The other head of damage concerns the additional financing, insurance and security costs. These costs are time delay, or ‘holding’ costs, incurred because the works were not completed by the date for practical completion. They are susceptible to the above analysis as costs incurred in completing the works and I will not allow this head of damage. Dura advanced an alternative contention. The principal is precluded from common law damages and obliged to claim liquidated damages because the contract is still on foot and particular provisions govern the cost consequences of delay. Clause 35.6 provides that where the contractor fails to bring the works to practical completion by the date for practical completion the contractor shall be indebted to the principal for liquidated damages at the rate stated in the contract for every day after the date for practical completion up until the date of practical completion. The basic principle is that a valid liquidated damages clause will represent an exhaustive remedy for breach of the obligation to complete by the due date.[124] In J-Corp Pty Ltd v Mladenis[125] the Western Australian Court of Appeal stated the applicable principle:
It is clear that the parties to an agreement may, as part of their agreement, fix an amount that is to be payable by way of damages in the event of a breach of the agreement. Provided the amount so fixed is a genuine pre-estimate of the damage that would arise from the breach, and not so out of all proportion as to be by way of a penalty, that amount is recoverable without proof of the actual loss caused by the breach. It is immaterial that the amount of the actual loss turns out to be less than the amount specified. Equally, if the actual loss turns out to be greater than the amount of the liquidated damages, the claimant cannot ignore the liquidated damages clause and sue for unliquidated damages: Diestal v Stevenson [1906] 2 KB 345; Talley v Wolsley-Neech (1978) 38 P & CR 45 (CA). That is, ordinarily a valid liquidated damages clause fixes the amount that is recoverable in the event of a breach, regardless of whether the claimant's actual loss is greater or less than the amount specified. The position would appear to be the same where the amount specified is, not so disproportionately large as to be a penalty, but on the contrary so small that it cannot be regarded as a genuine pre-estimate of the probable loss. In such a case, the clause has been regarded as akin to a clause limiting the extent in damages of a party's liability: McGregor on Damages (17th ed, 2003) 13-071.[126]
[124]Hudson’s Building and Engineering Contracts, Sweet & Maxwell, (12th ed), at 888, [6-023].
[125](2010) 26 BCL 106; [2009] WASCA 157.
[126]Ibid at [35]–[36] (Newnes JA, Buss and Miller JJA agreeing).
Hue has not claimed liquidated damages, nor has it, as the party alleging delay causing loss and damage, proved the period of delay, its cause, or that Liquid Lines proceeded with due expedition and without delay to complete the works. These were matters for the judgment of the superintendent on certification. Had the superintendent done so, the extent to which such costs might properly form a component of the costs to Hue to complete the works could have been appropriately certified.
Hue carries the burden of proving its entitlement to common law damages. Hue submitted that if I found that it failed to discharge that burden because the expenses ought to have been included in the certificate, Dura had not pleaded that fact. Hue contended that it should nonetheless recover such damages because, had Dura earlier raised this issue, Hue might have considered whether to invite the superintendent to rectify the certificate. The parties did not debate whether the process of rectification of certificates under the contract applies to a cl 44.6 certificate, but is a matter I need not decide. Dura disputed the calculation of the certified debt by paragraph 24A of its amended defence to Hue’s counterclaim. Further, Dura pleaded that the claim to damages for delay costs, particularised as finance holding costs was not loss and damage that Hue had suffered and that the plea was embarrassing. This particular allegation might be wide enough to enliven the issue, but was always obscure as to its precise content. Hue did not seek particulars or other relief and the statement of issues for trial agreed between the parties included the issue identified at paragraph [50] above. Even though the pleading is not satisfactory, I cannot find that Hue is entitled to common law damages.
Hue submitted the certificate is proper, representing the costs to complete the project ascertained in accordance with the contract, and put it forward as the basis of its counterclaim. I have accepted that submission. I have rejected collateral attack on the certificate. I do not consider that it is open for Hue to assert, in reply address, the possibility, nothing more, that might have invited the superintendent to rectify the certificate if it later turned out that these expenses were properly classified as costs to complete. Having failed to satisfy me that it has suffered loss additional to its costs to complete, to the debt certified, the damages claim fails for want of proof of loss or as a collateral attack on the certificate. The issue is not decided on an affirmative allegation that Dura failed to plead. Hue sues on a final and binding certificate in accordance with the terms of the contract. Any opportunity for Hue to rectify the certificate, if permissible, has long past. These amounts do not represent loss and damage recoverable by Hue for the reasons I have given.
For these reasons, Hue will not recover the losses describes as the common law heads of damage.
Funds in trust following adjudication
Finally, it is necessary to deal with the funds totalling $1,007,694.49 held on trust following adjudications under the Building and Construction Industry Security of Payment Act 2002 (Vic).
Mr Hon Wong gave evidence of these sums. He stated that because of three adjudication applications made by Dura, Hue paid a total of $1,007,964.49 into a trust account. This amount was deposited in three instalments: $108,748.84 on 15 June 2006, $99,330.00 on 11 July 2006, and $799,885.65 on 11 December 2006.
Section 47(3) of the Act provides:
(3)In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal-
(a)must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order, determination or award it makes in those proceedings; and
(b)may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.
Neither party made a submission as to how the court ought to deal with these funds. Nor was any detail about the adjudications that may be in evidence addressed in submissions. It is not clear to me whether, and if so how, the funds in trust are accounted for, if at all, in the calculations that have been put to the court. It may be that I ought to order release of the funds in trust to Hue in part satisfaction of the proposed judgment, and I will hear further from counsel about the orders that should be made pursuant to s 47(3) in respect of those trust funds and any interest that has accrued.
Final orders
I dismiss Dura’s claim. There will be judgment for the defendant, Hue. There will be judgment on the counterclaim for Hue, that it recovers $4,457,308 from the plaintiff, Dura. I will hear further from counsel on the issue of the funds in trust, interest, and costs. I will also hear from counsel as to the directions required to bring the trust proceeding on for trial.
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