Hyder Consulting (Victoria) Pty Ltd v Transfield Pty Ltd
[2000] VSC 361
•15 September 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL AND EQUITY DIVISION | Not Restricted |
BUILDING CASES LIST
No. 6107 of 2000
| HYDER CONSULTING (VICTORIA) PTY LTD | Plaintiffs |
| v | |
| TRANSFIELD PTY LTD (ACN 000 854 688) and OBAYASHI CORPORATION (ARBN 002 932 756) | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 September 2000 | |
DATE OF JUDGMENT: | 15 September 2000 | |
CASE MAY BE CITED AS: | Hyder Consulting (Victoria) Pty Ltd v Transfield Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 361 | |
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Contract – building contract – contract for engineering design services – whether progress claims must be paid without deduction for loss due to defective design.
Practice and Procedure – set off – rule in Mondel v Steel – whether contractor may deduct from engineer’s design fees unliquidated damages claim for defective design.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiffs | Mr R.J. Manly | Holding Redlich |
| For the Defendants | Mr J.A.H. Foxcroft | Mallesons Stephen Jaques |
HIS HONOUR:
The plaintiffs, Hyder Consulting (Victoria) Pty Ltd and CMPS & F Pty Ltd, whom I shall refer to collectively as “HyderCMP”, are the design engineers for the southern link portion of the Melbourne City Link project. This portion includes two tunnels under the Yarra River, the Domain Tunnel and the Burnley Tunnel. HyderCMP sues its employers, the defendants, Transfield Pty Ltd and Obayashi Corporation whom I shall refer to collectively as TOJV, for fees in respect of its professional services. By application made on 4 August 2000 it seeks summary judgment pursuant to Order 22 in the sum of $1,578,545 plus interest.
Filed in support of this application are two affidavits: that of the commercial manager of HyderCMP, Frank Menotti, sworn 15 August 2000 and that of its accounts manager, Michele Anne Beattie sworn the same day. TOJV has filed an answering affidavit of its disputes manager, Gerald Bernard Di Corpo sworn 29 August 2000. There is also an affidavit in reply sworn by Mr Menotti on 31 August 2000. There are lengthy exhibits to the affidavits of Mr Menotti and Mr Di Corpo. These affidavits range over a number of technical issues as to the nature and causes of the difficulties which have attended the construction of these two tunnels, particularly the Burnley Tunnel.
It is necessary that I state at the outset that my task on an application of this character is not to resolve conflicts of fact or differences of opinion emanating from experts. Where the evidence discloses a real issue to be tried, that issue must be left for investigation at trial.
That said, the affidavits show that there is a great deal of material which I apprehend to be non-controversial. Prior to October 1995, TOJV prepared and submitted to the State of Victoria what was ultimately a successful bid for the design, construction of and the concession for the operation of the City Link road system. The contract was then granted to a consortium comprising Transurban City Link Ltd, the entity established by TOJV for the purpose, and The Perpetual Trustee Co Ltd, which I shall refer to collectively as “Transurban”. HyderCMP, or its predecessors, was involved as a consultant in the preparation of this bid.
By an agreement dated 30 October 1995 Transurban entered into a contract with TOJV for the design and construction of the project.
By a Design Consultancy Agreement (“DCA”) dated 14 February 1996 entered into between TOJV and HyderCMP, HyderCMP agreed to carry out engineering services for the southern link portion of the project. This agreement, referred to before me as the DCA, is a lengthy document which I shall not attempt to summarise.
The Design Consultancy Agreement
By cl. 2.1 of the formal instrument of agreement forming part of the DCA, HyderCMP agrees to perform the services specified in Schedule 1, the General Terms and Conditions of Contract, and is to be paid by TOJV the Fee in accordance with Schedule 4. In this judgment reference to clauses are references to clauses in Schedule 1 unless the contrary intention appears.
The services to be provided are defined in cl. 1.1 as follows:
”Services is all things necessary to design the Works and the State Works with respect to the Southern Link as described in the Specification and all other things (not constituting variations) which [TOJV] advises [HyderCMP] from time to time that it is required to do under the Design & Construct Contract and the State Works Agreement, to design the Works and the State Works with respect to Southern Link excluding:…”
The exclusions are not relevant for present purposes. Clause 5.1 deals further with the services to be provided in the following terms:
5.1 The Services
5.1.1[HyderCMP] will provide the Services, including any design, drawings and other Documents, in accordance with the Agreement.
5.1.2[HyderCMP] must use all reasonable efforts to fully inform itself of [TOJV]’s requirements for the Services and for that purpose consult with [TOJV] throughout the term of this Agreement. If [HyderCMP] considers that the information, Documents and other particulars made available to it by [TOJV] under clause 6 are not sufficient to enable it to provide the Services, [HyderCMP] must advise [TOJV] as soon as it becomes aware of any inadequacy.
5.1.3If any Documents provide by [HyderCMP] do not meet [TOJV]’s requirements, having regard to the provisions of this Agreement then [HyderCMP] must, at its own cost, make any necessary amendments to the Documents so that they meet these requirements.
5.1.4Not Used.
5.1.5[HyderCMP] must carry out all of the duties described as a design consultant’s duties in the Specification. This includes (without limitation) the duties described in Part L of the Project Scope and Technical Requirements.
5.1.6[HyderCMP] acknowledges that it must provide the Services in respect of the State Works as part of its Fee and it will not be entitled to any additional amounts for the provision of these Services.
5.1.7[HyderCMP] must, as part of its Services (and with no adjustment to the Fee), assist [TOJV] to obtain all approvals in respect of the Works and the State Works. This includes (without limitation) providing [TOJV] with designs, drawings and Documentation (at [HyderCMP]’s cost) to enable [TOJV] to obtain these approvals.
5.1.8[HyderCMP] agrees that, notwithstanding the provisions of clause 9.3 and the definition of Completion, the Services comprising Construction Services must continue to be provided until the Completion of the Works under the Design and Construct Contract.”
Notwithstanding the exception in the definition of Services in cl.1.1, cl. 10.1 entitles TOJV to instruct or authorise HyderCMP to vary the Services and HyderCMP must carry out any such variation. Clause 10.2 provides for the valuation of these variations.
Schedule 4 contains the Schedule of Fees payable to HyderCMP. They include a lump sum of $24.65M apportioned as to $22.15M for the design phase and $2.5M for the construction phase. It contains provision for a bonus payment and for the calculation of progress payments. This last-mentioned provision is as follows:
“3. Calculation of Progress Payments
[TOJV] will make progress payments to the [HyderCMP] for the agreed value of the work performed by [HyderCMP] for each relevant Milestone.
A portion of the value of each Milestone (being 80%) will be paid progressively on a pro rata time basis. The remaining 20% will only be paid on achievement of the Milestone.
The Milestones will generally correspond to the final sign off of the Stage 1 and 2 design packages as described in Schedule 2. The value allocated to each Milestone and the progress payment schedule will be agreed by [TOJV] and [HyderCMP] within 20 days of the execution of this Agreement or as otherwise agreed.”
Returning to Schedule 1, cl. 11 deals with payment of the fee. The following sub-clauses are relevant for my present purposes:
“11.0 Fees and Payment
11.1(a) In consideration of [HyderCMP] providing the Services in accordance with the provisions of this Agreement and for the past services identified in paragraph (b), [TOJV] will pay [HyderCMP] the Fee in accordance with Schedule 4 and this clause 11.0.
(b)[HyderCMP] acknowledges and agrees that:
(i)the Fee is in full payment for the Services and for all Services provided by [HyderCMP] to [TOJV] in respect of the Southern Link prior to the date of this Agreement;
(ii)it will make no claim against [TOJV] in respect of any matter arising prior to the date of this Agreement.
…..
11.2[HyderCMP] must submit a monthly progress claim to [TOJV] on or before the 25th day of each month which must include:
(i)details of the Milestones achieved in that particular month;
(ii)details of work performed in relation to Milestones which have not yet been achieved;
(iii)accounts, invoices receipts or other documents reasonably required by [TOJV] evidencing all amounts claimed by [HyderCMP] for services under this Agreement where such documentation is required by [TOJV];
(iv)a certificate from [HyderCMP] certifying that all its employees, subcontractors and suppliers have been paid their entitlements to date, except where such entitlements are subject to bona fide dispute.
11.3[TOJV] must pay [HyderCMP] the amount claimed within 20 Business Days of receipt of the progress claim or within such other period as may be agreed between [HyderCMP] and [TOJV], except that in the event of any disputed amount, the provisions of Clause 11.8 will apply.
11.4The payment of any moneys under a progress claim will be taken to be payment on an account only and will not be evidence of the value of work performed or acceptance by [TOJV] that the work has been performed satisfactorily. If [TOJV] becomes aware of any error in a previous progress payment [TOJV] may adjust the next progress payment accordingly.
…
11.6Minor items, not expressly mentioned in this Agreement but which are necessary for the satisfactory completion and performance of the Services, must be undertaken by [HyderCMP] without adjustment to the Fee.
11.7Without limiting [TOJV]’s right under any other provision of this Agreement, any debt due under this Agreement from [HyderCMP] to [TOJV] may be deducted by [TOJV] from any moneys which may be or subsequently become payable to [HyderCMP] by [TOJV].
11.8If [TOJV] disputes the whole or any portion of a progress claim submitted by [HyderCMP], it must pay the portion of the claim which is not in dispute and must notify [HyderCMP] in writing of the reasons for disputing the progress claim. If the parties are unable to reach agreement within 10 Business Days of [TOJV]’s notice, the dispute may be referred by either party for resolution in accordance with Clause 14.”
Clause 11.9 deals with HyderCMP’s final claim. Sub-cl. 11.9.4 provides that payment of the final claim, as with a progress claim,[1] is not an acceptance by TOJV that the work has been performed satisfactorily.
[1]Cl.11.4.
Mention is made in cl. 11.8 of dispute resolution. Clause 14 deals with this by providing for mediation. The DCA makes no provision for the consequences of an unsuccessful or terminated mediation.
HyderCMP’s Claim
HyderCMP’s claim falls into two parts. First it claims $200,000 representing the balance outstanding of the base fee for the design phase. By letter dated 21 October 1998 TOJV accepted “for the purpose of finalising base design payments and establishing a reference point for the settling of extension of time and delay claims, HyderCMP [had] completed the base design requirement under the [DCA] as at 31 August 1998”. Twelve months later the parties agreed that the fee for this work, including variations, was $25,853,913, of which $25,481,741 had been paid, leaving a balance outstanding of $372,172. Of this balance, $172,172 was paid on 3 November with a statement that the remainder would be paid at the start of December.
The second part of the claim is for $1,378,545, representing the balance outstanding for five monthly progress claims in respect of the construction phase as follows:
November 1999 claim Claimed 366,269.00 Accepted 355,584.00 Less paid 41,939.00 Outstanding $313,645.00 December 1999 claim Claimed 321,259.00 Accepted 311,047.00 Less paid 13,452.00 Outstanding $297,595.00 January 2000 claim Claimed 382,484.00 Accepted 323,158.00 Less paid 29,406.00 Outstanding $293,752.00
February 2000 claim Claimed 295,324.00 Accepted 286,379.00 Less paid 50,210.00 Outstanding 236,169.00 March 2000 claim Claimed 284,122.00 Accepted 275,400.00 Less paid 38,016.00 Outstanding 237,384.00 Total $1,378,545.00 These figures were not in issue.
On behalf of TOJV it was put that this second part of the claim was for work done for the rectification of design deficiencies in the tunnels and, in particular, on the Burnley Tunnel. Further, it was said that, by reason of these design deficiencies, TOJV was entitled to deduct or to set off against the claim of HyderCMP or to abate those claims because these deficiencies had caused it to suffer losses well in excess of the sums claimed. In support of these contentions, Mr Di Corpo asserted that the Burnley Tunnel was defectively designed. He said that HyderCMP advised Transurban that the tunnels could be built as drained tunnels. He explained that this meant that the tunnels would be built as an arch standing on a relatively thin invert of approximately 200 mm thickness. This invert would not be waterproof or designed to resist groundwater pressures. Such water as leaked in the tunnel would then be drained and discharged. He said that, when the tunnels were excavated, it was discovered that the volume of water leaking into them was greater than expected. This led to a decision made in 1997 that the drained tunnel design be abandoned, at least with respect to the deepest, middle-sections of the tunnels, in favour of a tanked design. Mr Menotti denied this. He said that the drained tunnel design was feasible. The change was the result of the failure of TOJV to undertake pre-grouting in accordance with the design, with the consequence that the geotechnical environment of the tunnel was not sufficiently impermeable. The change in design made in 1997 was based, in these circumstances, on the recommendations of the Office of Independent Reviewer and for commercial reasons to suit the convenience of TOJV. The change meant that the thickness of the invert was increased from 200 mm to 1800 mm. TOJV says, that as a consequence, it incurred the extra cost of redesign and of constructing the tunnels and consequential costs.
The new tanked design required the groundwater to be kept from the tunnel by an impermeable wall. It is next said by TOJV that this new design was itself inadequate because cracking appeared in the Burnley Tunnel towards the middle of 1999. This, TOJV says, was because the design of the tunnel walls was insufficient to withstand the water pressures which they then encountered. It is said that this is because HyderCMP over-estimated the strength of the rock through which the tunnel passed. This, the rock modulus claim, asserts that the tunnel, in the weaker rock, lacked the strength to withstand the hydrostatic pressures to which it was subjected. This resulted in excessive cracking and heave of the floor slabs in the tunnels and consequent damage to the other components of the tunnel. Mr Menotti denies this. He says that the design of the tanked tunnel did have regard to rock hardness which was in fact encountered. He says that the distress of the tunnel was not a design problem; he points to construction deficiencies.
Next, it is said by Mr Di Corpo that, when the cracking appeared in the tunnel, HyderCMP recommended a testing procedure to determine its cause. This involved drilling through the slabs and pumping in water at high pressure to determine the strength of the slabs. He said that this testing caused sound slabs to fail with the consequence that they had to be replaced by TOJV. Mr Menotti said that TOJV accepted the risks of the testing process and that in any event only seven slabs out of 141 failed. These failures, he said, were due to construction deficiencies, not design deficiencies. The testing was suspended by TOJV in February 2000. Mr Menotti said that the remedial work now being undertaken by TOJV, namely, the installation of rock anchors, is unnecessary and, accordingly, a claim for its cost is not properly chargeable to HyderCMP.
Criticisms were directed on behalf of HyderCMP at the form of the affidavits filed on behalf of TOJV. It was said, with some force, that Mr Di Corpo, who became involved in the project only in December 1999, could not swear to much of the material which he put forward. Much the same could be said of parts of Mr Menotti’s second affidavit which is largely based on hearsay.
For my present purposes, however, it is sufficient that I conclude, as I do, that there exists a triable controversy as to these matters. I proceed on the basis that a court at trial might find that Mr Di Corpo’s assertions are well-founded. Likewise, I proceed on the basis that the loss to TOJV is well in excess of the $1.5M claimed by HyderCMP in this proceeding. On this basis I turn to the contractual issues.
Contractual Issues
Counsel for TOJV submitted, first, that his client was entitled to set-off against the claim of HyderCMP its unliquidated claim for damages. On behalf of HyderCMP it was put that the DCA contains no applicable right of set-off. Clause 11.7 obliges TOJV to pay the amount claimed after deduction of a “debt due” to it. Such an expression does not include an unliquidated and unascertained demand. In Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd,[2] the expression “money due” was held not to include such a claim. I accept that such a claim could not properly be described in this contract as a debt.[3]
[2][1995] 2 Qd R 521
[3]Compare cl. 3.3.3 and 11.3.1
It does not, however, follow that TOJV is precluded from disputing the amount claimed. In this case it is said that the construction phase performed by HyderCMP was work done to amend the design so that it meets the requirements of the DCA and to cure errors and defects in it.[4] Such work must be performed at the expense of HyderCMP and not charged to TOJV. Clause 11.7 expressly preserves to TOJV the right to contend that the work done is not chargeable. The scheme of cl. 11.4 preserves to TOJV the right to rely upon such a contention notwithstanding that it arises or becomes apparent or is raised after the monthly progress claim is made and after the time for payment of the claim under cl. 11.3 has passed.
[4]Cll. 5.1.3, 8.4.2
To this point I have ignored the fact that HyderCMP has brought a proceeding in court to recover its entitlement to payment. Once this is done, the further procedural entitlements of TOJV as a defendant may arise to permit it to raise a set-off or to rely upon R.13.14 or, to abate the claim under the rule in Mondel v Steel.[5] I accept that these entitlements may be excluded by agreement between the parties. To my mind, however, the DCA contains no such exclusion. It was accepted by counsel for HyderCMP that cl. 11.7 does not have this effect. There is no other provision in the DCA which points to such an exclusion.
[5](1841) 8 M & W 858; 151 ER 1288
I conclude, therefore, that there is a triable issue as to whether the claim of HyderCMP for fees for work in the construction phase is chargeable to TOJV. With respect to the balance of the design phase fees, I am not persuaded that TOJV is not entitled to set-off its substantial damages claim.
There was some debate before me as to whether TOJV is entitled to abate the claim of HyderCMP under the rule in Mondel v Steel on the basis that its contract was not one for the sale of goods, for work and labour done[6] or for payments due under a building contract[7]. There are, however, dicta supporting the view that the rule has no application to a claim for the supply of professional services[8] but it is not necessary that I reach a conclusion on this question and I do not do so.
[6]Riverside Motors Pty Ltd v Abrahams [1945] VLR 45; Argento v Cooba Developments Pty Ltd (1987) 13 FCR 579
[7]R v McKay; ex parte Cassaniti [1993] 2 Qd R 95 at 99, per Davies JA
[8]Hutchinson v Harris (1978) 10 BLR 19 at 31, per Stephenson LJ
The application for summary judgment will be dismissed with costs.
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