G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd (No 4)

[2021] NSWSC 1052

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd (No 4) [2021] NSWSC 1052

Hearing dates:

19 August 2021

Date of orders:

23 August 2021

Decision date:

23 August 2021

Jurisdiction:

Equity - Technology and Construction List

Before:

Williams J

Decision:

See paragraph [69]

Catchwords:

PRACTICE AND PROCEDURE – strike out application – application to strike out paragraph of the cross-claim containing allegations of fraud – whether allegations of fraud have been properly pleaded and particularised – requisite degree of specificity and particularity

PRACTICE AND PROCEDURE – application for leave to amend paragraphs of the cross-claim containing allegations of fraud – whether proposed amendments properly plead and particularise fraud

Legislation Cited:

Competition and Consumer Act 2010 (Cth), Sch 2 (‘Australian Consumer Law’), ss 18, 236

Practice Note SC Eq 3

Cases Cited:

Derry v Peek (1889) 14 App Cas 337

Forrest v Australian Securities and Investment Commission (2012) 247 CLR 486;

Stewart v The Australia and New Zealand Banking Group Ltd [2020] NSWSC 1787

Nadinic v Drinkwater (2017) 94 NSWLR 518

YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110

Category:

Procedural rulings

Parties:

G&S Engineering Services Pty Ltd (First Plaintiff/ First Cross-Defendant)
DRA Pacific (Second Plaintiff / Second Cross-Defendant)
MACH Energy Australia Pty Ltd (First Defendant / First Cross-Claimant)
MACH Mount Pleasant Operations (Second Defendant / Second Cross-Claimant)
J.C.D Australia Pty Ltd (Third Defendant / Third Cross-Claimant)

Representation:

Counsel:
Mr M Christie SC and Mr B Kremer (Plaintiffs/Cross-Defendants)
Mr D Miller SC and Ms N Simpson (Defendants/Cross-Claimants)

Solicitors:
Jones Day (Plaintiffs/Cross-Defendants)
Corrs Chambers Westgarth (Defendants/Cross-Claimants)

File Number(s):

2019/71358

Publication restriction:

N/A

Judgment

Introduction

1. The cross-claimants’ case in these proceedings includes a claim for damages for certain representations alleged to have been made by the first and second cross-defendants in contravention of s 18 of the Australian Consumer Law and in breach of contract. The alleged representations are said to have been false and to have been made with reckless disregard or reckless indifference as to whether the representations were true or false. To the extent that the representations related to future matters, they are alleged to have been made without reasonable grounds.

2. These reasons relate to:

1. the cross-defendants’ application to strike out the paragraph of the cross-claim that alleges that the representations were false and made with reckless disregard or reckless indifference as to their truth or falsity; and

2. the cross-claimants’ application for leave to amend that paragraph.

3. At the heart of the parties’ competing applications is a dispute about whether the paragraph constitutes an allegation of fraud.

4. For the reasons that follow, the disputed paragraph does constitute an allegation of fraud and it is not stated with the level of precision and particularity required of parties propounding such allegations. The proposed amendments do not overcome that deficiency. Accordingly, the existing paragraph is struck out and the cross-claimants’ application to amend is dismissed.

Nature of the proceedings

5. The first defendant/first cross-claimant is the owner and developer of the Mount Pleasant coal mine (the Project) in joint venture with the third defendant/third cross-claimant. The second defendant/second cross-claimant is the manager of the joint venture.

6. On about 21 March 2017, the first defendant/first cross-claimant entered into a contract with the first and second plaintiffs/first and second cross-defendants for the design, construction and commissioning of a coal handling and preparation plant and train load out at the Project (the Contract). The performance of the first and second cross-defendants under the Contract was guaranteed by the third and fourth cross-defendants.

7. In their Amended Technology and Construction List Cross-Claim Statement filed on 11 March 2020 (the existing cross-claim), the cross-claimants use the term “the Company” to refer to the first and second cross-claimants together and use the term “the Contractor” to refer to the first and second cross-defendants together.

8. The works under the Contract were delayed and there were disputes in relation to extension of time claims. During the period from January 2018 to April 2018, there were negotiations between representatives of “the Contractor” and representatives of “the Company” which culminated in the execution of a Settlement and Variation Agreement (SVA).

9. The SVA extended the dates for practical completion for each of the three stages of the works and provided for certain payments to be made by “the Company” to “the Contractor”. The SVA was subject to specified conditions precedent.

10. In paragraph 43 of the existing cross-claim, it is alleged that “the Contractor” made eleven representations at the time of negotiating the SVA. These are defined as the Representations. Particulars are given of each of the Representations, including whether the Representation was express or implied, the statements comprising the Representation and/or the conduct from which the Representation is to be implied.

11. In paragraph 43A of the existing cross-claim, it is alleged that “the Contractor” made eleven further representations prior to “the Company” giving notice that the SVA conditions precedent had been satisfied on 3 May 2018. These are defined as the Further Representations. The substance of the Further Representations is the same as the Representations. Particulars of each Further Representation are provided.

12. It is alleged in paragraphs 44 and 44A that the first cross-claimant relied on each of the Representations in entering into the SVA and relied on each of the Representations and Further Representations in giving notice that the SVA conditions precedent had been satisfied.

13. In paragraphs 45 to 48 of the existing cross-claim, the cross-claimants allege:

“45   The Representations and the Further Representations were:

(a)   false; or

(b)   knowingly false; or

(c)   made with reckless disregard as to whether they were true or false,

in that unbeknown to the Company:

1. the First Cross-Defendant was in April 2018 insolvent, or near insolvent, and likely to be placed in administration;

2. the Contractor had significantly under-stated the time and cost to complete the Works under the Contract resulting in the Second Cross-Defendant making a provision in its accounts of approximately $52 million for additional costs expected to be incurred to complete the Contract over and above the costs originally budgeted for.

Particulars

Notes 18 and 26.1 to the financial statements and reports of fourth Cross-Defendant for the financial year ended 31 December 2018 lodged with the Australian Securities and Investments Commission, document number 7EAK85978.

46 In the premises, the Representations and the Further Representations were misleading or deceptive and conduct in breach of section 18 of the Australian Consumer Law.

47   Further or in the alternative, the Representations and the Further Representations were misleading or deceptive because they were representations with respect to future matters and the Contractor did not have reasonable grounds for making them.

Particulars

The Company relies upon section 4 of the Australian Consumer Law and paragraph 45 above.

48 Further or in the alternative, in making the Representations and the Further Representations the Contractor breached clause 12.3(a)(i) of the Contract in that it did not comply with, and it breached, section 18(1) of the Australian Consumer Law.

Particulars

The Company repeats and relies upon paragraphs 42, 46 and 47 above.”

14. In Section F of the existing cross-claim, it is alleged that:

1. the first cross-claimant would not have entered into the SVA if it had been aware that the Representations were false or that they were made without reasonable grounds;

2. the first cross-claimant would not have given notice that the SVA conditions precedent had been satisfied, and would not have made payments to the cross-defendants under the SVA, if the first cross‑claimant had been aware that the Representations or Further Representations (or any of them) were false or that they were made without reasonable grounds.

15. In both scenarios above, it is alleged that the first cross-claimant would have instead omitted certain remaining works from the Contract and engaged a third party to complete those works in April 2018. It is alleged that, if the first cross-claimant had taken that course, the works would have been completed earlier than they were, the first cross-claimant would have commenced producing and selling specified types of coal earlier and would have achieved “free cashflows” over the life of the project of approximately $262 million more than it will now achieve having entered into the SVA and persisted with the works being performed by the cross-defendants until December 2018. The expression “free cashflow” is defined in paragraph 50(c) as net operating profit after tax and depreciation, less capital expenditure and movements in working capital.

16. In Section M of the existing cross-claim, the first cross-claimant claims damages pursuant to s 236 of the Australian Consumer Law, or alternatively for breach of contract, of approximately $270 million (being the $262 million lost free cashflows plus an additional approximately $8 million paid under the SVA).

17. Section M of the existing cross-claim also includes other claims for relief that are not referable to the alleged Representations and Future Representations. There is no claim for damages for deceit.

Strike out and amendment motions

18. By notice of motion field on 14 May 2021, the cross-defendants apply for orders striking out paragraphs 45, 47 and the reference to paragraph 47 in the particulars to paragraph 48 of the existing cross-claim.

19. The application to strike out the existing cross-claim is made on two bases.

20. The first basis may be summarised as follows:

1. the allegations in paragraphs 45(b) and (c) are allegations of fraud in relation to the Representations and Further Representations;

2. the allegations of fraud must be properly pleaded and particularised so as to enable “the Contractor” to know the case that they must meet;

3. paragraph 45 does not plead the fraud allegations with the requisite degree of specificity and particularity, in that it does not specify:

1. which of the Representations and Further Representations are said to have been knowingly false or made with reckless disregard as to their truth or falsity;

2. which person or persons allegedly knew that each of the twenty‑two Representations and Further Representations was false at the time it was made and what knowledge each such person had; and

3. which person or persons allegedly acted with reckless disregard as to the truth or falsity of each of the twenty-two Representations and Further Representations; and

4. how the knowledge, reckless state of mind and conduct of each of the persons referred to above can be attributed to each of the first and second cross-defendants (that is, “the Contractor”); and

4. the lack of clarity about the matters referred to above is made worse, and is particularly unfair to the cross-defendants, having regard to the multiple potential combinations of the alleged Representations and Further Representations upon which the first cross-claimant claims to have relied.

21. In the alternative, the cross-defendants contend that the matters in paragraphs 45(i) and (ii) do not disclose a lack of reasonable basis for the allegation that the representations were false. That is the second basis for the strike out application.

22. If paragraph 45 is struck out on either of the two grounds above, the cross-defendants contend that paragraph 47 must fall with it, as it particularises paragraph 45. Similarly, the reference to paragraph 47 in the particulars to paragraph 48 of the existing cross-claim should be struck out.

23. The cross-claimants oppose the strike out application on the following bases:

1. paragraph 45 of the existing cross-claim does not plead fraud;

2. the cross-claimants propose to amend to delete the allegation in paragraph 45(b) that the Representations and False Representations were knowingly false;

3. paragraph 45(c) of the existing cross-claim engages with clause 52.2 of the Contract rather than pleading fraud;

4. paragraphs 45(i)-(vii) of the proposed amended cross-claim referred to below identifies the persons within the cross-defendants with the relevant states of mind as Mr Crowe and Mr Carvelas, and the cross-claimant are not obliged to plead evidence of states of mind;

5. the matters in paragraphs 45(i)-(ii) disclose a reasonable basis for the pleading that the Representations and Further Representations were false; and

6. in any event, the strike out application should not be entertained at this stage having regard to paragraph 62 of Practice Note SC Eq 3 and in circumstances where the cross-defendants have already pleaded to paragraph 45 of existing cross-claim by denying it (without making any complaint at that time about the sufficiency of the pleading in the cross-claim) and have not explained their delay in bringing the strike out motion.

24. By notice of motion filed on 8 July 2021, the cross-claimants seek leave to file and serve a Further Amended Technology and Construction List Cross-Claim Statement (the proposed amended cross-claim).

25. The proposed amended cross-claim would introduce one amendment to paragraph 35(a) (which is not opposed) and would amend paragraph 45 to read as follows:

“The Representations and the Further Representations were:

(a) false; or

(b) knowingly false; or [Not used]

(c) made wilfully, in that they were made with: (i) reckless disregard; (ii) further or in the alternative, reckless indifference, as to whether they were true or false,

in that unbeknown to the Company :

…”

26. The proposed amendments also expand the list of matters alleged to have been unknown to “the Company” by adding sub-paragraphs (iii) to (vii).

27. The full text of the proposed amended paragraph 45 is set out in the Annexure to these reasons.

28. No amendment is proposed to paragraphs 47 and 48 of the cross-claim. However, the substance of those paragraphs is affected by the proposed amendments to paragraph 45 because the particulars for paragraphs 47 incorporate paragraph 45 and the particulars for paragraph 48 refer to paragraph 47.

29. The cross-claimants submitted that the proposed amended paragraph 45 is to be read in the following manner:

1. paragraphs 45(i)-(vii) set out the material facts relied on in support of the allegation pleaded in paragraph 45(a) that each of the Representations and Further Representations was false;

2. the alleged falsity of the Representations and Further Representations is the basis on which it is alleged in paragraph 46 that they were misleading or deceptive in contravention of s 18 of the Australian Consumer Law;

3. paragraphs 45(i)-(vii) also set out the material facts relied on in support of the allegation pleaded in paragraph 45(c) that the Representations and Further Representations were made with reckless disregard or reckless indifference as to their truth or falsity;

4. insofar as the Representations and Further Representations relate to future matters, the allegation in paragraph 47 that “the Contractor” did not have reasonable grounds for making them is founded on the alleged reckless disregard or reckless indifference as to the truth or falsity of the Representations and Further Representations;

5. the alleged contraventions of s 18 of the Australian Consumer Law form the basis of the alleged breach of clause 12.3(a)(i) of the Contract pleaded in paragraph 48; and

6. the allegation in paragraph 45(c) is also relied on by the cross‑claimants in support of their contention that a contractual exclusion of liability does not apply to any liability of “the Contractor” for misleading or deceptive conduct or breach of contract arising out of the Representations and Further Representations, because those representations were a “Wilful Default” and therefore an “Exempt Liability” within the meaning of the Contract.

30. The contention referred to immediately above is pleaded in paragraph 45 of the amended cross-claim reply filed on 2 March 2021, which particularises clause 52.2(b) of the Contract, the definitions of “Exempt Liability” and “Wilful Default” in clause 1.1 of the Contract and paragraph 45 of the cross-claim.

31. Clause 52.2(a) of the Contract excludes liability for “Consequential Loss”. Clause 52.2(b) provides that clause 52.2 does not affect or reduce a party’s liability to the other party “arising out of or in connection with any Exempt Liability”. The term “Exempt Liability” is defined in clause 1.1 of the Contract as including “liability arising out of or in connection with Wilful Default”. “Wilful Default” is defined in the following terms:

“Wilful Default   In respect of a Party:   

(a) any fraud or fraudulent concealment;

(b) any wanton or reckless act or omission of the Party or any of its Personnel, including any illegal or malicious act or omission of the Party or its Personnel, with reckless indifference to the possible harmful consequences arising from that act or omission.”

32. In summary, notwithstanding the word “or” after paragraph 45(a) in the proposed further amended cross-claim, the cross-claimants’ case is that each of the Representations and Further Representations was false and made with reckless disregard, or reckless indifference, as to its truth or falsity. The cross-claimants plead these allegations in support of their claims for misleading or deceptive conduct (which is also said to constitute a breach of the Contract) and in support of their contention that any liability of “the Contractor” is not excluded by clause 52.2 of the Contract. The cross‑claimants maintain that they are not alleging fraud.

33. The cross-defendants oppose leave to amend on the following grounds:

1. amended paragraphs 45(a) and (c) are an allegation of fraud;

2. the failure to identify the persons with the state of mind pleaded in paragraph 45(c), the manner in which they are alleged to have acted with recklessness as to the truth of the Representations and Further Representations, and the matters relied on in attributing that state of mind to the first and/or second cross-defendant has not been rectified by the proposed amendments;

3. paragraphs 45(iii)-(vii), even if limited to the allegation of falsity, render paragraph 45(a) vague and embarrassing because the connection between each of 45(iii)-(vii) on the one hand, and each of the Representations and Further Representations on the other hand, is not identified;

4. paragraphs 45(iii)-(vii) are also embarrassing and should not be the subject of a grant of leave to amend because they are not fairly open on the material in the proposed particulars to those paragraphs; and

5. the cross-defendants are prejudiced by the proposed amendments as they have not had a fair opportunity to meet the new case proposed by the amendments.

34. The cross-claimants maintain that:

1. amended paragraph 45 does not allege fraud;

2. proposed paragraphs 45(i)-(vii) plainly identify Mr Crowe (the Managing Director of the first cross-defendant) and Mr Carvelas (the Group Chief Executive Officer of the second cross-defendant) as the persons who acted with reckless disregard or reckless indifference as to the truth or falsity of the alleged Representations and Further Representations;

3. proposed paragraphs 45(i)-(vii) are adequately pleaded in support of the allegation of falsity and also in support of the allegation of recklessness; and

1. the cross-defendants are not prejudiced by the proposed amendments.

35. The cross-claimants press the application for leave to amend, irrespective of whether the strike out motion succeeds.

Consideration and determination

Paragraph 45 is an allegation of fraud

36. Paragraph 45 in the existing cross-claim, and in the form in which it is proposed to be amended, is an allegation of fraud. The making of a representation that is false, with reckless indifference whether it is true or false, is common law fraud: Derry v Peek (1889) 14 App Cas 337 at 374; Forrest v Australian Securities and Investment Commission (2012) 247 CLR 486; [2012] HCA 39 at [22] (French CJ, Gummow, Hayne, and Kiefel JJ); Nadinic v Drinkwater (2017) 94 NSWLR 518; [2017] NSWCA 114 at [22] (Leeming JA, Beazley P and Sackville AJA agreeing).

37. Senior counsel for the cross-claimants submitted that paragraph 45 (in its existing and proposed amended form) is not an allegation of fraud because there is no allegation that “the Contractor” had no honest belief in the truth of the Representations and Further Representations in the sense in which “the Contractor” intended those representations to be understood by “the Company”. In support of this submission, senior counsel relied on the following passage from the judgment of French CJ, Gummow, Hayne, and Kiefel JJ in Forrest v ASIC, supra, at [22] (emphasis in original, citations omitted):

“these allegations mixed two radically different and distinct ideas: that Fortescue knew that the statements were false (it had no genuine basis for making them) and that Fortescue should have known that the statements were false (it had no reasonable basis for making them). At common law the first idea is expressed in the tort of deceit and the second in liability for negligent misrepresentation. And since at least 1889 and the well-known decision of the House of Lords in Derry v Peek, it has been firmly established that a false statement, made through carelessness and without reasonable grounds for believing it to be true, may be evidence of fraud but does not necessarily amount to fraud. As four members of this court said in Krakowski v Eurolynx Properties Ltd: ‘In order to succeed in fraud, a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood.’” 

38. That passage provides no support for the submission referred to at [37] above. Paragraph 45 of the cross-claim does not allege that the Representations and Further Representations were made carelessly and without reasonable grounds. Rather, paragraph 45 alleges that “the Contractor” made the Representations or Further Representations with reckless disregard or reckless indifference as to their truth or falsity. That is an allegation that “the Contractor” had no honest belief in the truth of the Representations or Further Representations.

39. It was also submitted on behalf of the cross-claimants that paragraph 45 was not an allegation of fraud because the cross-claimants do not claim damages for deceit. Paragraph 45 culminates in the allegations of misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law and/or breach of the Contract. That submission is misconceived. As senior counsel for the cross-defendants submitted, an allegation that a party made a false representation with reckless indifference as to its truth or falsity is an allegation of fraud, irrespective of whether it is made in support of a cause of action in for deceit or some other cause of action, including misleading or deceptive conduct. If the elements of the conduct that is alleged to have been misleading or deceptive amount to fraud, then the allegation is one of fraud. The seriousness of the allegation is not reduced by reason of the fact that the claim for relief is framed other than as a claim for tortious damages for deceit. Accordingly, the obligation to plead the alleged fraud with specificity applies.

40. The submissions made on behalf of the cross-claimants criticised the cross‑defendants for maintaining the position that paragraph 45 is an allegation of fraud, notwithstanding that the cross-claimants’ solicitors had informed them in correspondence that fraud was not alleged. There was no legitimate basis for those criticisms for the reasons I have identified above.

Fraud must be alleged with specificity

41. As Leeming JA said in Nadinic v Drinkwater, supra, at [45] with reference to long-standing authority (and with concurrence of Beazley P (as her Excellency then was) and Sackville AJA):

“… an allegation of fraud (in the strong sense of deliberate falsehood or reckless indifference to the truth) is required to be pleaded specifically and particularised.”

42. The authorities to which his Honour referred include the following passage from the judgment of French CJ, Gummow, Hayne, and Kiefel JJ in Forrest v ASIC, supra, at [26] (citations omitted):

“It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. A pleading of fraud will necessarily focus attention upon what it was that the person making the statement intended to convey by its making. And the pleading must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity.”

43. A party alleging fraudulent intention or recklessness as to the truth or falsity of an allegedly false representation must state those allegations with particulars of the facts relied on in relation to that alleged condition of mind: Stewart v The Australia and New Zealand Banking Group Ltd [2020] NSWSC 1787 at [25].

44. As the cross-defendants submitted, the point is to ensure that the party against whom the fraud is alleged has a proper opportunity to address the allegation.

45. I accept the cross-defendants’ submission that the requirement for specific pleading with particularity applies to Technology and Construction List Statements and Cross-Claim Statements, although they are not strictly pleadings. Indeed, the cross-claimants did not submit to the contrary: YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110 at [50] (White JA, Macfarlan JA and Emmett AJA agreeing); Stewart v Australia and New Zealand Banking Group, supra, at [17]-[26].

The fraud allegation is not stated with sufficient specificity and particulars

46. According to the cross-claimants’ explanation of paragraph 45 at the hearing of the motions, paragraphs 45(i) and (ii) of the existing cross-claim and paragraphs 45(i)-(vii) of the proposed amended cross-claim set out both the basis on which each of the Representations and Further Representations are alleged to be false and the basis on which each of those twenty-two representations are alleged to have been made by “the Contractor” with reckless disregard or reckless indifference to the truth or falsity of the representations. The allegation in the existing cross-claim that the twenty-two representations were knowingly false can be disregarded, as it is to be withdrawn as indicated in the proposed amended cross-claim.

47. Contrary to the cross-defendants’ submissions, I consider that the words in the chapeau to paragraph 45, read together with sub-paragraph (a), clearly convey that the cross-claimants allege that each of the Representations and Further Representations was false.

48. However, it is not clear from the existing paragraph 45 or from the proposed amended form of paragraph 45 that the matters set out in sub-paragraphs (i) and following are relied on in support of the allegation of falsity and also in relation to the allegation that the representations were made with reckless disregard or reckless indifference as to their truth or falsity. That is due in part to the structure of paragraph 45, because sub-paragraphs (i) and following appear to be sub-paragraphs of paragraph 45(c) only. However, it is also due to the chapeau to sub-paragraphs (i) and following: “in that unbeknown to the Company”. Those words plainly have no relevance to whether the alleged representations were false. The alleged representations concern the achievability of specified dates for the completion of work, the achievability of the first and second cross-defendants’ program and resourcing plan, the first and second cross-defendants’ capability to achieve those dates and to deliver the works in according with their program and resourcing plan safely and in accordance with applicable work health and safety regulations, and the lack of awareness on the part of “the Contractor” of any information that was inconsistent with or likely to materially affect the achievement of those outcomes.

49. By introducing the issue of whether the matters in sub-paragraphs (i) and following of paragraph 45 were known to “the Company”, the cross-claimants have rolled up allegations of falsity and recklessness on the part of “the Contractor” with allegations as to the knowledge of “the Company” that appear to be relevant only to the question of reliance on the alleged representations.

50. For the reasons that follow, surgery to the structure of paragraph 45 and removal of the words “unbeknown to the Company” would not bring the paragraph into compliance with the requirements for pleading fraud.

51. Contrary to the cross-defendants’ submissions, I consider that the allegations in paragraphs 45(i)-(ii) of the existing cross-claim, and paragraphs 45(i)-(vii) of the proposed amended cross-claim do adequately state the facts relied on in support of the allegation that each of the representations was false. As I have referred to above, the twenty-two representations are in fact eleven representations allegedly made at two different times, and the subject matter of each of those representations is very closely related. The facts alleged in paragraphs 45(i)-(ii) of the existing cross-claim, and paragraphs 45(i)-(vii) of the proposed amended cross-claim, individually and taken together, correspond closely with the subject matter of the alleged representations. I do not consider that any prejudice to the cross-defendants or any embarrassment arises from an allegation that each of the alleged representations was false by reason of any, or any combination of, the matters in sub-paragraphs (i) and following of paragraph 45.

52. However, sub-paragraphs (i) and following of paragraph 45 (in both its existing and amended forms) do not serve as adequate particulars of the facts relied on in support of the allegation that each of the representations was made by “the Contractor” with reckless disregard or reckless indifference as to its truth or falsity.

53. The matters alleged in sub-paragraphs (i) and (ii), and in sub-paragraphs (iii)‑(vi) of the proposed amended paragraph 45, are directed to matters of alleged fact and not to the state of mind of any person said to be attributable to either or both of the first and second cross-defendants. If it is alleged that it is to be inferred from any of those facts that any person had a particular state of mind at the time that any of the representations were made, the cross-claimants are required to specifically state this.

54. Sub-paragraph (vii) refers to matters allegedly known by the first cross-defendant “and (or)” the second cross-defendant at the time of the alleged representations. However, sub-paragraph (vii) is plainly directed to the alleged falsity of the representations that “the Contractor” is said to have made to the effect that it was not aware of any information that was inconsistent with or likely to materially affect the achievement of the outcomes that are the subject of the other representations.

55. I accept the cross-defendants’ submissions that the principles referred to at [41]-[45] above require the cross-claimants to identify, in relation to each alleged representation, the person who is alleged to have had reckless disregard for or been recklessly indifferent as to the truth or falsity of the representation and the basis on which that person’s state of mind is said to be attributable to the first cross-defendant, the second cross-defendant or both of them (without simply conflating the two entities as “the Contractor”). Contrary to the cross-claimants’ submissions, that does not require them to plead evidence. It is not sufficient for the cross-claimants to point to individuals named in correspondence particularised under allegations of falsity and assert that the cross-defendants should be able to work out the substance of the fraud case against them.

56. None of the deficiencies in paragraph 45 referred to above are resolved by the proposed deletion of sub-paragraph (b).

57. For those reasons, paragraph 45 in its existing form, and in its proposed amended form, fails to state the allegations of fraud with sufficient precision and particularity and is also vague and embarrassing in that it rolls up notions of falsity, recklessness and reliance. The existing paragraph 45 is therefore struck out and leave to amend paragraph 45 in the manner proposed is refused.

58. It follows that paragraph 47 of the cross-claim, which derives its substance from the reference to paragraph 45 in the particulars, must also be struck out and that the reference to paragraph 47 in the particulars to paragraph 48 therefore falls away.

59. That disposes of the strike out and amendment motions. However, it is necessary to say something about the cross-claimants’ complaint about the timing of the strike out application.

Timing of the strike out application

60. The cross-claimants’ submissions were critical of the cross-defendants for failing to bring their strike-out application earlier. Indeed, it was suggested (at least implicitly) that the application was made for the purpose of circumventing compliance with directions for the filing of the cross-defendants’ lay evidence, which was due a few days after the cross-defendants first made their complaint about paragraph 45 of the cross-claim. Senior counsel for the cross-claimant submitted that the timing of the strike out application was, in itself, a reason why the strike out motion should be dismissed. Senior counsel referred to paragraph 62 of Practice Note SC Eq 3.

61. These criticisms levelled at the cross-defendants are entirely without merit. There would have been no need for a strike out application at all if the cross‑claimants had not alleged fraud without the requisite degree of specificity. That is what the cross-claimants did in the existing cross-claim. They steadfastly persisted in that course by their amendment motion. Of course, it would have been preferable if the cross-defendants had identified this fundamental defect in the cross-claim at an earlier stage of the proceeds. It would have been better still if the cross-claimants had not filed and served the cross-claim with the defective paragraph 45 in the first place.

62. Paragraph 62 of Practice Note SC Eq 3 is not a gateway for parties to maintain allegations of fraud without stating the basis of the allegations with the requisite degree of specificity and without providing the requisite particulars. The timing of the strike out application does not warrant its dismissal in all the circumstances of this case.

Other matters

63. I consider it appropriate to make the following brief observations about other issues raised by the parties, lest they otherwise arise again in relation to any further amendment application by the cross-claimants.

64. The cross-defendants submitted that the documents particularised under sub‑paragraphs (i)-(vii) of paragraph 45 in its proposed amended form do not provided a reasonable basis for the allegations in those paragraphs. In my opinion, those submissions revealed matters on which the allegations in sub‑paragraphs (i)-(vii) may be resisted at trial, and not an absence of a reasonable basis for pleading those allegations.

65. The cross-defendants also submitted that they would be prejudiced by the proposed amendments, including because the allegations would require them to adduce expert evidence. However, as the cross-claimants submitted, it is not clear how the substance of the proposed amendments to sub-paragraphs (i)-(vii) of paragraph 45 would call for expert evidence. The other claims of prejudice lack merit, in my opinion, in circumstances where the substance of the amendments arises out of documents and lay evidence of the cross‑defendants. In my opinion, any difficulties that the cross-defendants may encounter in dealing with the substance of their own contemporaneous documents and their own lay evidence would not rise to the level of prejudice that would warrant refusal of leave to amend. In any event, leave to amend is to be refused for other reasons.

Conclusion and orders

66. For all of the reasons above, the cross-defendants have succeeded on their strike out motion and the cross-claimants’ motion for leave to amend is dismissed save to the extent that it concerns the uncontroversial amendment to paragraph 35(a).

67. The cross-defendants submitted that they should have the costs of both motions if they were successful, and the cross-claimants did not make any submission to the contrary or indicate that they wished to be heard in relation to costs after judgment on the motions. I see no reason why the costs of both motions should not follow the event.

68. The cross-defendants proposed that the cross-claimants should submit for their consideration a proposed revised amended version of paragraph 45. If that is to be done, it should be done promptly. There will be a direction for any further amendment proposal to be submitted to the cross-defendants within 14 days, for the cross-defendants to indicate whether they consent to or oppose the amendments within a further 7 days thereafter, and for the matter to be listed for directions. By then, the parties will be in a position to address the appropriate directions for the ongoing conduct of the proceedings having regard to any whether further amendments are proposed and, if so, whether they are contested.

69. I make the following orders:

1. Order that paragraphs 45 and 47 and the reference to paragraph 47 in the particulars to paragraph 48 of the Amended Technology and Construction List Cross-Claim Statement are struck out.

2. Grant leave to the cross-claimants to amend the Amended Technology and Construction List Cross-Claim Statement by amending paragraph 35(a) in the manner indicated in the proposed Further Amended Technology and Construction List Cross-Claim Statement in exhibit TS‑1 to the affidavit of Todd Spiller sworn on 8 July 2021.

3. Order that the notice of motion filed by the cross-claimants on 8 July 2021 is otherwise dismissed.

4. Order that the cross-claimants are to pay the cross-defendants’ costs of the cross-defendants’ notice of motion filed on 14 May 2021 and the cross-claimants notice of motion filed on 8 July 2021, in such amount as is agreed or assessed.

5. Direct that the cross-claimants serve on the cross-defendants by 6 September 2021 any proposed amended pleading of the allegations that the Representations and Further Representations (as defined in the Amended Technology and Construction List Cross-Claim Statement) were false, were made with reckless disregard or reckless indifference at to their truth or falsity, and/or were made without reasonable grounds.

6. Direct that the cross-defendants notify the cross-claimants by 13 September 2021 whether any proposed amended pleading served in accordance with (5) above is opposed.

7. List the matter for directions in the Technology and Construction List on 17 September 2021.

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ANNEXURE

45 The Representations and the Further Representations were:

(a) false; or

(b) knowingly false; or [Not used]

(c) made wilfully, in that they were made with: (i) reckless disregard ; (ii) further or in the alternative, reckless indifference, as to whether they were true or false,

in that unbeknown to the Company:

(i) the First Cross-Defendant (which was the entity within the joint venture with responsibility for construction at the Mt Pleasant mine site) was in April 2018 insolvent, or near insolvent, and likely to be placed in administration;

Particulars

Notes 18 and 26.1 to the financial statements and reports of fourth Cross-Defendant for the financial year ended 31 December 2018 lodged with the Australian Securities and Investments Commission, document number 7EAK85978.

Letter dated 19 November 2018, from DRA (Carvelas) to MACH Energy (Purnamasidi) [MAC.0010.0017.03135] at p.4

Unincorporated Joint Venture Agreement between the First Cross-Defendant and the Second Cross-Defendant dated on about 2 November 2016, schedule 4 [MAC.1004.0001.53595]

(ii) the Contractor had significantly under-stated the time and cost to complete the Works under the Contract resulting in the Second Cross-Defendant making a provision in its accounts of approximately $52 million for additional costs expected to be incurred to complete the Contract over and above the costs originally budgeted for.

Particulars

Notes 18 and 26.1 to the financial statements and reports of fourth Cross-Defendant for the financial year ended 31 December 2018 lodged with the Australian Securities and Investments Commission, document number 7EAK85978

(iii) from at least April 2018, First Cross-Defendant was more focussed on its own commercial outcomes within the joint venture between the First Cross-Defendant and the Second-Cross Defendant than it was on delivering the best for the project outcomes for all parties, which outcomes included achieving the Dates for Practical Completion;

Particulars

Letter from Mr Carvelas of the Second Cross-Defendant to Mr Purnamasidi of the First Cross-Claimant dated 19 November 2018 [MAC.0010.0017.03135]

(iv) the delivery of the best for project outcomes for all parties necessitated at least wholesale changes to, or control of, the First Cross-Defendant's site management staff by the Second Cross-Defendant (because construction of the Project was the responsibility of the First Cross-Defendant as between the First Cross-Defendant and the Second Cross-Defendant);

Particulars

Letter from Mr Carvelas of the Second Cross-Defendant to Mr Purnamasidi of the First Cross-Claimant dated 19 November 2018 [MAC.0010.0017.03135]

(v) the Second Cross-Defendant could not make wholesale changes to. or take control of. the First Cross-Defendant's site management staff. or take any other steps to deliver best for project outcomes, until it took control of the First Cross-Defendant;

Particulars

Letter from Mr Carvelas of the Second Cross-Defendant to Mr Purnamasidi of the First Cross-Claimant dated 19 November 2018 [MAC.0010.0017.03135]

(vi) any negotiation between the First Cross-Defendant and the Second Cross-Defendant as at April 2018 for the control of the First Cross-Defendant would take weeks, if not months, to be concluded;

Particulars

This fact is inferred from the following (which were also not known by the Company as at the date of the SVA or the receipt by it of notice of the satisfaction of the conditions precedent to the SVA operation):

(A) the First Cross-Defendant and the Second Cross-Defendant had been in negotiation for the control of the First Cross-Defendant since at least 10 March 2018; see the affidavit of Mr Michael Crowe dated 17 May 2021 (Crowe Affidavit) at [65];

(B) The Second Cross-Defendant had been, and was, reluctantly negotiating with the First Cross-Defendant for its acquisition; see letter dated 19 November 2018, from DRA (Carvelas) to MACH Energy (Purnamasidi) [MAC.0010.0017.03135] at p.4;

(C) The Second Cross-Defendant's parent, DRA Global Ltd, finally acquired the First Cross-Defendant in August 2018: see the Crowe Affidavit at [14];

(vii) further and in the alternative to (i) to (vi) above:

(A) as at 23 March 2018 and at all material times thereafter:

1. the First Cross-Defendant and (or) Second Cross-Defendant knew (but did not communicate to the Company) that they could not estimate or measure, alternatively, had not or could not fully estimate or measure. the amount of re-work (being defect repair or works to correctly dimension. cut or size the Second Cross Defendant-sourced structural steel and other elements for installation or erection at the site), and for those reasons estimate the time that would be required to undertake such rework, which work would need to be performed by the First Cross-Defendant, the Second Cross-Defendant or either of them, in order for the Cross-Defendants to achieve Practical Completion of SP1, SP2 and SP3 (or any of them);

2. the First Cross-Defendant and (or) Second Cross-Defendant knew (but did not communicate to the Company) that the said completion dates then being proposed by them for Practical Completion of SP1. SP2 and SP3 (being SP1 - 7 September 2018, SP2 - 9 October 2018 and SP3 - 20 December 2018) (or any of them) were not based on any tested, or known, or verifiable assumptions regarding the amount of and duration of re-work activities that would need to be performed by the First Cross-Defendant, the Second Cross-Defendant or either of them to achieve Practical Completion of SP1, SP2 and SP3 (or any of them);

3. the First Cross-Defendant and (or) Second Cross-Defendant knew (but did not communicate to the Company) that the said completion dates then being proposed by them for Practical Completion of SP1, SP2 and SP3 (as above) would not be met if an allowance was made in the program of the amount of and duration of re-work activities that would need to be performed by the First Cross-Defendant, the Second Cross-Defendant or either of them to achieve Practical Completion of SP1, SP2 and SP3 (or any of them);

Particulars

(i) Particulars of the dates then being proposed by the First Cross-Defendant. the Second Cross-Defendant (or either of them) are contained in an internal email by Mr Grinsell forwarded to Mr Crowe (for the First Cross-Defendant and the Second Cross-Defendant) dated 22 March 2018 [CDJ.017.011.6797] and [CDJ.017.011.6798]: see the Crowe Affidavit at [77[ and [78];

(ii) Particulars of the programming assumptions being made by the by the First Cross-Defendant, the Second Cross-Defendant (or either of them), and the effects of those programming assumptions are contained in an internal email between Mr Grinsell, Mr Crowe and Mr Kennedy (or the First Cross-Defendant and the Second Cross-Defendant) dated 23 March 2018 [CDJ.017.001.4735]; see the Crowe Affidavit at [82];

(B) as at 5 April 2018 and at all material times thereafter, the First Cross-Defendant and (or) the Second Cross-Defendant knew (but did not communicate to the Company) that the Dates for Practical Completion of SP1 and SP2 (being about 22 August 2018 in respect of SP1 and 9 October 2018 in respect of SP2) could not be met, alternatively, would not be met, or alternatively were at risk of not being met;

Particulars

This fact is inferred from the following facts (or any of them):

(i) the facts referred to in particular (viii)(A) above;

(ii) by his email dated 5 April 2018, Mr Crowe advised Mr MacDonald, Mr Smith, Mr Massey and Mr Allen (of the First Cross-Defendant and the Second Cross-Defendant) that, during negotiations with Mr Winter, Mr Crowe had got "the removal of the incentive from SP1 & 2 into areas where" the First Cross-Defendant and the Second Cross-Defendant "will recover the incentive based on the site teams advice". By this sentence Mr Crowe conveyed the fact that, based on the site teams advice, the Dates for Practical Completion then being proposed for SP1 and SP2 would not be achieved (such that no incentive would be recoverable by the First Cross-Defendant and the Second Cross-Defendant if attached to those proposed dates). See the Crowe Affidavit at [88], [CDJ.028.005.0612];

(iii) by his email dated 14 April 2018, Mr Crowe advised Mr Humphrey. Mr Kennedy, Ms Janson, Mr Grinsell and Mr Collins (of the First Cross-Defendant and the Second Cross-Defendant) that the Date for Practical Completion of SP1 would not be achieved by the date then being proposed (22 August 2018) and that there was some risk that the Date for Practical Completion of SP2 would not be achieved by the date then being proposed (9 October 2018). See the Crowe Affidavit at [95] [CDJ.017.001.5834].

Amendments

23 August 2021 - Corrected typographical error within coversheet

Decision last updated: 23 August 2021