Heavy Plant Leasing Pty Ltd (In Liquidation) v McConnell Dowell Constructors (Aust) Pty Ltd (No 2)

[2022] NSWSC 1775

Supreme Court

New South Wales

Medium Neutral Citation:

Heavy Plant Leasing Pty Ltd (In Liquidation) v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2022] NSWSC 1775

Hearing dates:

26, 27, 28, 29 September, 5, 6, 10, 11, 12, 17, 18, 19, 20, 27, 28, 31 October, 1 November 2022; further written submissions 24, 25, 28, 29, 30 November and 7 December 2022

Date of orders:

21 December 2022

Decision date:

21 December 2022

Jurisdiction:

Equity - Technology and Construction List

Before:

Stevenson J

Decision:

Plaintiff’s claim to be dismissed. Cross-claimant to be granted relief sought in its Amended Technology and Construction List Cross-Claim Statement in accordance with these reasons

Catchwords:

CONTRACTS – contract for civil works – proper construction – where subcontractor in breach of contract failed to pay secondary subcontractors – whether principal thereby entitled to withhold payment on basis that funds reasonably required to meet contingent loss or damage – where payments of payment claims by principal to subcontractor provisional and on account only – whether principal entitled to de-certify previously certified provisional payments – whether an implied term of the contract that principal act reasonably and in good faith – whether principal acted in breach of obligation to act in good faith in de-certifying previously certified provisional payments – whether principal under subcontract entitled to terminate subcontract – measure of damages recoverable – whether principal has established quantum of its loss

BUILDING AND CONSTRUCTION – whether principal under subcontract entitled to terminate subcontract – measure of damages recoverable – whether principal has established quantum of its loss

BUILDING AND CONSTRUCTION – where principal required to take over construction works – where principal incurred greater costs than subcontractor – principles to be applied when assessing damages claimed by a principal who completes work after the default of the subcontractor

CORPORATIONS – insolvency – whether subcontractor became insolvent by reason of principal’s conduct in breach of contract – whether subcontractor was insolvent at all times from October 2012 – unfair preferences claim – alternate claim brought in circumstances where non-payment of certified amounts not found to be in breach of contract – whether withholding of monies amounts to unfair preferences for the purposes of s 588FA of the Corporations Act 2001 (Cth) – whether conduct characterised as a retention or set-off

Legislation Cited:

Building and Construction Industry Payments Act 2004 (Qld)

Building and Construction Industry Security of Payment Act 1999 (NSW)

Building Industry Fairness (Security of Payment) Act 2017 (Qld)

Civil Procedure Act 2005 (NSW)

Corporations Act 2001 (Cth)

Queensland Building Services Authority Act 1991 (Qld)

Subcontractors’ Charges Act 1974 (Qld)

Cases Cited:

Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123

Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 174

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 226; [1977] UKPCHCA 1

Clark v Boehm [2015] VCAT 1879

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24

Dillion v Jack (1903) 23 NZLR 547

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Fulton v Dornwell (1885) 4 NZLR 207

Galileo Miranda Nominee Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 1157

Jingalong Pty Limited v Todd [2015] NSWCA 7

John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681

Kell & Rigby Holdings Pty Limited v Lindsay Bennelong Developments Pty Ltd [2010] NSWSC 777

Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184

McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd [2013] QSC 269

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Perini Corporation v Commonwealth of Australia [1969] 2 NSWR 530

Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10

Ratcliffe v Evans [1892] 2 QB 524

Reardon Smith Line Ltd v Hansen-Tangen; Hansen-Tangen v Sanko Steamship Co [1976] 1 WLR 989; [1976] 3 All ER 570

Robinson v Harman (1848) 154 ER 363

Serong v Dependable Developments Pty Ltd [2009] VCAT 760

Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; [1931] HCA 21

Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284

Tabcorp Holdings Limited v Bowen Investments Pty Limited (2009) 236 CLR 272; [2009] HCA 8

Taylor v Oakes, Roncoroni and Co (1922) 127 LT 267; [1922] All ER Rep Ext 866

Texts Cited:

H Lloyd KC, I Hitching KC and M Curtis KC, Emden’s Construction Law (Issue 217, 2022, LexisNexis United Kingdom)

Halsbury’s Law of England (5th ed), vol 6 (2018)

Nicholas Dennys and Robert Clay, Hudson’s Building and Engineering Contracts (14th ed, 2020, Sweet & Maxwell)

P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters)

R Havelock, “The Availability of Liquidated Damages Following Determination of the Construction Contract” (2013) 29 Building and Construction Law Journal 385

T Kennedy-Grant and M Weatherall, Kennedy-Grant and Weatherall on Construction Law (2nd ed, 2017, LexisNexis New Zealand)

The Laws of New Zealand (2022, LexisNexis New Zealand)

Category:

Principal judgment

Parties:

Heavy Plant Leasing Pty Ltd (In Liquidation) (Plaintiff/Cross-Defendant)
McConnell Dowell Constructors (Aust) Pty Ltd (Defendant/Cross-Claimant)

Representation:

Counsel:
M Dempsey SC with J Shepard, M E Sheldon and W Marshall (Plaintiff/Cross-Defendant)
D Cook SC with T J Cogley, J A Wright, M Rose and
A Flick (Defendant/Cross-Claimant)

Solicitors:
Banton Group (Plaintiff/Cross-Defendant)
Norton Rose Fulbright (Defendant/Cross-Claimant)

File Number(s):

2017/51274

Judgment

The Contract

Principles

Clause 3.1

Clause 3.5(c)

Clause 18.1

Clause 25

Clause 10

The alleged implied term

The true source of MacDow’s rights

Credit

The res judicata point

Events leading to termination

HPL’s failure and evident inability to pay the HPL Subcontractors

Payment Claim 14

Payment Claim 15

The Fluor charges

The Certified Amounts placed “on hold”

A crisis point is reached

Egans

Payment Claim 16

MacDow’s 25 February 2013 Payment Schedule

The 28 February 2013 meeting

Payment Certificate 16 – the $17,124,956.84 “negative assessment” or “de-certification”

Dealings with Fluor concerning rippable rock

Dealings with Fluor concerning extra over compaction

The process leading to Payment Certificate 16

The statements made in Payment Certificate 16

The retention of $3,862,277.07 – “the Second Set-off”

ANZ appointment of receivers

Termination

MacDow completed the works

Did Payment Certificate 16 constitute a breach of the Contract?

A commercial decision to terminate the Contract notwithstanding HPL’s satisfactory performance? Commercial List Statement at par C98(a)(i)

Commercial decision not to pay HPL if Fluor continued not to pay MacDow? Commercial List Statement at par C98(a)(ii)

Commercial decision not to pay HPL or the HPL Subcontractors other than those critical to completion of the works? Commercial List Statement at par C98(a)(iii)

Taking account of Fluor’s assessment of the value of works rather than its own assessment of what was payable under the Contract? Commercial List Statement at par C98(b)

Made without a reasonable basis? Commercial List Statement at par C98(c)

Made notwithstanding MacDow’s belief that more than $7.75 million was due or would be due to HPL? Commercial List Statement at pars C98(d) and C100

Conclusion concerning Payment Certificate 16

Was MacDow entitled to rely on cl 25.2 and withhold payment of the Certified Amounts (the $5,836,837.63 in Payment Certificate 14A and the $7,898,918.42 in Payment Certificate 15) and the $3,862,277.07

The 28 February 2013 Agreement

MacDow not in breach of the Contract

Was MacDow entitled to terminate the Contract?

ANZ’s appointment of receivers to HPL

HPL’s breach of cl 3.5(c)

Insolvency

When did HPL become insolvent?

The amount of Payment Certificate 14A

The rent obligations

Preference claim

Quantum

The Quantity Surveying experts

The Amount Paid to HPL

MacDow’s Cost to Complete

Principles

The “unexplained disproportion” point

What MacDow did to complete the works

The process undertaken by MacDow to prove its Cost to Complete

The “not proven” point

Costs outside HPL’s scope of works under the Contract

Costs caused by Fluor

Money recovered from Fluor

MacDow’s response to Mr Bolt’s six points

Variations

Rework costs

Productivity, delay and disruption

Activities beyond HPL scope

Insufficiently detailed invoices

Work outside relevant time periods

Conclusion on the “not proven” point

The elements of MacDow’s Cost to Complete Claim

Subcontractors/Materials & Consumables/Plant

Overheads and management

Amount MacDow would have paid HPL – the Adjusted Contract Sum

Contract works

Screw piling

Pond surface preparation

Measurement

Variations

Variation 22 – Type 1 and Type 2 piles – “boodling”

Variation 29/breach of contract – stand down of plant March to June 2012

Variation 30 – provision of surveyor

Variation 46 – HUB City laydown area

Variation 49 – revision to screw piling

Variation 52 – haulage

Back Charges

Surveying costs after 18 March 2013

Conclusion

Judgment

1. A decade ago, Santos Limited embarked on the Santos GLNG project. The project related, amongst other things, to the extraction, compression and transportation of coal seam gas in Southern Queensland. The relevant part of the project was constructed in the Roma region on a 54 hectare project site which accommodates four large evaporation ponds and a compressor hub station. The object of the completed project was the conversion of coal seam gas into a form capable of being transported by a pipeline to a site in Gladstone for further processing into liquefied natural gas, for export to Asia.

2. The project site is depicted in this aerial photograph:

3. Santos appointed Fluor Australia Pty Ltd as its head contractor for the project. Fluor subcontracted work on what was described by the parties as the “Roma Hub” to the defendant, McConnell Dowell Constructors (Aust) Pty Ltd (“MacDow”).

4. In turn, MacDow subcontracted civil works, including major earthworks, to Reed Constructions Australia Pty Ltd. Reed Constructions was to perform bulk earthworks and other construction works necessary to build concrete pads on which a compressor hub station and other equipment, such as turbines and a desalination plant, were to rest, as well as four evaporation ponds.

5. On 30 November 2011, MacDow and Reed Constructions entered into a subcontract (“the Contract”) in respect of these works.

6. Reed Constructions subcontracted that work to a large number of secondary subcontractors. Apart from supervisory work, Reed Constructions itself did no work on the site, otherwise than through subcontractors.

7. Reed Constructions was an entity within what the parties described as the “Reed Group”, being a number of companies founded, and to a large extent then owned, by Mr Geoffrey Reed.

8. The Reed Group collapsed in 2012. Reed Constructions entered voluntary administration on 15 June 2012.

9. Two days earlier, on 13 June 2012, the Contract was novated to the plaintiff, Heavy Plant Leasing Pty Ltd (now in liquidation) (“HPL”). HPL was part of the Reed Group known as the “Heavy Plant Group” which owned a fleet of heavy plant and equipment hired to mine operators or companies undertaking construction works at mine sites.

10. On 14 March 2013, Australia and New Zealand Banking Group Ltd (“ANZ”) appointed receivers and managers to HPL.

11. On 18 March 2013, MacDow purported to terminate the Contract. On 21 March 2013, HPL treated MacDow’s purported termination of the Contract as a repudiation of it and purported itself to terminate the Contract.

12. Between March and December 2013 MacDow completed the works the subject of the Contract.

13. These proceedings concern the question of whether MacDow was entitled to terminate the Contract. It is common ground that if MacDow was not entitled to terminate then its purported termination was a repudiation of the Contract entitling HPL to terminate.

14. Depending on the answer to that question, further questions arise as to the damages to which MacDow or HPL are entitled arising from the termination of the Contract and MacDow’s completion of the works.

15. The central questions are whether:

1. MacDow was entitled to rely on cl 25.2 of the Contract to retain two amounts, in the order of $5.8 million and $7.9 million, that it had in January and February 2013 certified as being payable by it to HPL (“the Certified Amounts”); and

2. MacDow’s “de-certification” in March 2013 of amounts provisionally allowed and paid on account of particular works ^[1] constituted a breach by MacDow of an implied term of the contract to which I will return.

   1. Referred to by the parties as “rippable rock” and “extra over compaction”; I return to these matters below.

16. To a very large extent, the answer to these matters depends upon the proper construction of the terms of the Contract. For that reason, I will immediately turn to the relevant provisions and their proper construction.

The Contract

Principles

17. There was no dispute before me as to the principles concerning the construction of commercial contracts.

18. A court in interpreting a provision of a document has regard to its words, its context and the purpose of the document as a whole. The leading modern statement on the importance of context and purpose is found in the reasons of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:^[2]

“The rights and liabilities of parties under a provision of a contract are determined objectively,^[3] by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. ^[4]

…

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. ^[5]

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. …” ^[6]

2. (2015) 256 CLR 104; [2015] HCA 37.

3. Citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656; [2014] HCA 7 at [35].

4. Citing Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350, 352; [1982] HCA 24; and Reardon Smith Line Ltd v Hansen-Tangen; Hansen-Tangen v Sanko Steamship Co [1976] 1 WLR 989; [1976] 3 All ER 570.

5. Citing Codelfa Construction at 352.

6. At [46] and [48]-[49].

19. Further, as has also been correctly stated, concerning contracts generally:

“… the only relevant meaning is that which the text conveys. This follows from the need to ascertain the intention expressed in the document. Although … context and purpose are relevant, ultimately the court must attribute meaning to the words actually used.” ^[7] (Emphasis in original.)

7. P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [19.60].

20. The following clauses in the Contract are relevant to the dispute before me. As the Contract was novated from Reed Constructions to HPL, I will refer only to HPL.

Clause 3.1

21. By cl 3.1 of the Contract HPL agreed to execute the Contract works in a professional and competent manner and represented and warranted that, relevantly, it was and would remain at all times solvent.

Clause 3.5(c)

22. By cl 3.5(c) HPL undertook to:

“[D]ischarge all debts and liabilities which may be owing from time to time to all its … subcontractors on the due date, failing which MacDow may (but shall not be obliged) pay and satisfy the same and deduct any amount so paid from any money at any time due to [HPL] under this [Contract], including by set-off against payment otherwise due to [HPL], or where insufficient money is so due, to recover such payment as debt.”

23. For the reasons I develop below, HPL’s obligation under cl 3.5(c) to pay its subcontractors (to whom I will refer as the “HPL Subcontractors”) constituted a vital component of its obligations under the Contract. It was HPL’s failure, and indeed evident inability, to comply with its obligations under this clause that in February 2013 led MacDow to exercise its rights under cl 25.2 of the Contract to retain the Certified Amounts.

24. Further, as I explain below, in early 2013 MacDow exercised its right under cl 3.5(c) to pay some of the HPL Subcontractors directly, giving rise to an entitlement to set-off those payments against payments otherwise due by it to HPL.

Clause 18.1

25. Clause 18 of the Contract was headed “MacDow’s right to set-off”.

26. Clause 1.6 of the Contract provided that headings may be used to interpret the provisions in the General Conditions of the Contract “where there is uncertainty or ambiguity”.

27. Clause 18.1 provided:

“MacDow shall be entitled to deduct and set off from any moneys … otherwise owing to [HPL] under this [Contract] or otherwise, and where these moneys are insufficient, to recover from [HPL] as a debt due, the amount of any claim for loss, damages, costs or expense which has been incurred by MacDow by reason of any breach of, or failure to observe, the provisions of this [Contract] by [HPL], or which is otherwise owed to MacDow, or which is awarded to MacDow in any arbitration or litigation in connection with [the Contract].” (Emphasis added.)

28. As is evident from its terms, MacDow was only entitled to exercise the right to “set-off” provided for by cl 18.1 if it had in fact incurred a cost or expense. This was an additional entitlement available to MacDow to that in cl 3.5(c) if, as happened, MacDow directly paid any of the HPL Subcontractors directly following a breach by HPL of its obligations under cl 3.5(c) to pay those Subcontractors.

29. As I explain below, on 25 February 2013, MacDow purported to exercise its right to set-off under cl 18.1.

30. However, before me, MacDow accepted that it was not entitled to do so.

Clause 25

31. A vital clause in the Contract is cl 25 which was headed “Other Indemnities” and provided:

“25.1   [HPL] shall indemnify and save harmless MacDow from and against any claims, actions or proceedings, and any loss, damages, costs (including legal costs on an indemnity basis) and expenses, arising from or in connection with any breach of its obligations under this [Contract].

25.2   MacDow shall be entitled to retain out of any payment which would otherwise be payable to [HPL] … ^[8] such monies as MacDow may reasonably require to meet any contingent claim, action, proceeding, loss, damages, costs or expenses arising from or in connection with any breach by [HPL] of its obligations under this [Contract] or which are deemed to be owing by [HPL] to MacDow pursuant to this [Contract].”

8. Omitting words “or deduct from any retention or from any monies available upon conversion to money of a performance surety” which neither MacDow nor HPL contended were relevant to the proper construction of the clause.

32. The clause imposed on HPL the obligation of indemnity in cl 25.1 and conferred on MacDow the entitlement of retention in cl 25.2.

33. The clause did not provide for right of set-off and was clearly intended by the parties to confer on MacDow rights additional to those contained in cll 3.5(c) and 18.1; hence the heading “Other Indemnities”.

34. Clause 25.2 had a number of elements.

35. First, MacDow’s entitlement under cl 25.2 was, relevantly, only enlivened if HPL was in breach of its obligations under the Contract.

36. Second, MacDow’s entitlement to retain payment otherwise payable (such as the Certified Amounts) only arose if there was a “contingent claim, action, proceeding, loss, damages, costs or expenses” arising from or in connection with such a breach.

32. There was, initially, debate before me as to whether the word “contingent” should be read distributively, so that MacDow’s entitlement arose if there was a “contingent” claim, or action, or proceeding, or loss, or damages, or costs, or expenses arising from or in connection with a breach by HPL of the Contract. On behalf of HPL it was initially submitted that the word “contingent” only governed the following words “claim”, “action” and “proceeding” and that the clause should be read so that the “loss, damages, costs or expenses” must arise from a “contingent claim, action, or proceeding.” ^[9]

    9. As put at tcpt, 27 October 2022, p 1134(20); although in written reply submissions, this position appeared to be withdrawn, it being accepted that “contingent” should be read distributively.

33. I do not see how cl 25.2 can be read this way. The natural reading of the words used in the clause is that the word “contingent” governs each of the following words, “claim, action, proceeding, loss, damages, costs or expenses”. Ultimately, HPL accepted that this was so.

34. That reading is confirmed when the wording in cl 25.2 is contrasted with that in cl 25.1 which speaks of an indemnity against claims, actions or proceedings “and” loss, damages and costs and expenses.

35. Had the parties intended that the word “contingent” in cl 25.2 govern only claim, action and proceedings, they would have placed the conjunction “and” between “proceeding” and “loss” (as they did in cl 25.1).

36. This is a vital point, as MacDow’s contention in this case is that, from February 2013, it faced a “contingent” “cost” or “expense” being an obligation to pay the HPL Subcontractors in order to keep them on site or, as happened, itself to complete the works.

37. Third, MacDow was only entitled to retain such monies as it may “reasonably require” to meet, relevantly, any contingent costs or expense. It is common ground that that question must be determined objectively and that, as the language of the clause states, MacDow was obliged, in exercising the power, to act reasonably.

38. The restraint thereby imposed on MacDow’s exercise of the power under cl 25.2 meant MacDow could not retain monies referable to a contingent loss or expense that was obviously fanciful or known to MacDow to be without foundation or unlikely to be realised. But the coupling of the restraint on retention only of monies “reasonably required” with the need to meet “contingent” losses or expenses made clear in my opinion that such losses or expenses need not be ones that would certainly be incurred and could include losses or expenses that were likely to, or even might possibly, be incurred.

39. Fourth, the contingent loss or expense must arise from or be in connection with a breach by HPL of its obligations under the Contract. In that regard HPL submitted in reply:

“… no loss, damage, cost or expense can ^[10] be retained under cl 25.2 unless arising out of or connected to a breach in respect of which that loss, damage or expense flows, or will flow on a contingency being satisfied.”

10. The submissions read “cannot”, however, it is clear that this was a typographical error.

45. If that submission was intended to mean, as was put orally, that it was necessary that MacDow identify to which breach each amount retained related, I do not accept it. What the clause entitled MacDow to do was retain “such monies” as it “may reasonably require” to meet “any” contingent loss or expense arising from or in connection with “any” breach by HPL of the Contract. MacDow did not have to identify to which particular breach each retained sum related.

46. The retention by MacDow of funds must, however, as HPL submitted, have related to an existing breach by HPL of the Contract.

47. HPL contended a further element of cl 25.2 was that MacDow could only retain payment for so long as the retained amount was “reasonably” required to meet the relevant contingency. An amount retained by MacDow in relation to monies said to be due to a HPL Subcontractor, Egans Mining Services Pty Ltd, arises for consideration in this respect, as I discuss below.

Clause 10

48. The provisions to which I have so far referred are within the “General Conditions” of the Contract.

49. In the “Schedule to the General Conditions” of the Contract was a “Part B” containing cl 10, headed “Payment”. ^[11]

    11. For convenience I will herein refer simply to “Part B” of the Contract.

50. Clause 10.1 made provision for HPL to make a “Payment Claim” each calendar month setting out the value of the work done in the preceding month. As I discuss below, it is Payment Claims 14, 15 and 16 made in early 2013 which are central to this dispute.

51. Clause 10.4 obliged MacDow to issue to HPL within 10 business days of receipt of a Payment Claim a “Payment Certificate” which was to state “the payment which, in the opinion of MacDow, is to be made by MacDow” to HPL. MacDow was obliged to give reasons for any difference between the amount claimed in the Payment Claim and the amount provided for in the Payment Certificate.

52. Clause 10.5 provided that the issue of the Payment Certificate, or the payment of monies:

“… shall not be evidence of the value of work or an admission of liability or evidence that work has been executed satisfactorily, but shall be provisional or on account only.” (Emphasis added.)

53. Thus, cl 10.5 stated that any payments made in response to a Payment Claim were “provisional” and “on account only”.

54. Consistently with this, cl 10.2 spoke of “interim payments” and provided, that subject to cl 10.5, “interim payments” ^[12] would comprise the total value of the works properly executed and materials and goods properly provided, less amounts previously paid:

“… but MacDow shall be entitled to take into account any dispute, withholding, claim, set-off, defence or counter claim of [Fluor] or of MacDow in respect of or arising out of [the Contract] Works or any act of default of [HPL], its servants or agents.” (Emphasis added.)

12. This part of the Contract referred to no other sort of “payments”.

55. Clause 10.2 spoke of MacDow being entitled to “take into account”, relevantly, a “dispute” with Fluor (that is a dispute between MacDow and Fluor), or a “withholding” by Fluor (that is withholding of payments otherwise due from Fluor to MacDow). The subject of cl 10.2 was “interim payments”, to be measured against the value of the works to date and amounts previously paid. It was in respect of these matters that MacDow was “entitled to take into account” a dispute it had with Fluor. There were many such disputes. One way in which MacDow could so “take into account” such matters would be, when determining whether to make the “interim payments” of which the clause speaks, to consider the value of the works done to date. As I discuss below, this issue arises in relation to MacDow’s assessment of HPL’s Payment Claim 16 and MacDow’s issue of Payment Certificate 16.

56. In reply submissions delivered after the close of oral addresses, HPL submitted that cl 10.2 did not permit MacDow to “take into account” a “capricious, irrational refusal by Fluor to approve variations claimed by MacDow”. HPL submitted that MacDow could only “take into account” a dispute with Fluor if the dispute “rationally [bore] upon a reasonable assessment of the value of the work performed by HPL under [the Contract]” or had a “rational bearing upon the objective value of the work performed by HPL”.

57. But this is to read into cl 10.2 words which are not there. The clause permits MacDow to take into account “any” dispute with or withholding by Fluor (and so on).

58. It is common ground that the Contract was not a “pay when paid” contract in that it did not permit MacDow to withhold payment from HPL merely because Fluor had withheld a corresponding payment from MacDow. But cl 10.2 did provide MacDow a basis on which it was able to “take into account”, including to its advantage, the manner in which its head contractor, Fluor, dealt with it under their contract (“the Head Contract”); including as to the amounts “to be paid” for works or the value of works executed to date.

59. Clause 10.8 provided, relevantly:

“As a condition precedent to any entitlement to payment, and if so directed by MacDow, [HPL] shall provide, together with [HPL]'s Payment Claim …,

a) a statutory declaration by a representative of [HPL];

i) that all [suppliers ^[13] and] workers who have at any time been employed by [HPL] on work under [the Contract], have at the date of submission of [HPL]’s Payment Claim …, been paid monies due and payable to them in respect of their employment on the work under [the Contract] …

13. Added to cl 10.1 by cl 4.3 of the Deed of Novation.

…

iii) not more than 5 business days before the payment is due in regard to the relevant claim, that all [HPL subcontractors] have been paid all monies due and payable to them in respect of the work under [the Contract] …

…

and

b) documentary evidence that, at the date of the direction, all [suppliers and] workers who have been employed by a [HPL subcontractor] have been paid all monies due and payable to them in respect of their employment on the work under [the Contract].

Notwithstanding that MacDow has not given a direction as provided in the first paragraph of this clause 10.8;

A) by submitting a [Contractor’s] Payment Claim …, [HPL] is deemed to be providing its warrant that [HPL] is in compliance with the matters referred to in paragraphs (a) (i), (ii) and (iv) of this clause 10.8; and

B) notwithstanding that a Payment … has been issued, MacDow may at any time, and from time to time, not less than 10 days prior to the date when a payment is due to be made to [HPL], require [HPL] to submit a statutory declaration in the terms referred to in paragraph (a), and documentary evidence as referred to in paragraph (b).”

60. The relevance of this clause is that, from December 2012, HPL provided statements ^[14] that not only did not state that the HPL Subcontractors had been paid all money due and payable to them but accepted and asserted that some had not.

    14. Not statutory declarations as required by cl 10.8(a) but MacDow eschewed taking that point before me.

61. In that context, there was debate as to the significance of the words “and if so directed by MacDow” in the chapeau to cl 10.8 and, in particular, whether those words qualified the earlier words in the chapeau that the provision of the relevant statement was a “condition precedent to any entitlement” of HPL to payment of the relevant Payment Claim.

62. HPL submitted that “the condition precedent in Clause 10.8 is only enlivened if MacDow directs the provision of the statutory declaration” referred to in cl 10.8.

63. Clause 10.8 is awkwardly worded, but I do not think its effect is as HPL contended.

64. The direction referred to in the chapeau to cl 10.8 was again referred to in cl 10.8(b). Whereas cl 10.8(a)(i) obliged HPL to provide a statutory declaration that suppliers and workers had been paid, cl 10.8(b) provided that, in addition to such a declaration, HPL must provide “documentary evidence” that “at the date of the direction” suppliers and workers had been paid all monies due and payable to them.

65. That suggests, as MacDow submitted, that the words in the chapeau “and if so directed by MacDow,” were directed to the provision of the “documentary evidence” referred to in cl 10.8(b) and were not intended by the parties to be a qualification to the condition precedent specified at the outset of cl 10.8.

66. The better reading of cl 10.8 is, thus, that a condition precedent to an entitlement to payment of a Payment Claim was a statutory declaration setting out the matters specified in (relevantly) cl 10.8(a)(i) and (iii) and, if MacDow directed the provision of “documentary evidence” of payment of monies due and payable to suppliers’ workers, also the provision of that documentary evidence.

67. I think that MacDow was correct to submit that this reading of the clause is made clear by the provision in the chaussure to cl 10.8 which provided that, notwithstanding MacDow not having given a direction of the kind earlier specified, HPL was deemed to have provided a warranty that it had complied with, relevantly, cl 10.8(a)(i) (the payment of all monies due and payable to its suppliers) when it submitted its Payment Claim.

68. As MacDow submitted:

“… this makes commercial sense: it would be critical to have a declaration before any Payment Claim was considered but if MacDow was satisfied with the integrity of that declaration, it would not necessarily require HPL to go to the cost and effort of providing documentary evidence for each Payment Claim.”

69. Further, as MacDow submitted, the reference in subpar (B) to a statutory declaration was evidently a reference to a further statutory declaration to be called for after the Payment Claim had been made. The clear purpose of that clause was to give MacDow the right, up to 10 days before a Payment Certificate was due, to ensure that at that later point in time, HPL was still in compliance with its obligation to pay the HPL Subcontractors.

70. Thus, my conclusion is that, whether or not MacDow gave a “direction” of the kind referred to in cl 10.8, the clause provided that it remained a condition precedent to HPL’s entitlement to payment of a payment claim that it provide a statutory declaration to the effect that all HPL Subcontractors had been paid.

71. As I set out below, during the critical period between December 2012 and March 2013, HPL did not provide any statutory declarations but, rather, provided “Subcontractor Statements” signed by Mr Reed. MacDow takes no point by reason of the provision of a statement, rather than a statutory declaration. The wider point is that, as I describe below, those statements did not assert that all HPL Subcontractors had been paid. On the contrary, they stated in terms that some had not; thus establishing that the condition precedent in cl 10.8 had not been met.

72. But at no point did MacDow then contend that this itself was a reason to withhold payment. Between December 2012 to March 2013, MacDow responded to HPL’s payment claims (by issuing payment schedules) without raising this issue as a basis for withholding payment.

73. I think HPL was correct to submit that MacDow thereby waived any right to rely on non-fulfilment of the cl 10.8 condition precedent as being, itself, a basis to withhold payment.

The alleged implied term

74. HPL alleges that there were implied terms of the Contract that:

1. to the extent that provisions in the Contract involved the formation of an opinion or belief by MacDow, ^[15] MacDow would:

   15. Relevantly, cl 10.4 in Part B of the Contract: see [51] above.

1. act reasonably in forming such opinion; and

2. form that opinion in good faith; and

2. MacDow would act reasonably and in good faith in the exercise of its powers under the Contract. ^[16]

   16. Commercial List Statement at pars C11 and C22.

75. There is no authority of the High Court, nor of any intermediate appellate Court, which states a duty of good faith is to be implied as a matter of law in all commercial contracts. ^[17]

    17. P Herzfeld and T Prince (n 7) at [27.120].

76. However, the obligation of a certifier, assessor, valuer or administrator of a construction contract to act reasonably, in good faith, in accordance with the contract and in a manner necessary to enable the benefit of the contract to be conferred on the parties to it, has been recognised consistently since the decision of Macfarlan J in Perini Corporation v Commonwealth of Australia. ^[18] In Kell & Rigby Holdings Pty Limited v Lindsay Bennelong Developments Pty Ltd ^[19] Hammerschlag J (as his Honour then was) considered a clause in a construction contract requiring that the principal ensure that at all times there was a superintendent and that, in the exercise of the functions of the superintendent, the superintendent act honestly and fairly. His Honour noted that the relevant clause was “an express imposition of a duty which would anyway ordinarily be imposed on a person in the position of superintendent” and cited Perini Corporation as authority for that proposition. ^[20]

    18. [1969] 2 NSWR 530 at 540-545.

    19. [2010] NSWSC 777.

    20. At [56].

77. There are other cases which have held a party in the position of MacDow, called upon to form an opinion or belief in the context of a construction contract, must act honestly and reasonably. ^[21]

    21. For example, Baulderstone Hornibrook Pty Ltd v Qantas Airways [2003] FCA 174 at [89] (Finkelstein J); Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284 (Young J) at [9]; and Galileo Miranda Nominee Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 1157 at [210] (Parker J).

78. In any event, terms to the effect contended by HPL should be implied as a matter of fact in this case. They are capable of clear expression. They are necessary to give business efficacy to the Contract as, otherwise, MacDow would be entitled to act unreasonably in forming an opinion for the purposes of, for example, cl 10.4 in Part B of the Contract as to the amount to be paid to HPL. The existence of such a term is also, in my opinion, so obvious that it goes without saying. Had the parties applied their objective minds to the question of whether or not MacDow would be entitled to certify the sum due to HPL unreasonably, and still validly discharge its contractual obligation, the answer would obviously have been “no”. And, if it be relevant, each of Mr Roberts, Mr Mills and Mr Foxwell ^[22] readily accepted that MacDow was obliged to act reasonably in assessing progress claims. As HPL submitted, an unreasonable exercise of the certification function, or one engaged otherwise than in good faith would likely deprive it of the benefit of the Contract. ^[23]

    22. To whom I return below.

    23. See generally the familiar test for implying terms in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 (Lord Simon for the majority) and the numerous authorities that have followed that decision; see P Herzfeld and T Prince (n 7) at [27.140].

The true source of MacDow’s rights

79. As I set out below, at the time of the events with which these proceedings are concerned, MacDow expressed reliance on identified clauses in the Contract in taking certain steps. In particular, it purported to rely on cl 18.1 (as well as cl 25.2) to assert an entitlement to “set-off” amounts owing by HPL to the HPL Subcontractors against the Certified Amounts. It also purported to rely on cl 3.6 in relation to its assessment of HPL’s Payment Claim 16 and its issue of Payment Certificate 16. MacDow now accepts it was not entitled to rely on cll 3.6 nor 18.1.

80. Further, in relation to Payment Certificate 16, there is an issue as to whether MacDow was entitled to rely on cl 10.2, notwithstanding that it did not, in terms, purport to do so at the time.

81. However:

“It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed whether he was aware of it or not.”^[24]

24. Taylor v Oakes, Roncoroni and Co (1922) 127 LT 267 at 269; [1922] All ER Rep Ext 866 (Greer J); cited with approval in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378; [1931] HCA 21 (Dixon J).

82. In final submissions, HPL accepted application of this principle had the result that “whatever MacDow said it was doing at the time is one thing, but what matters now is what was it entitled to do”. ^[25]

    25. Tcpt, 27 October 2022, p 1130(35).

Credit

83. This is not a case where the credit of any of the witnesses called is determinative of the result. Indeed, HPL made no submissions as to credit and MacDow’s submissions on that subject were confined. For the most part, the communications between the parties were in writing. Many of the witnesses who made affidavits in the proceedings were not cross-examined. Those witnesses whose evidence was the subject of cross-examination appeared to me to be doing the best they could to give an accurate recollection of events that had occurred many years ago.

83. MacDow made some criticisms of the evidence given by HPL’s expert quantity surveyor, Mr Stephen Bolt. I deal with this below when considering the question of quantum.

The res judicata point

85. MacDow submitted that HPL was precluded from raising, as an issue in these proceedings, whether the Contract was lawfully terminated under cl 26.3 by MacDow by reason of the judgment of the Queensland Supreme Court in McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd. ^[26]

    26. [2013] QSC 269 (Applegarth J).

86. In closing submissions MacDow stated that it relied upon “the principles of res judicata, issue estoppel and Anshun estoppel” and went as far as to submit that “the entire question” of its ability to recover the costs of completion of the works “only arises if MacDow is unsuccessful” in relation to those matters.

87. However, the point was not pursued with great enthusiasm in final oral submissions.

88. That was for good reason, because, as HPL pointed out, there is no substance to the contention for three reasons.

89. First, the decision in that case was a decision to quash an adjudication determination under the Building and Construction Industry Payments Act 2004 (Qld). Section 100 of that Act, as then in force, provided that nothing in the relevant part of the Act affected any right that a party to a construction contract may have under the contract or may have apart from the Act in relation to anything done or omitted to be done under the Contract. ^[27]

    27. The corresponding provision is now found in s 97H of the Building Industry Fairness (Security of Payment) Act 2017 (Qld); it corresponds to the provision in s 32 of the Building and Construction Industry Security of Payment Act 1999 (NSW).

90. Second, the decision was not a final decision as to the parties’ rights and liabilities under the Contract and therefore could not give rise to a res judicata or issue estoppel.

91. Third, the issue of whether MacDow’s purported termination of the Contract was unlawful by reason of MacDow’s conduct having caused or contributed to the appointment of the receivers and administrators on 14 March 2013 was not resolved by the decision.

Events leading to termination

92. I now turn to the events leading to the termination of the Contract in March 2013.

HPL’s failure and evident inability to pay the HPL Subcontractors

93. On 7 December 2012, HPL made Payment Claim 13 pursuant to cl 10.1 of Part B of the Contract for $13,845,836.63.

94. On 14 December 2012, MacDow issued a Payment Certificate pursuant to cl 10.4 of Part B of the Contract certifying an amount of $5,845,750.49.

95. On 17 December 2012, Mr Reed for HPL signed a “Subcontractor Statement” in purported compliance with cl 10.8 in Part B of the Contract. In that Subcontractor Statement Mr Reed stated that all HPL Subcontractors had been paid “with the exception of” three named subcontractors, to whom a total of $1.824 million was said to be owing (with two amounts, totalling some $1.7 million “to be paid prior to Christmas”).

96. HPL thereby revealed that HPL Subcontractors to whom it owed $1.824 million had not been paid and thus that it was in breach of cl 3.5(c) of the Contract.

97. HPL also thereby revealed that the condition precedent to payment of Payment Claim 13, as specified in cl 10.8 of Part B of the Contract, had not been satisfied. But, as I have said, MacDow processed this and subsequent payment claims without raising this as an issue and thereby waived any entitlement to rely on the point.

98. Between December 2012 and March 2013, MacDow received numerous communications from HPL Subcontractors complaining of non-payment by HPL of amounts owing to them and, in many cases, requesting MacDow for payment directly.

99. I invited the parties to reach agreement as to the identity of HPL Subcontractors that wrote to MacDow between December 2012 and March 2013 either requesting direct payment from MacDow or asserting non-payment by HPL, the amounts that each such HPL Subcontractor asserted was owing to it, the identity of HPL Subcontractors that HPL itself asked MacDow to pay and the dates and amounts of such payments.

100. The parties were unable to reach agreement about these matters.

101. MacDow produced a lengthy table setting out the amounts it asserted it had paid HPL Subcontractors. That table showed that the total amount paid was $8,106,864.43. HPL contented itself with a response which said no more than that the document references in MacDow’s table “are all invoices and not remittance advices or other proofs of payment”. However, MacDow had adduced evidence from its Group Project Controls Manager, Mr Alan Walker, and from its Group Finance Systems Manager, Ms Inez Clement, deposing to these payments. That evidence was not challenged, and I accept it. I find that MacDow paid HPL Subcontractors the figure the subject of MacDow’s calculations, or at least an amount in that order.

102. In any event, the Subcontractor Statements signed by Mr Reed showed that, at least by February 2013, HPL was unable to comply with its obligations under cl 3.5(c) of the Contract to “discharge all debts and liabilities which may be owing from time to time to all of [the HPL Subcontractors]”. (Emphasis added.)

103. MacDow had no obligation itself to pay the HPL Subcontractors, although it had a right to do so under cl 3.5(c) and an entitlement to recover from HPL any amount so paid.

104. As MacDow submitted, if HPL did not pay the HPL Subcontractors, and despite MacDow having no contractual obligation to do so, there was a powerful commercial imperative on MacDow to make the payments. That was because, first, if the particular HPL Subcontractors were critical to the completion of the works, MacDow was left with no practical choice but to pay them itself to ensure those subcontractors remained on site to continue the works, or face being in breach of the Head Contract with Fluor. Second, in the nature of things, HPL Subcontractors were likely to have financial imperatives of their own and, facing delayed payment from HPL, unlikely to be overly concerned with what MacDow described as the “niceties of contractual privity”.

105. I think MacDow was correct to submit that its need to ensure that the works progressed without interruption was of vital importance. As MacDow submitted, the works were part of a major infrastructure project where the consequences for MacDow of any failure or delay to perform was serious indeed. MacDow was liable to pay liquidated damages to Fluor for each day of delay in respect of either completion of key work milestones or to final completion of the work. Those liquidated damages were payable on demand by Fluor or, alternatively, could be deducted by Fluor from any amount certified as payable to MacDow, or recovered from MacDow’s performance securities.

106. As MacDow also submitted, the possible contingent loss to which MacDow was exposed by reason of HPL’s breach of its obligations under cl 3.5(c) was not confined to the extent of unpaid debts owed by HPL to the HPL Subcontractors. HPL had, in effect, subcontracted all of its obligations under the Contract to the HPL Subcontractors. HPL’s ability to pay the HPL subcontractors was fundamental to its ability to perform its obligations under the Contract. If, as emerged by February 2013, HPL was unable to perform its obligations under the Contract, there was a real prospect that MacDow would be obliged to terminate the Contract and itself step in to complete the works and incur the unknowable further costs that that would entail.

107. For that reason, HPL’s failure to pay the HPL Subcontractors, and the consequent danger that its ability to progress the works was thereby impeded, was a significant concern for MacDow in the period leading up to the termination of the Contract. That was made clear to HPL in two important emails that Mr David Robinson, the Chief Executive Officer of MacDow, sent to Mr Reed on 15 February 2013, to which I will return.

Payment Claim 14

108. On 21 December 2012, HPL made Payment Claim 14 in the sum of $10,022,038.14. The effect of cl 10.1 of Part B of the Contract was that this Payment Claim was deemed to have been issued on 2 January 2013. Payment Claim 14 concerned work done by HPL on the project during December 2012.

109. On 15 January 2013, MacDow issued Payment Certificate 14 certifying its opinion that the amount payable in respect of Payment Claim 14 was $1,206,582.61.

110. HPL was dissatisfied with MacDow’s assessment of Payment Claim 14 and on 17 January 2013 asked that it be reassessed.

111. On 22 January 2013 HPL issued a letter to MacDow. On 22 and 23 January 2013 representatives of HPL and MacDow met to discuss that question.

112. This resulted in MacDow on 24 January 2013 issuing what the parties described as “Payment Certificate 14A”.

113. The Contract did not contemplate the issue of more than one Payment Certificate in response to a Payment Claim. The arrangements entered into by the parties that led to Payment Certificate 14A were, in effect, a collateral contract. There was no dispute before me that the collateral contract was otherwise itself subject to the terms of the Contract.

114. Payment Certificate 14A was for a total of $7,043,420.24 comprising the $1,206,582.61 the subject of Payment Certificate 14 together with a further amount of $5,836,837.63. MacDow requested that HPL provide separate tax invoices in respect of these two amounts. HPL did so on 25 January 2013.

115. MacDow paid the tax invoice of $1,206,582.61 on 31 January 2013.

116. MacDow did not pay the $5,836,837.63. This is the first of the two Certified Amounts which MacDow, in these proceedings, contends it was entitled to retain exercising its rights under cl 25.2 of the Contract.

117. In the meantime, on 25 January 2013, Mr Reed signed a further Subcontractor Statement, in purported compliance with cl 10.8 of Part B of the Contract, certifying that all HPL Subcontractors had been paid, with the exception of 11 named subcontractors, whose “amounts outstanding” totalled $3,237,157.26. The amount due to one of those subcontractors, DDT Liners Pty Ltd, said to be $921,043.20, was stated “to be paid in full upon receipt of balance of Payment Claim 14 monies”.

Payment Claim 15

118. On 4 February 2013, HPL served on MacDow Payment Claim 15 in the sum of $12,341,594.72.

119. On 8 February 2013 MacDow issued a responsive Payment Certificate in the sum of $7,898,918.42.

120. MacDow did not pay HPL this amount. It is the second of the two Certified Amounts which MacDow contends it was entitled to retain under cl 25.2 of the Contract.

121. On 12 February 2013, Mr Reed signed a further Subcontractor Statement in the same form as that to which I have earlier referred. This statement said that all HPL Subcontractors had been paid with the exception of six named subcontractors, to whom $2,085,229.40 was said to be owing. In each case it was said that those HPL Subcontractors were to be paid “upon receipt of balance of Payment Claim 14 monies”.

The Fluor charges

122. On or around 10 February 2013, Mr Reed telephoned Mr John Dickinson at Fluor and said that if MacDow did not pay the full amount of Payment Certificate 14A by 13 February 2013, HPL would serve on Fluor a “Notice of Claim of Charge” under the Subcontractors’ Charges Act 1974 (Qld).

123. The effect of service of a Notice of Claim of Charge would have been to prevent Fluor making a payment to MacDow in a sum equal to the amount of Payment Certificate 14A; that is the unpaid $5,836,837.63. ^[28]

     28. The balance of $1,206,582.61 having been paid on 31 January 2013.

124. At around that time Mr Reed caused to be sent to Mr Dickinson at Fluor two Draft Notices of Claim of Charge, one for $5,836,837.63 (the amount of the unpaid portion in Payment Certificate 14A) and a second in the amount of HPL’s Payment Claim 15.

125. Ultimately, Mr Reed did not proceed to seek to enforce the Notices of Claim of Charge. This, nonetheless, did not improve relations between MacDow and HPL.

126. Thus, on 13 February 2013, Mr Jeffrey Mills, an independent contractor engaged by MacDow in relation to the project, wrote to Mr Reed:

“The long and short of it is we are now seriously in the poo with Fluor. Your notices will obligate Fluor to retain monies that might otherwise be due to MacDow.

Why on earth you have decided to “cut off the hand” that has been feeding you escapes me? You have effectively curtailed MacDow’s income stream but still want to be paid.”

127. Later on 13 February 2013 Mr Mills wrote to Mr Reed:

“Unfortunately the damage has already been done with Fluor. You have given them the impression MacDow has not paid HPL its entitlements when Fluor has paid MacDow. This couldn’t be further from the truth! Will endeavour to put this right when I meet with Fluor on Friday.

…

The simple facts are you have (perhaps inadvertently) undermined MacDow’s relationship with Fluor. This will need to be put right before any more Fluor unauthorised variations are paid to HPL.”

The Certified Amounts placed “on hold”

128. There was a dispute between HPL and MacDow as to when the $5,836,837.63 the subject of Payment Certificate 14A was due. HPL contended the amount was due on 1, or perhaps 6, February 2013. MacDow contended that it was due on 13 February 2013. HPL submitted, without analysis, that MacDow was incorrect to have asserted the payment was due on 13 February 2013, relying on a statement made by Mr Mills in a later email that MacDow’s interpretation of when the payment was due was “generous”. But, as I explain below, Mr Mills had no authority to make any statements concerning MacDow’s contractual obligations, on MacDow’s behalf or at all. HPL did not develop any submission as to why its contention about this matter was correct and MacDow’s was not.

129. But it provides the context for the decision that MacDow made, on 11 February 2013, to place the payment of the $5,836,837.63 “on hold”.

130. Thus, on 12 February 2013, Mr Walker, who was then a Finance Manager at MacDow, wrote to Mr Jim Frith, MacDow’s General Manager, Pipelines and Tunnelling division:

“As per discussions with various yesterday, please be advised that Shane [Daffey] ^[29] has next payment for HPL of approx. $5.8m on hold until advised otherwise.”

29. MacDow’s Finance Manager.

131. The decision to place payment of both of the Certified Amounts, that is the $5,836,837.63 the subject of Payment Certificate 14A and the $7,898,918.42 the subject of Payment Certificate 15, on hold was made by MacDow’s Chief Executive Officer, Mr Robinson.

132. Thus, Mr Robinson said in his affidavit:

“I am aware that in about February and March 2013, MacDow certified amounts payable to HPL under its subcontract but did not pay those amounts.

The ultimate decision not to pay those amounts was mine. I made the decision based on information that I was given by Mr Mills.

In or around February 2013 I had a conversation with Mr Mills using words to the following effect:

[Mr Robinson]:      Don’t we have to pay the certified amount of the claim?

Mr Mills:   We have received claims from HPL’s subbies which are bigger than the amount that we have certified for payment and you should not pay the claim.

[Mr Robinson]:   You need to check the veracity of what the subbies are saying to make sure that they are legitimate claims. If they are real claims and we are going to pay them directly, make sure Reed agrees to that.”

133. As is to be expected, there were numerous communications at around this time between MacDow and HPL and numerous internal communications within MacDow.

134. Much was made by HPL, particularly in opening submissions, of things said by Mr Mills in the many emails he wrote during the relevant period. However, as MacDow pointed out, Mr Mills was an independent consultant engaged by MacDow. He was not an employee or director of MacDow and had no authority to make any decisions or make any statements on MacDow’s behalf. I do not see the opinions expressed by Mr Mills in those emails to be relevant.

135. It was Mr Robinson who made MacDow’s position perfectly clear.

136. First, early on 15 February 2013, Mr Robinson wrote to Mr Reed:

“Last year, MacDow spent considerable time and money assisting you novate your subcontract into HPL which helped you in distressed financial circumstances. MacDow was under no obligation to do this and did so as a gesture of good faith. Since then extensive management and commercial time and effort has been expended processing HPL claims to continue to assist your cashflow. Work has been removed from your scope after your failure to properly manage or resource the work. The removal of the scope was made with your agreement. Against that background, the recent steps taken by you ^[30] come as something of a surprise.

The email chain with Jeff [Mills] contains threats by you not him.

Your actions have undermined our working relationship with Fluor. It is not legitimate for you to say MacDow constantly interrogates HPL subcontractors regarding payment. The situation is that HPL’s subcontractors approach MacDow with requests to assist with payment as they are concerned about HPL’s viability. This doesn’t provide HPL with just cause to charge our payments and enter discussions with Fluor.

The default notices issued to HPL were based on MacDow’s concerns about HPL’s performance under the subcontract. MacDow doesn’t accept HPL’s response to them. If HPL’s reaction is to issue charge notices on Fluor which have the effect of preventing MacDow being paid its entitlements in the amount of circa $43m, then that is a matter for HPL. You should be aware that strong arm tactics won’t cause MacDow to change its mind about HPL’s performance. MacDow does not abuse default notices nor does it terminate contracts on a whim.

MacDow has grave concerns about the ability of HPL to properly manage and do the remaining work and your solvency. I am told that HPL labour ^[31] is refusing to work with the effect that HPL has effectively at least partially suspended the works. The subcontract provides that MacDow may retain from any payment which may otherwise be payable such monies as MacDow may reasonably require to meet any contingent claim, action, proceeding, loss, damages, costs or expenses arising from or in connection with any breach by HPL of its obligations. Furthermore, MacDow is entitled to determine the subcontract forthwith in the event of HPL’s failure to meet its financial obligations.

I suggest you withdraw the charges, but that is of course a matter for you. If HPL wants to use all of the legal options open to it, it should not be surprised if MacDow does the same.” (Emphasis added.)

30. The service of the Notices of Claim of Charge.

31. This was a reference to Civil Pacific Services Pty Ltd, the subcontractor to HPL providing labour on the site.

137. The words I have emphasised in italics in Mr Robinson’s email were plainly a reference to cl 25.2 of the Contract.

138. Later on 15 February 2013, Mr Robinson sent a further email to Mr Reed in which he made clear that MacDow relied on cl 25.2:

“HPL is in breach of its subcontract. MacDow is receiving demands for payment from HPL subcontractors and suppliers who say they have not been paid.

HPL’s works have been at least partially suspended, a matter you do not contest. There is no basis on which HPL can lawfully do this.

MacDow is not in default and has the right to withhold payment under, without limitation, clause 25.2 of [the Contract].

We will take all appropriate steps to protect our interests. I am advised a number of letters are on the way to you.

MacDow reserves all of its rights.”

139. In this email, Mr Robinson, in terms, made reference to MacDow’s rights under cl 25.2 of the Contract.

A crisis point is reached

140. The following day, on 16 February 2013, MacDow sent HPL a notice of “Breach of Contract” in which it stated:

“We have been advised by a number of your subcontractors that HPL has failed to pay amounts presently owing to them by HPL. These include the following:

1. Civil Pacific Services Pty Ltd (‘CPS’) in the amount of $2,800,000.00;

2. GM Civil and Construction Surveying (‘GM’) in the amount of $841,006.30;

3. Industrial Scaffold Solutions (‘Industrial Scaffold’) in the amount of $153,917.28; and

4. Quantum Contractors Pty Ltd in the amount of $700,140.85.

This advice comes to MacDow in circumstances where MacDow has already made substantial payments on behalf of HPL to its suppliers and subcontractors. MacDow has received demands for payment from HPL suppliers and subcontractors. CPS and GM have advised MacDow that they intend to suspend their works as early as next week.

Some of your subcontractors have already suspended their works.” (Emphasis in original.)

141. In the same letter, MacDow gave HPL notice of its intention to exercise its rights under cl 25.2. Thus, it wrote:

“Pursuant to clause 25.2, MacDow is entitled to retain out of any payment which would otherwise be payable to HPL, or deduct from retention monies, such monies as it may reasonably require in order to meet any contingent claim, action, proceeding, loss, damages, costs or expenses arising from or in connection with any breach by HPL of its obligations under the Subcontract.

We have been advised by a number of your subcontractors that HPL has failed to pay amounts presently owing to them by HPL (as outlined above).

We are gravely concerned that the subcontractors who have not been paid by HPL will seek to bring claims against MacDow directly.

Further, there appear to be some anomalies in the statutory declarations provided by HPL in support of its claims. For example, your statutory declaration made on 13 February 2013 acknowledges that some of HPL’s subcontractors have not been paid. However, GM, who has claimed it is owed circa $840,000.00, is not mentioned.

In light of the above, MacDow hereby notifies you that it intends to exercise its rights under clause 25.2.

Without limitation, MacDow reserves all of its rights under the Subcontract and at law.”

142. By this point, MacDow commenced to give consideration to the question of what amount it could reasonably retain in exercise of its rights under cl 25.2 of the Contract.

143. Thus, Mr Mills, who, as I have said, was not a decision maker but who was actively involved in the project, wrote to Mr Robinson, Mr Frith and Mr Robert Harris, a project Manager at MacDow on 18 February 2013:

“The Current Position with HPL

A notice of default was issued to HPL by fax today. HPL now has 14 days to remedy the defaults or to provide ‘adequate assurance in the opinion of MacDow that the default will be remedied’. Provided HPL does not remedy the defaults [or] provide adequate assurance that the defaults will be remedied, MacDow may terminate HPL on or after 5 March 2013.

HPL’s performance is presently being monitored very closely. Daily reports are being prepared and provided to the commercial and legal team. Today’s report reveals:

1. Insufficient Management on site (2 Administration, 1 Project Coordinator, 1 Supervisor)

2. No material for leak detection chamber construction (300ml A & B Ponds)

3. Non Conformance to specification and relaxation in relation to steel fixing (single typing of rebar)

4. Failure to complete and comply with site instruction (didn’t install welfare as directed - toilets)

5. Failure to maintain/inspect plant resulting in health and safety breach (safety switch on excavator not working)

These matters will be the subject of separate correspondence to HPL, as will all matters raised in relation to HPL’s performance.

Certified Amounts

HPL’s position is that it has not been paid amounts which have been certified by MacDow as payable. In response, MacDow relies on clause 25.2 of the Contract which clause provides that MacDow is entitled to retain out of any payment which would otherwise be payable, ‘such monies as MacDow may reasonably require to meet any contingent claim, action, proceeding, loss, damage, costs or expenses arising from or in connection with any breach by [HPL] of its obligations under [the Contract]’. In circumstances where HPL’s subcontractors are approaching MacDow for payment, there are irregularities in the statutory demands sworn by HPL in support of its payment claims and where HPL’s performance of its obligations is seriously compromised and its ability to complete the works is at least, questionable, it is reasonable for MacDow to consider that its potential losses (both in terms of potential subcontractor claims and potential extra over completion costs) exceed the certified amount which has not been paid. MacDow has made its position clear in this respect; it is up to HPL to attempt to demonstrate that MacDow has not acted reasonably. (NB. It would be possible for HPL to avoid the operation of clause 25.2 by referring its claim to BCIPA but it is probably unlikely that HPL will be able to do so in a meaningful way before 5 March 2013.)

Dan Foxwell ^[32] should begin preparing a claim within the broad confines of clause 25.2 that may be produced if necessary and called for.” (Emphasis in original.)

32. The Contract and Commercial Manager at MacDow.

144. Two days later, on 20 February 2013, Mr Mills wrote to Mr Andrew Rattray, Commercial Manager at MacDow:

“Keep the Project Going

HPL have not paid most of its suppliers and subcontractors. Many of these subcontractors and suppliers are vital to MacDow completing the Works. It is likely we shall have to provide cash injections to retain the resources we require. We need to review all essential resources on a merit by merit basis and the need for any payments to ensure these resources do not leave site. We should try to secure the essential resources under our own banner (that is, take them on directly).

…

HPL’s position is precarious. We argue we owe them nothing. We need to quickly work up our exposure due to their default as a contra claim. The wording of [the Contract] is quite liberal …” (Emphasis in original.)

145. Mr Mills was thus anticipating that MacDow may have to expend funds to ensure completion of the works and to ensure that the subcontractors “do not leave site”. Mr Mills’ comment that “the wording of [the Contract] is quite liberal” was, I would infer, an observation he made about the ambit of MacDow’s rights under cl 25.2, a matter to which I will return.

146. Mr Rattray replied later that day, referring to Mr Mills’ comment that MacDow needed to “quickly work up our exposure” and attaching a spreadsheet that:

“… covers off what I believe is the current status of liabilities we would have to cover off against HPL and some other costs that we would incur should termination occur.

The amount, based on no creditor claims, costs to terminate, hire new subcontractors, mobilise plant etc, comes to $5.4M (excluding GST) without really trying. If there are other unpaid subcontractors of theirs out there then the amount will obviously only grow.”

147. MacDow was thus giving careful attention to the contingent costs and expenses that it might incur were MacDow to terminate the Contract.

Egans

148. An issue arises as to what MacDow should reasonably have concluded was due by HPL to Egans Mining Services Pty Ltd.

149. In that regard, during final submissions, MacDow sought to amend its List Response to alter particulars hitherto given as to the amounts owing by HPL (including to Egans) on 1 February 2013 and 15 February 2013.

150. The existing List Response alleges that the amounts owing by HPL to the HPL Subcontractors (including to Egans) on those dates were in the order of $5.5 million and $5.3 million respectively.

151. The proposed amendment sought to alter those particulars to allege that the amount owing by HPL to the HPL Subcontractors (including to Egans) was in the order of $13.5 million on 1 February 2013 and $14.25 million on 15 February 2013.

152. HPL submitted that it would be unfairly and irreparably prejudiced were those amendments allowed, that it was not in a position to meet them, and had the issues been raised earlier it would have led further evidence and cross-examined certain of MacDow’s witnesses differently. When an amendment is sought to be made very late in proceedings, if the opposing party reasonably contends that it would, or may, have conducted its case differently had the amendment been made earlier, the Court will be hesitant to grant the amendment. That is particularly so where, as here, Senior Counsel for MacDow candidly stated:

“I won’t be crushed if your Honour refuses it, for this simple reason. I’m not sure it’s actually necessary.” ^[33]

33. Tcpt, 28 October 2022, p 1243(4).

153. In those circumstances, I declined to grant MacDow leave to make the amendment proposed.

154. On 22 February 2013, Mr Mark Hall, the Chief Financial Officer of Egans, wrote to MacDow as follows:

“RE: Invoices owed to Egan Mining Pty Limited A.C.N 145 676 016; GLNG Upstream Project Roma Queensland.

1. You have engaged Heavy Plant Leasing Pty Ltd (HPL) A.C.N. 151 786 677, which we understand you were formerly contracted with Reed Constructions Australia Pty Limited (‘Reed’) in the GLNG Upstream Project, Roma Queensland for a mining and resources project (‘Project’).

2. Egans have contracted with HPL\Reed for the procurement of hire plant and equipment for the Project.

3. Egans have provided HPL\Reed with tax invoices for the Project pursuant to the Building Construction Industry Payments Act (2004) Qld for goods and services provided between 30 April 2012 and 31 January 2013.

4. The amount owing under the invoices is $8,391,110.36 excluding GST.

We request that you retain funds owed to HPL\Reed on our behalf until such time as HPL\Reed makes payment for the amount owed under the invoices, a copy of these invoices are available upon request.” (Emphasis added.)

155. On 25 February 2013, MacDow wrote to Mr Reed, “[MacDow] continues to hold grave concerns regarding HPL’s failure to pay its subcontractors”. The email went on to say that MacDow “continues to receive demands for payment from HPL’s suppliers and subcontractors for monies presently owed by HPL” and stated that “Egan Mining Pty Ltd has requested that MacDow retain funds in the amount of $8,391,110.26 from any payments to HPL”.

156. Mr Reed said that after he received MacDow’s letter of 25 February 2013 he had this conversation with Mr Egan:

“[Mr Reed]:   What are you doing? Why did you put this claim in? There is no basis for it. It’s making things even more difficult for us with MacDow.

Mr Egan:   We have re-done the reconciliation and think that we are owed money by HPL.

[Mr Reed]:   We’ve done the reconciliations every month since the alliance commenced. How could $6 or $8 million just come out of the blue?

In any event, if we need to, we can look at your revised reconciliation and see what’s going on. But in the meantime, you need to write to MacDow and tell them the claim is withdrawn.”

157. Mr Reed also said that at about that time he had this conversation with Mr Mills:

“[Mr Reed]:   Jeff, the claim lodged by Egans Group is a complete fabrication. There is no way that HPL owes them $8 million. Also, they’re not a subcontractor on the GLNG Project – they are the managers of our equipment fleet around Australia.

Mr Mills:   We are investigating the claim and will let you know where we land.”

158. However, Mr Mills gave evidence that on 26 February 2013, Mr Egan said to him words to the effect of:

“HPL owes me lots of money. Egans owns or partly owns plant that HPL is using.”

159. Mr Mills also gave evidence that he met with Mr Egan on 1 March 2013 and that at that meeting Mr Egan said to him words to the effect of, “HPL owes Egans about $8 or $9 million”.

160. There is a suggestion in the evidence that Mr Egan may have been motivated to make these statements to MacDow by reason of an arrangement that he proposed to Mr Reed in the middle of February 2013.

161. In his affidavit Mr Reed said that he had a telephone conversation with Mr Egan to this effect:

“Mr Egan:   I’ve been told by Mr Mills that MacDow is paying out money to some of your subcontractors. If they won’t pay you under your contract, we could put in a claim together to MacDow so we can split whatever gets paid.

[Mr Reed]:   I’m not interested in doing that. Not only is it illegal, but putting in a large creditor claim is only going to make it harder for HPL to get paid.

Mr Egan:   Oh okay, I won’t do it then.”

162. Although Mr Reed was a little equivocal about this, the suggestion appeared to be that despite Mr Reed rejecting Mr Egan’s proposal as outlined in that conversation, Mr Egan nonetheless represented to MacDow that money was owing by HPL to Egans.

163. However that may be, the fact is that Egans made the statements I have set out in its letter of 22 February 2013 and that Mr Egan made the statements to Mr Mills that I have set out above.

164. However, and inconsistently with these statements, on 5 March 2013 Mr Egan wrote to Mr Mills:

“As you are aware Egans doesn’t provide statements in the normal manner to HPL for services at Roma.

The income from the rest of the Fleet, other than the plant at Roma (owned by the HPL Group and managed by Egans), is set off monthly to account for Egans’ costs at Roma.

I have agreed that nothing is outstanding at the end of January. The additional costs brought to account by my team last week will be negotiated and agreed by the end of March by which time we will have made additional arrangements to clear those debts.

With regards to February we reserve the right to seek direct compensation from you once these balances have been finalised and agreed by both HPL and Egans, which should be completed within 1-2 weeks.

Please contact me to discuss when convenient to yourself.

Thanking you for your time on this matter.”

165. Mr Mills replied on that day:

“I understand your email but not your ‘right to seek direct compensation from MacDow’. You have no such rights.

You have spent a considerable amount of your time and a fair amount of my time making MacDow aware of debts of up to $8.6m you say HPL owed you. Now you say nothing is due up to the end of January and other debts will be cleared under ‘additional arrangements’.

Are you telling me that HPL do not owe you any monies?”

166. Later on the same day Mr Egan forwarded a copy of Mr Mills’ email to Mr Reed but, curiously, omitted the middle paragraph. Evidently Mr Egan did not wish Mr Reed to see that part of Mr Mills’ email.

167. In any event, the following day, 6 March 2013, Mr Egan sent Mr Mills a further email:

“Please be advised there is nothing due and payable by the end of February 2013 by HPL.

However, at this point in time we are not sure if there will be anything due for payment at the end of March 2013.”

168. As Mr Mills pointed out in cross-examination, this was inconsistent with what Mr Egan had earlier told him.

169. Mr Egan’s email also appears equivocal and designed to leave open the possibility of Egans asserting that money would be due for payment “at the end of March 2013”.

170. In these circumstances, MacDow was entitled to be sceptical about Mr Egan’s evident change of heart, and assertions that, despite what was said in his Chief Financial Officer’s letter of 22 February 2013, nothing was presently owing by HPL to Egans.

Payment Claim 16

171. On 25 February 2013, HPL made Payment Claim 16 for $27,133,704.26.

172. This led to MacDow serving a Payment Certificate in which it “de-certified” previously certified payments and asserted that no money was due from MacDow to HPL in respect of Payment Claim 16. I will return to this below.

MacDow’s 25 February 2013 Payment Schedule

173. Also on 25 February 2013, MacDow served on HPL a Payment Schedule pursuant to s 18 of the Building and Construction Industry Payments Act. ^[34]

     34. Not to be confused with Payment Certificates issued under cl 10.4 of Part B of the Contract.

174. It was in this document that MacDow made the assertions concerning an entitlement to set-off monies under cl 18.1 (and also cl 25.2) of the Contract.

175. In that document, MacDow stated:

“Below are the reasons why the scheduled amount is less than the claimed amount and, where relevant, if that amount is less because [MacDow] is withholding payment, [MacDow’s] reasons for withholding payment.”

176. After asserting some matters not presently relevant, MacDow stated:

“Notwithstanding that the payment claim is invalid and there are no amounts due under the Act, in the alternative [MacDow] sets off the following amounts from the payment claim (total $15,712,177.49 (inclusive of GST)) under clauses 18 and 25.2 of the Contract and at law, which amounts are greater than the claimed amount. At this stage, [MacDow] is exposed to claims from 8 of [HPL’s] subcontractors, some of whom are making claims directly upon [MacDow] and some of whom [MacDow] has already paid. [MacDow] sets off the amounts already paid to these subcontractors, its exposure to claims by these subcontractors and the requirement for [MacDow] to pay the subcontractors to ensure that the delivery of the works under the contract between [MacDow] and [Fluor] is not affected.”

177. HPL then referred to nine HPL Subcontractors.

178. In relation to eight of those nine HPL Subcontractors (including Egans) MacDow stated that the HPL Subcontractor in question had requested MacDow to pay the amount said to be due and stated that “if [MacDow] does not pay this amount then the delivery of the works under the [Head Contract] is likely to be affected”.

179. In relation to the ninth HPL Subcontractor, Quantum Concrete, MacDow said that it had paid that organisation “via invoices from Civil Pacific Services, to ensure that the works can progress” and stated that if it “did not pay this amount then the delivery of works under the [Head Contract] is likely to be affected”.

180. I think MacDow was correct to submit that the passage in the Payment Schedule that I have set out at [175] shows that what MacDow was conveying in the passage I have set out at [176] was that, as a justification for disputing a payment claim under the relevant security of payments legislation, it was entitled to withhold money from HPL for three reasons, namely that it had paid HPL Subcontractors, it was exposed to claims from other HPL Subcontractors and it needed to pay each of these sums to progress the works.

181. HPL referred to this purported set-off as the “First Set Off”.

182. MacDow submitted that, despite the language used in this Payment Schedule, “[N]either cl 18 nor cl 25.2 allowed MacDow to set-off MacDow’s ‘exposure’ to claims from HPL’s unpaid subcontractors” and that the use by the author of the Payment Schedule of the expression “set-off” “only betrays a lack of understanding on the author’s part as to the true operation of [the Contract], a matter of no legal relevance in determining the parties’ rights under [the Contract]”. ^[35]

     35. Evidently a reference to the principle in Shepherd v Felt & Textiles, referred to above at [81], cited with approval in Kell & Rigby Holdings v Lindsay Bennelong Developments.

183. As I have said, it is common ground in these proceedings that the question is whether, notwithstanding MacDow’s misapprehension of its legal position when serving this Payment Schedule, it was entitled to retain the Certified Amounts in exercise of its entitlements under cl 25.2 of the Contract.

The 28 February 2013 meeting

184. On 28 February 2013, Mr Walker and Mr Mills, for MacDow, met with Mr Reed and Mr Field, HPL’s Chief Financial Officer, for HPL. MacDow’s solicitor, Mr Matthew Croagh from Norton Rose Fulbright, also attended.

185. On 1 March 2013, Mr Croagh sent Mr Mills an email summarising what had occurred at the meeting. It was common ground before me that Mr Croagh’s email was an accurate summary.

186. Mr Croagh said:

“The key consideration for MacDow is that it needs certainty about:

1.   What creditors HPL has

2.   What is due and payable to creditors as at today

3.   What has been incurred by creditors but is [not] due today but will become due in the future.

HPL has committed to obtaining statutory declarations for all creditors over $10,000 (plus any creditors under $10,000 nominated by MacDow as potentially critical to project delivery). The statutory declarations will set out:

562. That is consistent with the fact that, as HPL submitted, and MacDow did not contest, there was no rate or allowance in the Contract for an amount to be paid to HPL for surveying.

563. I think HPL was correct to submit, in that context, that in cl 6 “additional” means additional to HPL’s contract sum and that “Surveying” meant all surveying which, to repeat, was to be provided by HPL but paid for by MacDow.

564. MacDow pointed to the fact that cl 3.2 of the Contract obliged HPL to comply with the provisions of the Head Contract between MacDow and Fluor, and that it was a provision of the Head Contract that:

“Unit prices shall include any required surveying and layout of the Works …”

570. That suggests that, as between MacDow and Fluor, MacDow’s “unit prices” were to include surveying. I see this as confirmatory of my reading of cl 6 of the Contract. As between Fluor and MacDow, Fluor was to pay MacDow for the costs of surveying. As HPL submitted, it would be odd that MacDow be paid by Fluor for surveying, but not be required to pay HPL for the costs of providing that surveying.

571. For those reasons, I do not allow the costs incurred by MacDow for surveying as part of its Cost to Complete.

Amount MacDow would have paid HPL – the Adjusted Contract Sum

572. I now turn to the costs that MacDow would have had to pay HPL under the Contract, had HPL performed the works. This is the Adjusted Contract Sum which must be deducted from the total of the Amount Paid to HPL and HPL’s Cost to Complete.

573. This involves consideration of the amount that MacDow would have been obliged to pay HPL for, first, contract works, and then for variations. From this must be deducted back charges and other direct payments.

574. The parties’ submissions addressed, first, HPL’S contract works, and second, HPL’s claimed variations.

Contract works

575. Turning first to contract works, MacDow contends that it was obliged to pay HPL the sum of $60.86 million for contract works. HPL contends that it would be entitled to receive some $63.25 million on this account.

576. Three aspects of HPL’s entitlement concerning contract works remain in dispute.

Screw piling

577. It is now agreed that HPL was entitled to payment of at least an amount in the order of $1.38 million for screw piling carried out by it.

578. HPL claims an additional amount arising from its supervision of work done by an HPL subcontractor, SFL/Piletech (EA) Pty Ltd. MacDow ultimately paid SFL/Piletech some $1.277 million for the work it did.

579. HPL claims 10% of that amount, $127,715.10, for its costs of supervising that work.

580. Section 42 of the Queensland Building Services Authority Act 1991 (Qld) (“the QBSA Act”) is titled “Unlawful carrying out of building work” and, at the relevant time, provided, relevantly:

“(1)   A person must not carry out, or undertake to carry out, building work unless that person holds a contractor’s licence of the appropriate class under this Act.

[There is no subsection 2]

(3)   Subject to subsection (4), a person who carries out building work in contravention of this section is not entitled to any monetary or other consideration for doing so.

(4)   A person is not stopped under subsection (3) from claiming reasonable remuneration for carrying out building work, but only if the amount claimed—

(a)   is not more than the amount paid by the person in supplying materials and labour for carrying out the building work; and

(b)   does not include allowance for any of the following—

(i)   the supply of the person’s own labour;

(ii)    the making of a profit by the person carrying out the building work … “

581. HPL accepts that it did not hold a contractor’s licence under the QBSA Act.

582. The question is whether, nonetheless, HPL is entitled to claim “reasonable remuneration” for its supervision of the work done by SFL/Piletech.

583. That question turns upon whether the circumstances fell within the two exceptions to an entitlement to claim “reasonable remuneration” contained in subss 42(4)(a) and (b) of the QBSA Act.

584. In supervising SFL/Piletech’s work, HPL did not pay any amount “in supplying materials and labour for carrying out the building work” for the purposes of s 42(4)(a) of the QBSA Act.

585. For that reason alone, HPL was not entitled to “reasonable remuneration”.

586. Further, in claiming an amount for supervision of SFL/Piletech’s work, HPL was in effect seeking compensation for its own work in engaging that supervision and was thus seeking an allowance of supply of its own labour for the purposes of s 42(4)(b)(i) of the QBSA Act.

587. For those reasons, I accept MacDow’s submissions that the consequence is, as HPL did not hold a licence under the QBSA Act, it is not entitled to make any charge for its supervision of SFL/Piletech.

Pond surface preparation

588. The question here is what work HPL did when installing clay liner surface preparation to one or more of the evaporative ponds on the site.

589. Neither party adduced evidence of what work HPL actually did in relation to this matter. The only evidence available to Mr Bolt and Mr Roberts, and the Court, was HPL’s relevant Payment Claims and MacDow’s responsive Payment Certificates.

590. Mr Bolt and Mr Roberts agreed that the clay liner surface preparation must be undertaken before a pond liner membrane was installed.

591. Mr Bolt opined that it is probable that HPL adopted the “orthodox” and “common sense” method for lining the ponds, that is, to perform the clay liner surface preparation to the entire pond before the clay liner was installed. On that basis, Mr Bolt allowed the full value of preparatory work of some $1.2 million.

592. On the other hand, Mr Roberts valued the work based upon what HPL had said in its Payment Claims it had actually done; namely prepare the clay liner surface progressively at the same level of completion as clay liner installation. Mr Roberts allowed $277,623.17.

593. Mr Bolt’s hypothesis assumes that HPL did work for which it did not charge, a point that counsel for HPL accepted in closing submissions was “the best point put against me in respect of this”.

594. Common sense suggests that HPL performed the work in the manner it asserted in its Payment Claim. Mr Roberts’ view is to be preferred, and I adopt it.

Measurement

595. Mr Bolt and Mr Roberts adopted different mechanisms to measure some aspects of the work done by HPL.

596. Clause 14.3 of the Contract provided that it was “subject to re-measurement and re-depth calculation” and that:

“[The Contract] Sum will be recalculated so that any errors in the quantities in the Bills of Quantities or Schedule of Rates will be corrected and the prices in the appended Bills or Schedules applied to the final as-built measured quantities of work and materials carried out or delivered by [HPL].” (Emphasis added.)

597. Mr Bolt used software called CostX to measure quantities from Approved For Construction drawings.

598. During concurrent evidence, Mr Bolt said, evidently for the first time, that his measurements were based on a geotechnical report provided by Butler Partners on 2 November 2011.

599. It is hard to see how the Approved For Construction documents or geotechnical report prepared in November 2011 could be a reliable guide as to the “as-built measured quantities of work” called for by cl 14.3.

600. HPL sought to justify Mr Bolt’s use of Approved For Construction drawings by reference to the last paragraph of cl 14.3 which provided:

“The measurement provisions contained in the Head Contract shall, mutatis mutandis, apply to this [Contract] unless otherwise provided in [the Contract].” (Emphasis added.)

601. HPL pointed to the fact that the Head Contract between MacDow and Fluor required measurements to be based on the Approved For Construction drawings used by Mr Bolt (although not the geotechnical report that Mr Bolt ultimately said he relied on).

602. However, the Contract did “otherwise provide” for this purpose as it required in cl 14.3 itself measurement of “as-built” quantities; as I have emphasised in the passage above.

603. Mr Roberts conducted his measurements using actual survey quantities carried out by MacDow’s quantity surveyor, Mr Christian Tumaru, at the time, and thus on the basis of “as-built measured quantities”.

604. In my opinion, Mr Roberts adopted the contractually mandated position and his measurements should be accepted.

Variations

605. The next matters for consideration are the variations that HPL contends should be taken into account in the calculation of the Adjusted Contract Sum.

606. The parties have reached agreement as to some 21 of the variations claimed by HPL. The result is that MacDow accepts HPL is entitled to a credit in relation to the Adjusted Contract Sum in the order of $6.9 million. MacDow accepts that HPL is entitled to a further credit in the order of $950,000 for variations agreed during the project.

607. In addition, HPL does not press some 13 variations initially in dispute.

608. I turn now to the disputed variations.

Variation 22 – Type 1 and Type 2 piles – “boodling”

609. The dispute here concerns a claim by HPL for “boodling”. Boodling was described by Mr Bolt as:

“The removal of surplus material from a piling operation consequent to pile cropping or removal of surplus excavated material.”

610. I was informed that boodling is carried out using a bobcat, or similar machinery.

611. HPL produced no records or supporting documents of the time it spent boodling. There was evidence of the time HPL claimed it had spent on this task (24 minutes per pile) and the amount that MacDow allowed (5 minutes per pile).

612. Mr Roberts did a calculation, which he admitted was necessarily theoretical, and concluded that HPL must have spent a little over five minutes per pile on boodling and thus valued this item at $131,125.82.

613. On the other hand, Mr Bolt simply split the difference between the amount claimed by HPL and the amount allowed by MacDow and adopted 14 minutes per pile. Mr Roberts agreed that that was not an unreasonable step to take. In the result, Mr Bolt allowed $387,098.58 on this account.

614. As this exercise was, in the absence of any records from HPL, necessarily theoretical, and as Mr Roberts thought Mr Bolt’s approach was not unreasonable, I prefer Mr Bolt’s conclusion.

615. However, by reason of s 42 of the QBSA Act, HPL is not entitled to any margin for overheads and profit as may be included in Mr Bolt’s figure.

Variation 29/breach of contract – stand down of plant March to June 2012

616. HPL claims an amount of a little over $2 million as the “costs to stand-down HPL’s plant in the pre-commissioning stage of the works as a result of MacDow’s failure to give approval for HPL to proceed with subcontract works”.

617. HPL claims for the costs it alleges it incurred for equipment mobilised onsite but which were not paid for by MacDow. HPL alleges that Reed Constructions was entitled to start work in March 2012 but because of MacDow’s alleged failure to give approval, it could not start work until June 2012.

618. Originally, HPL’s claim for its loss in this regard was framed as a variation claim. HPL amended its List Statement on 21 July 2022 to frame this claim as a breach of contract. It appears to be common ground that the claim was out of time if framed as a variation claim. For that reason, HPL seeks an order under s 65(3) of the Civil Procedure Act 2005 (NSW) that its amendment take effect from the date proceedings were commenced. MacDow opposed leave being granted on the basis that HPL had had “years” to make the claim and that no adequate explanation had been given for its failure to do so prior to the 21 July 2022 amendment. MacDow, however, made no assertion of prejudice and, were it relevant to do so, I would have been inclined to make the order under s 65(3) of the Civil Procedure Act.

619. But there are other difficulties with this claim.

620. The first is that, as HPL ultimately accepted, ^[99] HPL’s claim was for the “lost opportunity” of recouping hire fees for equipment from MacDow or otherwise renting plant to alternate sources.

     99. Par V029.3 in the Redfern Schedule.

621. As was put in oral submissions:

“… this is a loss of profit claim in circumstances where HPL owned the equipment and it was sitting idle on site.”

622. The loss of profit is said to arise from income that Reed Constructions (and now HPL) would have earned from the use of the equipment.

623. In closing oral submissions, HPL said that it relied upon an agreement dated 21 January 2012 with Egans in that regard.

624. That agreement was made between Reed Heavy Machinery Pty Ltd (defined in the agreement as “Reed”) and Egans.

625. Clause 3.4 of the agreement provided:

“The Parties agree:

(a)   All plant hire contract revenue to be paid into the bank account of Reed Heavy Plant Leasing Pty Ltd (ACN 151 786 677) with BSB 332 086 and account number 553401699; and

(b)   Egans will be paid from the above account:

i)   The agreed rate of 2.5 percentage of the Gross plant hire revenue; and

ii)   The actual cost plus 15% margin of the management of the maintenance of the plant and equipment as well as any administration; and

(c)   Reeds will be paid the balance of the revenue.”

626. Reed Heavy Plant Leasing Pty Ltd is the company now known as HPL.

627. The agreement thus provided that all plant hire contract revenue was to be paid into HPL’s bank account, that Egans would be paid a percentage and a margin from that account, and that “Reeds” would be paid the balance of the revenue.

628. The Agreement did not define “Reeds”. But it is obvious that reference is intended to be to “Reed”, that is Reed Heavy Machinery Pty Ltd.

629. Even if “Reeds” should not be construed as meaning “Reed”, but some other entity, it cannot be HPL because HPL is referred to by its former name of “Reed Heavy Plant Leasing Pty Ltd”, and not by any abbreviation. As MacDow submitted, if Reed Heavy Plant Leasing Pty Ltd (that is, HPL) was to retain the balance of the revenue in its account, then cl 3.4(c) would have said so; but it instead expressly stated that the balance was to be “paid” to “Reeds”.

630. The document thus makes clear that the bank account of Reed Heavy Plant Leasing Pty Ltd (HPL) was provided only as a conduit for payment of the revenue to other parties, namely Egans and “Reeds”.

631. Accordingly, HPL has suffered no loss by reason of these matters.

632. In any event, HPL has adduced no evidence that Reed Constructions could have deployed any or all of the equipment elsewhere during the relevant period and has thus not established that there was an opportunity that has been lost.

Variation 30 – provision of surveyor

633. I have held, on the proper construction of cl 6 in Appendix E to the Contract, that although HPL was obliged to make “provision” for surveying, the costs of surveying were to MacDow’s account. ^[100]

     100. See [559]-[571] above.

634. By Variation 30, HPL made a claim for costs it in fact incurred in providing a surveyor.

635. Ultimately, the dispute between the parties focused on an agreement between HPL and MacDow to resolve that dispute.

636. In its Payment Claim 13 of 10 December 2012, HPL stated that the total amount claimed for Variation 30 was $800,000.

637. In its letter of 14 December 2012 to HPL, MacDow stated, in relation to this:

“Further to the without prejudice agreement of $500,000 for the whole of the works, MacDow have assessed the amount due as at 80% of the agreed value.”

638. Before me, HPL did not dispute that it had entered such an agreement.

639. Accordingly, MacDow’s Payment Certificate 13 included an amount of $400,000 on account of Variation 30. HPL accepts it received this $400,000 as part of the calculation in MacDow’s Payment Certificate 13.

640. In Payment Claim 14, dated 15 January 2013, HPL included a claim for the balance of $100,000 for Variation 30, making a total of $500,000.

641. As I have set out above, by Payment Certificate 14 MacDow certified that an amount of $1,206,582.61 was payable.

642. That amount included a negative amount of -$591,532.17.

643. The relevant schedule to Payment Certificate 14 shows that the $100,000 certified for Variation 30 was a component of that figure.

644. It was thus taken into account in the $1,206,582.61 certified by MacDow as payable under Payment Certificate 14 which amount, as I have set out above, was paid by MacDow to HPL on 31 January 2013.

645. Consistently with this, on 19 January 2013 MacDow stated:

“VO 30 – SURVEY WORKS…

Further to the senior management meeting held between [HPL] and MacDow on 12^th December 2012, MacDow confirm that the amount of $500,000.00, is agreed and paid under payment certificate nr 14 dated 15^th January 2013, as full and final settlement of the above reference variation in relation to all past current and future survey works.”

646. The existence, and HPL’s then acceptance, of the agreement was expressly acknowledged by HPL in its letter of 27 March 2013, in which it stated:

“During a senior management meeting in December 2012, MacDow offered to settle this variation with a contribution of $500,000…

Mr G Reed, HPL’s Director accepted MacDow’s offer under duress, as the proposal from MacDow was receive nil or incur a breach of contract.”

647. Mr Reed gave evidence in his affidavit of the meeting of 12 December 2012 referred to in MacDow’s letter of 19 January 2013. He did not make any assertion of duress.

648. In those circumstances, I do not accept HPL’s submission that what passed between the parties was no more than an “accord executory”.

649. The agreement between the parties was that HPL’s claim for Variation 30 had been settled because MacDow certified $500,000 for it in Payment Certificates 13 and 14.

650. HPL accepted that, if this was so, then it was bound by the agreement. I understand it to be common ground that it would follow from this conclusion that HPL’s claim for surveying costs after 18 March 2013[101] should also fail.

Variation 46 – HUB City laydown area

101. See [694] below.

651. HPL claims an amount of $186,791.76 for construction of a “laydown area” at an area of the site known as “HUB City”.

652. Mr Bolt and Mr Roberts informed me that a “laydown area” is a temporary storage area for equipment.

653. There is no dispute that HPL constructed the laydown area in question.

654. On 6 October 2012, HPL wrote to MacDow, stating:

“As discussed this morning, we will be submitting a variation claim for the various resources expended by HPL in the past couple of days for the construction of hardstand in the northwestern ‘HUB City’ Laydown Area. It is our belief that it is not HPL’s responsibility to provide temporary laydown areas for the use of not only HPL but also by other MacDow and Fluor contractors.”

655. In its Payment Certificate 13, MacDow said of “Variation No 46”:

“MacDow have assessed the amount due based on MacDow accepting 25% of the works as a variation to [the Contract]. MacDow provisionally assessed the value of Variation 46 at $46,932.94.”

656. This exchange points to the conclusion that MacDow accepted that the work done by HPL to construct the laydown area was a variation.

657. It is true, as MacDow pointed out, that its assessed value of that variation was, by reason of cl 10.5 in Part B of the Contract, provisional and on account only and not an admission of liability or evidence that the work was done satisfactorily.

658. There is no question here that the work was not done satisfactorily and MacDow appears to me to have accepted that the work done was beyond HPL’s scope and thus a variation.

659. In closing written submissions, MacDow pointed to the fact that Part A to the Schedule to the General Conditions of the Contract provided that:

“Unless otherwise stated here [HPL] is to provide all Services

R&R Flights, Camp Accommodation, bus transport on Roma HCS site and to and from Roma airport.”

660. However, MacDow did not develop any submission to explain why construction of the laydown area would fall within that description.

661. I am satisfied that HPL is entitled to this variation.

Variation 49 – revision to screw piling

662. This variation is a claim by HPL for the extra costs associated with the use of “Type 3” piles.

662. Mr Roberts and Mr Bolt agreed that the appropriate amount of this claim is $62,120.27 inclusive of a 15% margin for overheads and profit.

663. By reason of HPL not having a contractor licence, and the provisions of s 42(4) of the QBSA Act, HPL is not entitled to the margin as this represents an allowance for the supply by HPL of its own labour.

664. This amount should therefore be allowed at $54,017.63, being the amount excluding that margin.

Variation 52 – haulage

666. This is the most significant, in monetary terms, of the variations sought by HPL and involves a claim exceeding $3.5 million.

667. As ultimately propounded by Mr Bolt, the claim is said to arise from what he described as “increased haulage distances for general earthworks of the entire site”.

668. To consider whether what HPL did in this regard is a variation, attention must be paid to HPL’s obligations concerning haulage under the Contract.

669. Clause 3 in Appendix E to the Contract provided:

“Suitable fill materials are agreed to be won from within the Site within 5klms radius, except as priced by [HPL] as otherwise.”

670. Further, cl 5.1.10 in Part II of the Head Contract between MacDow and Fluor (which is incorporated into the Contract by cl 3.2) provided that the unit rate for rippable rock “includes excavation to specified depths and transporting and disposal of unusable rock to a designated dump location within 5km of Contractors Work Site”.

671. Thus, any claim by HPL for additional haulage must be haulage beyond five kilometres because HPL was obliged to haul suitable fill within a five kilometre radius and any claim by HPL for additional haulage or rippable rock must exclude the first five kilometres of haulage because HPL was paid within rippable rock rates for hauling rippable rock within a five kilometre radius.

672. Mr Bolt calculated the figure of $3.5 million claimed by HPL as Variation 52 by reference to four integers.

673. The first was the tendered quantity of earthworks.

674. The second was what HPL described as the “original haulage distances” based on HPL’s original haulage plan.

675. The third were the “actual quantities” of volume of earthwork removed.

676. The fourth was the actual haulage distances, that is, the actual distances over which HPL hauled material.

677. Mr Bolt calculated that there had been an increase of 160% in haulage.

678. HPL summarised the basis of Mr Bolt’s calculation as follows:

“In short (and as explained in detailed step by step in his report), Mr Bolt extracted the haulage component of the contract excavation rate out from the contract rate for excavation. He then multiplied the haulage portion of the rate by 160% to calculate the adjusted haulage rate, being the additional 160% on top of the original haulage rate to account for the fact that haulage distances had increased by 160%. Mr Bolt added that contract haulage rate back into the remaining portion of the excavation rate to obtain an Adjusted Excavation Rate that accounted for additional haulage.

Mr Bolt then deducted the original contract excavation rate of $8.97 from the Adjusted Excavation Rate to determine the extra over rate to be applied to actual quantities of cut. He arrived at $3,611,178.15.”

679. As MacDow pointed out, there are significant flaws in Mr Bolt’s process of reasoning.

680. First, on account of an error made by Mr Bolt concerning the correct rate per metre squared of rock excavation, ^[102] HPL conceded that the Court should make a deduction of $84,914.08.

     102. Mr Bolt relied on a rate of $8.97 per metre squared. It is now agreed that the appropriate rate was $5.10 per metre squared.

681. Second, Mr Bolt had regard to HPL’s original haulage plan, without regard to the nature of HPL’s contractual obligations which, as I have explained, included the need to haul suitable fill and rippable rock within a five kilometre radius.

682. Third, an issue arises as to Mr Bolt’s consideration of the actual quantities of earthworks removed. In that regard, Mr Roberts made a number of criticisms of Mr Bolt’s reasoning, one of which HPL acknowledged was an error in Mr Bolt’s calculation, requiring a further deduction of some $72,000 from his figure.

683. More importantly, as Mr Roberts pointed out, Mr Bolt has assumed that the depth of rock over the whole area was 4.99 metres but provided no explanation or supporting information to explain why that assumption had been made. In cross-examination during concurrent evidence, Mr Bolt first said he could not explain where the 4.99 metre depth of rock figure came from but thought that it may have come from the Approved For Construction drawings. Overnight, Mr Bolt said that his assessment came from the November 2011 geotechnical report to which I have referred,^[103] in particular from bore hole data within that report. Mr Bolt said that he used that report to obtain an average depth of rock based on bore hole data. But this is not set out in either of his reports, and he did not explain in his oral evidence how any such calculation was done. Further, Mr Bolt referred expressly to only one bore hole report which, as Mr Roberts pointed out, provided little guidance to the depth of rock in adjacent areas. Mr Roberts said that bore holes are:

“… notoriously inaccurate because these bore holes are 50 metres apart. So, you know, a bore hole here – if you put a bore right next to it, you might get totally different results.”

103. See [598] above.

684. A further problem arises in relation to Mr Bolt’s fourth integer, which is actual haulage distances. Mr Bolt said that he undertook his own measurement of haulage distances. Most of those distances are for less than a kilometre, only four are for distances greater than a kilometre and none are anywhere close to five kilometres; the longest distance was 1.7 kilometres.

685. As HPL was obliged to bear the cost of transport within a five kilometre radius, I cannot see how Mr Bolt’s calculations provide any justification for the variation claimed.

686. I have given careful consideration to this variation, bearing in mind the amount of money involved. However, for these reasons, I am not satisfied that Mr Bolt’s evidence provides any basis for it.

Back Charges

687. I have referred to the nature of “Back Charges” above. ^[104]

     104. At [408].

688. Mr Roberts and Mr Bolt agreed that an amount of at least $6.6 million should be deducted from the Adjusted Contract Sum.

689. The remaining dispute relates to a payment that MacDow made to Civil Pacific Services of $500,000.

690. In the Joint Report, Mr Bolt suggested that “a forensic accountant analyses the Back Charges to reach a conclusive decision” about this matter.

691. But there is no dispute that:

1. Civil Pacific Services delivered an invoice to MacDow numbered 8893 for $500,000 in respect of contract works;

2. MacDow paid that amount;

3. MacDow has included that amount as a back charge only once and has not duplicated that matter in its “other direct charges”; and

4. there is no evidence that HPL paid the $500,000 back to MacDow.

692. I see no reason to refer this question to a forensic accountant.

693. The $500,000 should be included in the Back Charges.

Surveying costs after 18 March 2013

694. For the reasons set out at [633] to [650] above, I have found that HPL’s claim for survey costs has been settled. I understand it to be common ground that any such settlement encompassed survey costs after 18 March 2013.

Conclusion

695. HPL has failed to establish its case. MacDow has been substantially successful. In due course, HPL’s claim must be dismissed and MacDow given relief to the effect sought in its Amended Technology and Construction List Cross-Claim Statement.

696. However, I am not yet in a position to determine precisely to what relief MacDow is entitled.

697. The parties should confer and agree as to the steps that now need to be taken to finalise the proceedings.

698. The matter will be listed for directions at 9.30am on 10 February 2023, or such other date as is convenient to the parties.

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Endnotes

Decision last updated: 21 December 2022