Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia [No 6] - [2008] WASC 193

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: LEIGHTON CONTRACTORS PTY LTD -v- PUBLIC TRANSPORT AUTHORITY OF WESTERN AUSTRALIA [No 6] [2008] WASC 193

CORAM: LE MIERE J

HEARD: 12 - 14, 17 - 21, 24 - 28 SEPTEMBER, 21 - 23, 26 - 29 NOVEMBER 2007, 5 - 6 FEBRUARY 2008

DELIVERED : 18 SEPTEMBER 2008

FILE NO/S: CIV 1570 of 2006

BETWEEN: LEIGHTON CONTRACTORS PTY LTD (ABN 98 000 893 667)
Plaintiff
AND
PUBLIC TRANSPORT AUTHORITY OF WESTERN AUSTRALIA
Defendant

Catchwords:

Contract - Construction - Interpretation of Rise and Fall provisions in deed - Index used for calculating the Rise and Fall progress payments under the deed discontinued - Which replacement index should be substituted for the discontinued index in the deed - Which replacement index is the nearest index consistent with the deed so as to give effect to it - Turns on own facts

Restitution - Money paid by mistake - Payment not voluntary - Index used for calculating the Rise and Fall progress payments under deed discontinued - Payments made on basis that a specific index was to replace the discontinued index in the deed - Turns on own facts

Legislation:

Nil

Result:

The 4113 National index to be substituted for the Table 42 index in the deed
Counterclaim dismissed

Category: B

Representation:

Counsel:

Plaintiff:    Mr N J Young QC & Mr C G Colvin SC
Defendant:    Mr D J Higgs SC & Mr J A Thomson
Non Party
Australian Bureau of Statistics   :    Mr T Howe QC, Mr A J Power,         Mr J Jacobson & Ms F A Humphries

Solicitors:

Plaintiff:    Mallesons Stephen Jaques
Defendant:    State Solicitor's Office
Non Party
Australian Bureau of Statistics   :    Australian Government Solicitor

Case(s) referred to in judgment(s):

CC (Victoria) Pty Ltd & Concrete Constructions Group Pty Ltd v State Electricity Commission of Victoria (1993) 12 Aust Cons LR 158
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners [2006] UKHL 49; [2006] 3 WLR 781
Hookway v Racing Victoria Ltd [2005] VSCA 310; (2005) 13 VR 444
Kleinwort v Benson [1999] 2 AC 349
Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 11 ALR 305; (1976) 50 ALJR 769

TABLE OF CONTENTS

Introduction
Project Deed
Table 42 is discontinued
PTA asks ABS to reinstate Table 42 index
PTA asks ABS to produce a new replacement index
Table 48 index published
The dispute
Major issues

Counterclaim
Proper construction of cl 5 of annexure G

Availability
Was the Table 48 index an available index?
Was the 4113 WA index available?
Is Table 48 an index for the purposes of the Project Deed?
Is the Table 48 index an independent index?
Must the replacement index be from same industry sector?
Duration of replacement index
Are the candidate indexes reliable, reputable and commercially accepted?
Is the Table 48 index reliable, reputable and commercially accepted?
Are the DHW and Rawlinsons indexes reliable?
Eligible candidate indexes
Concept of nearness
Criteria for determining nearness
Design or index type
Item coverage

Weights
Geographical coverage

Transparency
Compilers' resources and expertise

Reliability
Candidate indexes
Table 48 index
House building index
Rawlinsons building index
DHW index
The 4113 National and WA indexes
The nearest index
The Table 48 index is the nearest index
The nearest index - excluding Table 48
Historical performance or measure of statistical closeness
Graphical analysis
Regression analysis
Dissimilarity measures
Table 48 index is statistically nearest index
Historical performance or statistical closeness - excluding Table 48 index
Graphical analysis
Regression analysis
Dissimilarity measures
Historical performance or statistical analysis as a whole
The nearest index - conclusion

Counterclaim
The interim arrangement
The restitution claim

Conclusion

LE MIERE J:

Introduction

The Perth to Mandurah railway is part of Western Australia's New MetroRail Project. Package F is the city section.
On 14 February 2004 the plaintiff (Leighton) made a deed (the Project Deed) with the defendant (PTA) by which Leighton agreed to design, construct and maintain the works necessary for Package F in consideration of the Contract Sum. Package F consists of two underground stations, twin bored tunnels, cut and cover tunnels, railway track, overhead power, signalling and communications and associated road works, drainage and landscaping. The Contract Sum is $333,727,609 as adjusted in accordance with the Project Deed. Subject to the other requirements of the Project Deed, the Contract Sum is to be adjusted in accordance with Rise and Fall. Rise and Fall is the rise and fall calculation set out in annexure G. The rise and fall calculation requires a single factor to be applied to the effective value of each progress payment. The factor is to be calculated by reference to two specified indexes published by the Australian Bureau of Statistics (ABS).
The two specified indexes are described in the schedule to annexure G to be a labour index and a materials index. The materials index is all groups excluding electrical materials and mechanical services, Perth, of the Price Index of Materials Used in Building Other Than House Building, published by the ABS. This index was contained in table 42 of Catalogue No 6427.0 and was described during these proceedings as the Table 42 index, the OTHB index or the first OTHB index. I will use the same nomenclature.
On 26 July 2004 the ABS published the Table 42 index for the June quarter 2004 and announced that the June quarter 2004 was the last quarter that the ABS would be compiling the Table 42 index. Therefore a new index was required for calculating Rise and Fall.
Clause 5 of annexure G to the Project Deed provides:
If an index is discontinued or the basis on which an index is calculated is altered there must be substituted the nearest index consistent with the intention of this annexure G so as to give effect to it.
This case is about which index should be substituted for the Table 42 index in calculating Rise and Fall.
Before addressing the issues between the parties it is convenient to outline some relevant parts of the Project Deed and some relevant events leading to this dispute.

Project Deed

Clause 13 of the Project Deed deals with payment. Clause 13.1(a) provides that the PTA must pay Leighton the Contract Sum in accordance with the Project Deed for the progressive completion of the Project Works and the Maintenance Work and, subject to cl 20.4, any other amounts to which Leighton is entitled under the Project Deed. Clause 20.4 provides that the PTA may withhold payment of that part of any amount which is the subject of a dispute or difference. The Contract Sum is defined to be $333,727,609 as adjusted in accordance with the deed.
Clause 13.1(c) provides that the Project Payment Schedule sets out, among other things, the payment Leighton may claim for each progress payment. Project Payment Schedule means annexure F. The preamble to annexure F says that the project is divided into a number of Cost Centres each of which, with the exception of Cost Centre No 1 (preliminaries and general requirements), represents a major item or series of inter‑related items associated with the project. The Cost Centres are further divided into a series of milestones, each of which is valued as a lump sum. For other than Cost Centre No 1, progressive payments are to be made against work done on each milestone within each Cost Centre.
Clause 2 of annexure F provides that Leighton must submit every month to PTA's Representative a payment claim of the progress value of the work at the time of the claim. PTA's Representative is the person appointed by PTA to that role under cl 3.2 of the Project Deed. Clause 3 provides that the progress value of the work comprises the sum of the values set out. The values include the value for Cost Centre No 1 to be calculated in the manner set out. The values also includes the proportionate value of the work completed against any milestone item in any of the Cost Centres No 2 ‑ 19 and No 21 subject to certain provisos and exceptions. Clause 3(e) provides that Rise and Fall on the base value of certain elements of the progress claim set out in cl 4 of the annexure and calculated in accordance with annexure G and cl 4 of annexure F, are to be included in the progress value of the work.
Clause 4 of annexure F deals with the application of Rise and Fall. The elements comprising the progress value of the work are described in cl 3, to which I have already referred. The mechanism for calculating the factor for adjusting the contract payments for future variations in the cost of labour and materials is contained in annexure G. Clause 4 sets out the procedure for applying the factor so calculated. The procedure is as follows. Values attributable to any of the elements of any monthly claim falling in cl 3(a), cl 3(b) and cl 3(c) of annexure F must be multiplied by the Rise and Fall applicable to that month to arrive at the Rise and Fall payable for those elements for that month. There is a separate provision in relation to the elements in cl 3(d). Cost Centre No 2 (Design and Documentation), is excluded from Rise and Fall calculations.
Annexure G deals with Rise and Fall. Clause 1 defines Effective Value in respect of each progress payment or final payment to be the value of the work included in the progress valuation or the final value less the Effective Value in respect of previous progress payments and some other matters and disregarding any increase or decrease under the Rise and Fall clause. Clauses 2 and 3 define Base Index Number and Current Index Number. Clause 4 says that if a final index number is not available the preliminary index number (or where there is no preliminary index number the last available index number) will be used for calculation. The increase or decrease may be recalculated on the basis of the final index number. Notwithstanding that provision, in respect to index numbers published by the ABS, the first published index number whether or not it is described as 'preliminary' will be used and no recalculation will be made on the basis of any subsequent revisions to the index number.
The schedule to annexure G sets out how Rise and Fall is to be calculated. The Effective Value in each progress payment shall be increased or decreased by multiplying it by the net sum of a calculation in respect of each of the labour index and materials index. The calculation in respect of the labour index is 0.4 multiplied by [Current Index Number minus Base Index Number] divided by Base Index Number. The calculation in respect of the materials index is 0.55 multiplied by [Current Index Number minus Base Index Number] divided by Base Index Number. There is a different calculation in respect of maintenance work in that the proportions applicable to the labour index and the materials index are 0.6 and 0.3 respectively rather than 0.4 and 0.55 as is the case with the construction work. Thus, the separate labour and materials indexes are used to calculate a single factor. That single factor is then applied to the Effective Value in each progress payment without regard to the labour or materials content of the Effective Value in that progress payment.
The effect of the schedule and note (b) to the schedule is that the date for the Base Index Number is 4 September 2003, that is 14 days prior to the date of the Leighton bid. Senior counsel for Leighton, Mr Young QC, submitted that that provision shows the purpose of the Rise and Fall:
It's future price variations between 4 September when the tender is submitted and prices are estimated for labour, materials and so on, … compared to the actual costs incurred when the work is done.
Clause 19 of the Project Deed deals with default and termination. Clause 19.8 provides that if the PTA fails to make a payment due and owing by the PTA under the deed within the time allowed for payment, Leighton may give to the PTA a notice requiring payment within 30 days. If the PTA, without lawful entitlement, does not make the payment within the time allowed in the notice from Leighton, Leighton may by notice in writing to PTA terminate the deed. Clause 19.10 deals with default interest. The clause provides that if a party does not pay an amount by the date that is due under the deed, it must on demand pay interest to the other party on that amount at a rate specified and calculated in the manner specified.
Clause 20 deals with dispute resolution. Clause 20.1 provides that if a dispute or difference arises between PTA and Leighton and one party requires it to be resolved, that party must promptly give the other party written notice identifying, and giving details of, the dispute or difference. Subclauses 20.2 and 20.3 deal with resolving the dispute by negotiation and mediation. Clause 20.4 provides that the PTA may withhold payment of that part of any amount which is the subject of a dispute or difference.

Table 42 is discontinued

Each month Leighton submitted to the PTA's Representative a payment claim of the progress value of the work at the end of the preceding month. Each claim up to and including progress claim No 9 for the period ending 31 October 2004, and submitted by Leighton on 3 November 2004, calculated Rise and Fall by using Table 42 as the applicable materials index.
The Table 42 index for the June 2004 quarter was published on 26 July 2004 in the ABS Producer Price Indexes publication. A note stated that the June quarter 2004 was the last quarter that the ABS would be compiling the Table 42 Index. Users of the index, who were interested in discussing alternative indicators of price changers were invited to contact Stephen Whennan.
Richard Mann was the Director ‑ City Project for the PTA. He was responsible for management of the New MetroRail City Project on behalf of the PTA. He was the PTA's Representative under the Project Deed. Mr Mann became aware that the ABS had ceased publication of the Table 42 index in about August or September 2004.
Mr Mann conducted some preliminary investigations into possible alternative indexes to substitute for the Table 42 index. Mr Mann contacted Randall Field of Main Roads Western Australia because he knew Main Roads to be similarly affected by the discontinuance of the Table 42 index. Mr Mann sought advice from Mr Field as to Main Roads' course of action and was told by Mr Field that Main Roads was undertaking similar preliminary investigations. Mr Mann and Mr Field agreed to maintain close liaison in respect of the identification of a replacement index.
Robert Wallwork was employed by Leighton as the Project Director on the New MetroRail City Project and has been in that position since 14 February 2004. On 6 September 2004 Ray Sputore, the General Manger of Leighton in Western Australia, told Mr Wallwork that the Table 42 index had been discontinued.
On 7 September 2004 Mr Wallwork met with Mr Mann. One of the matters discussed at that meeting was the discontinuance of the Table 42 index.
In September 2004 there were communications between PTA employees and ABS employees concerning a replacement index for the discontinued Table 42 index.
On 11 October 2004 Mr Mann wrote to Mr Wallwork. Mr Mann stated that ABS had ceased publication of the Table 42 index with the June 2004 quarter being the last published update. Mr Mann stated that the PTA was of the view that substitution of the Output of the General Construction Industry, Non‑Building Construction (class 412) index published by ABS in Table 16 of Catalogue 6427.0 (the Non‑Building Construction index) for the Table 42 index in the Rise and Fall formula was the most appropriate action for the purposes of cl 5 of annexure G of the Project Deed. Mr Mann proposed that the new index be applied from progress payment No 9.
On 12 November 2004 Mr Wallwork wrote to Mr Mann objecting to the PTA's proposal to substitute the Non‑Building Construction index for the Table 42 index. Mr Wallwork proposed using the Non‑Building Construction index as a substitute for both the labour and material indexes but also varying the Project Deed to provide for a lump sum payment by the PTA to Leighton because the proposed indexes were national and there were forecasts that the Perth market costs of works had increased substantially.

PTA asks ABS to reinstate Table 42 index

On 16 December 2004 Reece Waldock, Chief Executive Officer, PTA, and Menno Hanneveld, Commissioner of Main Roads, jointly wrote to the Australian Statistician, Dennis Trewin, requesting that the Table 42 index be reinstated. They acknowledged the cost of publishing the index and offered to commission ABS to undertake the service.
On 22 December 2004 Mr Wallwork wrote to Mr Mann rejecting the proposal to use the Non‑Building Construction index as a substitute for both the labour and materials indexes nominated in the Project Deed and agreeing to an interim arrangement whereby progress claims were to be indexed by 8% in 2004 and 7% in 2005.
On 10 January 2005 Mr Mann wrote to Mr Wallwork confirming that PTA and Main Roads had made a joint statement to the ABS to have Table 42 reinstated and confirming an interim arrangement for calculating payments for Rise and Fall pending resolution of the matter.
On 19 January 2005 the Australian Statistician, Mr Trewin, wrote to PTA and Main Roads declining to restart the Table 42 index. Mr Trewin offered to talk to PTA and Main Roads about options for combining some of the individual indexes compiled by ABS to produce a measure suitable for their purposes and invited them to contact Paul McCarthy who was responsible for ABS' prices branch.
There were further communications between Leighton and PTA concerning an interim arrangement for calculating Rise and Fall and an interim arrangement was agreed on 10 February 2005 whereby 2% adjustments were to be made.

PTA asks ABS to produce a new replacement index

In February 2005 Mr Mann and Mr Field discussed with representatives of the ABS the possibility of developing a new index based on existing data collected and compiled by ABS. In late February and early March Mr Whennan worked on constructing a replacement index for the discontinued Table 42 index.
During the process of developing a substitute index, Mr Mann and Mr Field had requested detailed weighting information from the ABS. They were attempting to adjust the weights of the Price Index of Materials Used in House Building, Perth, published by ABS in Table 17 of Catalogue No 6427.0 (the Housing, House Building or HB index) to produce a substitute index. Their aim was to work out if re‑weighting the HB index using the broad level OTHB weights would make the HB index behave the same way as the OTHB index had behaved historically.
Mr Mann and Mr Field visited the ABS offices in Canberra on about 23 March 2005. During that visit and immediately afterwards Mr Mann and Mr Field and some ABS people carried out work comparing the HB index and the OTHB index to determine which of the 43 groups of materials that were measured by the HB index were leading to the different outcomes of the total level. They compared the behaviour of the most heavily weighted materials with an emphasis on those they expected to behave differently because of differences in their composition in house building and in other than house building. Mr McCarthy said that during that process it became obvious that several material groups from the OTHB index behaved differently from those in the HB index ‑ in particular, structural steel and readymix cement.
On 10 May 2005 Mr Mann wrote to Mr Wallwork informing him that the ABS had agreed to the publication of a replacement materials index that, in PTA's view, satisfied the intent of the Project Deed in respect of substitution for the discontinued index. Mr Mann said that the interim arrangements as previously applied would continue until the substitute index commenced and then the PTA would substitute the substitute index in the formula in annexure G and enter discussions with Leighton to agree to an adjustment for rise and fall payments under the interim arrangement.

On 31 May 2005 Mr Field and Mr Mann attended a meeting with Mr McCarthy and Mr Hubbard of the ABS at the ABS offices in Perth. Mr Mann discussed a replacement index based on the collection of data for the top weighted commodities from the OTHB index and using the HB index data for the remaining commodities. Mr McCarthy confirmed that the ABS would proceed with the development of a substituted index using a similar principle to Mr Mann's analysis, with the ABS to undertake its own further analysis to optimise the result.
On 31 May 2005 Mr Mann sent an email to Mr McCarthy confirming PTA's agreement to proceed on the basis of the 'OTHB 1‑6' option ‑ that is, collection of data for the top six highest weighted commodities from the OTHB index: structural steel, readymix concrete, aluminium windows, glass products, reinforcing steel bar and other precast concrete products.
In the week beginning 20 June 2005 two ABS interviewers, Mr Allsop and Mr Whitehead, travelled to Perth to re‑enrol some of the respondents who had provided prices for the OTHB index and enrol some new respondents. Mr Allsop and Mr Whitehead obtained from the new respondents price information in relation to the special collection items.
On 15 July 2005 Mr McCarthy sent an email to Mr Mann in which he said:
Things are going well with setting up the WA OTHB index based on using other price indexes (principally the index of prices of house building materials) plus a number of specially enrolled respondents for the products where prices potentially differ significantly between houses and other types of buildings (structural steel, readymix concrete etc).
On 2 August 2005 Leighton submitted progress claim no 18. Leighton calculated the Rise and Fall claim by applying the Non‑Building Construction index.
On 1 September 2005 Leighton submitted progress claim no 19. Rise and Fall was calculated by applying the Non‑Building Construction index.
Leighton applied the Department of Housing and Works Building Cost Index - Perth, Non‑Residential Building Index (the DHW index) for the calculation of Rise and Fall in each of its progress claims after October 2005.

Table 48 index published

The ABS announced the production of the All groups excluding electrical materials and mechanical services, Perth, of the Price Index of Materials Used in Building Other Than House Building (the Table 48 index or modified OTHB index or second OTHB index) on 24 October 2005. An appendix to the September quarter 2005 publication of Producer Price Indexes announced the new index. The appendix included the following:
BACKGROUND
In July 2004 the ABS announced that it would be discontinuing the price index of materials used in building, other than house building (OTHB) and that the June quarter 2004 data would be the last set of OTHB indexes released. Following the discontinuation of the OTHB indexes, the ABS was approached by a WA government agency to continue to produce, on a funded basis, a particular subset of the OTHB for Perth (OTHB All groups excluding electrical materials and mechanical services) because of the large size of two WA government contracts that were being indexed by the Perth OTHB. The ABS has agreed to produce this series for Perth, until the end of 2007, and further to make the resulting series available on the ABS Website to all interested parties.
METHODOLOGY
The underlying basis for the index is that relevant components from the price index of materials used in house building (HB), which is still being produced, have been used to the extent possible. They have been supplemented by some specially collected prices for product groups of the OTHB index that could not be sourced from ongoing HB series. Nine product groups were involved in the special collection: pre‑mixed concrete, precast concrete pipes, other precast concrete products, reinforcing steel bar, aluminium windows, structural steel, reinforcing steel fabric and mesh, aluminium screens and doors, and glass products. The ABS has collected prices in Perth for these groups and combined them with prices for the other product groups that could be sourced from the HB series to produce the Perth OTHB index as set out below.
Developing the new price index by utilising data already collected for other price indexes has allowed a replacement price index to be developed within a short time frame, for relatively low cost and with minimal burden on respondents. In this investigation, the ABS determined that twenty nine of the forty three Perth OTHB price samples historically moved in a manner consistent with samples from the Perth HB price index. Additionally, five of the price samples historically moved in a manner consistent with price samples from the Six Capital City HB price index.
The remaining nine price samples (listed above) were judged to have been historically sufficiently different from both Perth and national price samples to warrant developing new samples. These samples were set up in time for price collection in the September quarter 2005. The development of these price samples required enrolling new respondents and collecting prices for a range of products from them. Some respondents to this new collection had previously participated in the OTHB price index in Perth. In enrolling these respondents it was not only necessary to collect pricing data for September quarter 2005 but also to collect pricing data for the periods September quarter 2004 through June quarter 2005.
The index that results from this combination of price samples was released with the publication of Producer Price Indexes, Australia, September quarter 2005 (cat no 6427.0). This price index is available to all interested users via the ABS website as Table 48 'Price Index of Materials Used in Building Other than House Building, Special Series, Perth'. It will be updated each quarter with each future release of Producer Price Indexes, Australia (cat no 6427.0). The ABS will continue to publish this price index until the December 2007 issue of Producer Price Indexes, Australia (cat no 6427.0), to be released in late January 2008.
WEIGHTING PATTERN
The weighting pattern adopted for this price index was identical to that observed for the discontinued price index, that is, June quarter 2004 of the OTHB price index.
These weights are included in a table below.
[Table not produced]
This index is based on combining existing price samples with some new price samples to recreate as accurately as possible the OTHB price index series previously produced for Perth. Adopting such a method allows analysis of how such an index would have behaved historically. The ABS applied the new method to historical price samples over the period March 2000 ‑ June 2004 and compared the results with the previously published index from Table 42 of Producer Price Indexes, Australia (cat no 6427.0).
It should be noted that the historical data compiled using the new method for June quarter 2004 and earlier periods is not a revision to the previously published Perth OTHB series. Rather the purpose of recompiling the historical data is to provide an indication of the impact caused by the change in methodology. For publication purposes, the series compiled on the new basis will be 'spliced' onto the previously published series at June quarter 2004.
[Graphs not produced]
As can be seen from the graphs, the index developed using the new methodology behaves similarly to the index previously published as part of Table 42. In this analysis both series began in March quarter 2000 with an index number of 115.8. At June quarter 2004 (the link period for the new index) the original OTHB (excluding mechanical materials and mechanical services) has an index number of 134.9, whilst the new method has an index number of 135.8. The two series differed by no more than one index point in any quarter over the entire period investigated.
Both quarterly and annual movements of the new index are similar to those of the index previously published in Table 42, although the new method would have delivered a price index that is marginally higher than the published series over the period from March quarter 2000.
The reasons why the two indexes behave so similarly are that many of the materials used in building are common to both 'house building' and 'other than house building' and, in cases where the products do differ to some extent, they are often manufactured using similar materials and processes, so that their prices follow similar behaviour. For those cases where materials and/or price behaviour were substantially different a replacement sample was developed, as described above.
On 24 October 2005 Mr Mann wrote to Mr Wallwork stating that the Table 48 index had been published by the ABS. Mr Mann further said that the Table 48 index would replace the Table 42 index, that the Table 48 index would apply from the September 2004 quarter, that the Table 48 index was to be adopted in all subsequent calculations of Rise and Fall and Mr Mann would discuss with Leighton the necessary adjustment to rise and fall payments made during the interim period.
Since October 2005 the PTA has made rise and fall payments to Leighton on the basis that the Table 48 index has been substituted for the Table 42 index in the Rise and Fall formula provided in annexure G. The PTA also retrospectively adjusted payments since the Table 42 index was discontinued to conform with the Table 48 index.

The dispute

A formal dispute arose between the parties. On 31 October 2005 Leighton issued a notice of dispute or difference under cl 20.1 of the Project Deed. In its notice of dispute Leighton stated that the determination of the PTA Representative that the Table 48 index was to replace the Table 42 index in calculating Rise and Fall was invalid and that the Table 48 index cannot apply because it was not in existence at the time of the discontinued index, it includes house building costs and it was prepared at the request of, and funded by, a WA government agency. Leighton stated that the only relevant index for substitution which was in existence at the time when the Table 42 index was discontinued was the DHW index. The dispute was not resolved in accordance with the dispute resolution mechanisms under the Project Deed and Leighton commenced these proceedings.
When it first commenced these proceedings Leighton pleaded that the appropriate index for substitution was the DHW index. Leighton now asserts that the following indexes all meet the requirement of an index for substitution pursuant to cl 5 of annexure G and submits the following order of preference:
(1)Rawlinsons Building Price Index ‑ Perth (Rawlinsons index or Rawlinsons);
(2)Output of the General Construction Industry, Non‑Residential Building Construction (class 4113) (Western Australia) (the 4113 WA index);
(3)The DHW index; and
(4)Output of the General Construction Industry, Non‑Residential Building Construction (class 4113) (National) (the 4113 National index).
By its defence the PTA says that the appropriate index for substitution is the Table 48 index, or alternatively the House Building Index. Alternatively, PTA says that the 4113 National index should be substituted.

Major issues

A major issue is the proper construction of the words 'the nearest index consistent with the intention of this annexure G so as to give effect to it' in cl 5 of annexure G to the Project Deed (the construction issue). Leighton's pleaded case is that on a proper construction of the Project Deed the intention of annexure G is to provide for an independent method by which there can be a simple, clear and certain calculation of an adjustment to the effective value of each progress payment to provide a reasonable allowance for rise and fall in the costs of carrying out the works compared to the cost at the time of the bid by Leighton to carry out those works by using commercially acceptable measures of variations in the prevailing costs of the general character of the labour and materials to be used in carrying out the works taking account of when and where those costs are expected to be incurred, without requiring the calculation of actual cost differences. Leighton pleads that on a proper construction of the Project Deed, if an index referred to in annexure G is discontinued, there must be substituted from that date and from among the indexes then available, the index that causes annexure G to most nearly give effect to the pleaded intention of annexure G to which I have referred.
The PTA pleads that the intention of annexure G is to provide for Rise and Fall in accordance with the agreed means in the Schedule. The agreed means in the Schedule was not intended to provide a 'reasonable' allowance for rise and fall in the actual costs of carrying out works under the Project Deed compared to the cost at the time of the bid by Leighton to carry out those works, but was the agreed means of adjustment for Rise and Fall, regardless of whether or not it was 'reasonable'. The PTA says that the nearest index is the index which ensures that the formula contained in the Schedule to annexure G will continue to allocate risk in the same manner as prior to the discontinuance of the Table 42 index. The PTA says that the appropriate index for substitution is the index nearest to the Table 42 index, and that assessment of this question depends upon the design and purpose of a candidate index, and a statistical or empirical analysis of movements in the candidate indexes compared to the Table 42 index. The PTA submitted that the fundamental difference dividing the parties is whether the intention of annexure G is to prescribe rise and fall indexation by reference to the formula in the Schedule to annexure G, as claimed by the PTA, or whether it is to provide a reasonable allowance for rise and fall in the costs of carrying out the works under the Project Deed compared to those costs at the time of the bid by Leighton to carry out those works, as claimed by Leighton.
A second issue concerns the availability of indexes to be substituted for the Table 42 index (the availability issue). The Project Deed provides for the payment of monthly progress payments which are to include Rise and Fall. Leighton was required to submit every month to the PTA's Representative a payment claim for the progress value of work completed at the time of the claim. Payment is due within 25 days of receipt of a claim. Leighton says that the new index is to be substituted by force of the contract within the 25 days allowed for payment. Accordingly, to be available to be substituted for the discontinued index the new index must be in existence and available to be used by the parties within the 25 days allowed for payment.
The PTA says that Leighton's availability argument is flawed because while a dispute or an interim agreement exists, there is no need to calculate a rise and fall amount using an index. The reference to a dispute and an interim agreement is a reference to the dispute resolution provisions of the Project Deed and the interim agreement between the parties following the discontinuance of Table 42. The PTA says that the time at which the new index must exist is when the dispute as to which index is substituted is resolved. This is because it is only at that time that any decision about calculation of an amount based upon the index must be made.
The availability issue is important. The PTA's case is that the index which should be substituted for Table 42 in calculating Rise and Fall is the Table 48 index. The Table 48 index was released by the ABS with the publication of Producer Price Indexes, September quarter 2005 on 24 October 2005. The index series then available commenced with the September 2004 quarter. Leighton says that the Table 48 index was not available at the requisite time and hence cannot be substituted for the Table 42 index in calculating Rise and Fall.
There is also an issue concerning the availability of the 4113 WA index. Leighton says that the 4113 WA index is one of the indexes that meets the requirements of an index for substitution pursuant to cl 5 of annexure G: that is, it is eligible to be the replacement index to be substituted for the Table 42 index. The PTA submits that if the replacement index must be available to the parties at the time the discontinued index ceases to be available then the 4113 WA index is not eligible to be the replacement index to be substituted for the Table 42 index because the 4113 WA index number was not available to the parties for the September quarter 2004.
A further issue is what is an index for the purposes of annexure G. Leighton says that to be an index for the purposes of the Project Deed, it must be a measure of relevant cost increases from period to period and it must be independent, reputable and commercially accepted by experience over time. Leighton pleaded that the substitute index must be from the same industry sector as Table 42, namely an 'Other Than House Building' index, alternatively, that had not been a 'House Building' index.
Leighton also says that the replacement index must be an index that can be applied over the whole period required by the Project Deed. By letter dated 6 September 2007 the PTA acknowledged practical completion of the construction work, but maintenance work under the Project Deed will be ongoing for up to 10 years from the date of practical completion. Leighton says that the Table 48 index is not an index for the purposes of annexure G for the further reason that when the ABS released the Table 48 index it stated that it would continue to publish the index only until the December 2007 issue of Producer Price Indexes to be released in late January 2008.
The PTA says that the index must be a reliable index. An index is said to be reliable if it is possible for users to ascertain how it is constructed, the compiler of the index has sufficient resources, expertise and experience with regard to the construction of indexes and index number theory and the compiler employs a sufficient degree of rigour in gathering the source data. The PTA says that the index to be substituted for the materials index Table 42 should be based upon an input index which varies with increases and decreases in the actual costs of building materials and should not be based upon an index which varies with increases and decreases in the costs of any one or more of labour, overheads and profits.
The final issue in Leighton's action is which of the indexes that are eligible to be substituted for the discontinued index is the nearest index consistent with the intention of annexure G so as to give effect to it.

Counterclaim

In February 2005 the parties made an interim agreement for the payment of Rise and Fall being quarterly increases of 2% for the period from 1 July 2004 until resolution or determination of a substitute index on the basis that payments for Rise and Fall processed under this agreement would be subject to adjustments, if necessary, at a later date. Progress payment certificates issued by the PTA for the period between 1 July 2004 and 30 September 2005 were issued and payment was made on that basis. On or about 24 October 2005 the PTA directed that the Table 48 index would replace the Table 42 index with effect from 1 July 2004 and the Table 48 index would be used in subsequent calculations of Rise and Fall.
The PTA pleads that on a proper construction of the interim agreement, alternatively by implication into that agreement, Leighton agreed that in the event of there being any overpayment in respect of Rise and Fall by the PTA, that amount would be repaid by Leighton following resolution or determination of the substituted index. Alternatively, the PTA pleads that there was an implied term under the Project Deed and the conduct of the parties that to the extent that the PTA paid Leighton any monies to which they were not entitled, Leighton would repay those monies to the PTA, unless they were set off pursuant to cl 13.6 of the Project Deed. The PTA further and alternatively pleads that at all material times since October and November 2005 the PTA made payments to Leighton for Rise and Fall on the basis that they were due and owing, in the belief that Table 48 was the appropriate substitute index. If Table 48 is not the appropriate substitute index then that belief was mistaken. The PTA seeks an order that Leighton repay to the PTA any monies which have been paid by the PTA to Leighton on the basis of calculating Rise and Fall using Table 48 which should not have been paid.

Proper construction of cl 5 of annexure G

Clause 5 of annexure G to the Project Deed requires the substitution of 'the nearest index consistent with the intention of this annexure G so as to give effect to it'. Both parties draw attention to the importance of the words 'the intention of this annexure G'.
Leighton says that 'the nearest index' refers to the index nearest to the intention of annexure G not to the index nearest to the discontinued or altered index. Leighton submits that cl 5 of annexure G applies a double emphasis to the importance of the intention of annexure G. Leighton submits that the substitute index must be both the nearest index consistent with the intention of annexure G and the nearest index in respects that give effect to that intention.
PTA says that 'the nearest index' refers to the index nearest to the discontinued or altered index but submits that the concept of 'nearest' must be measured by reference to a criterion and cannot be assessed in a vacuum. PTA submits that the criterion against which 'nearest' is measured is the intention of annexure G.
The parties differ as to the construction of the words 'the intention of this annexure G'. Leighton submits, in effect, that the intention of annexure G refers to the commercial purpose of the rise and fall provision of the contract between the parties contained in the Project Deed. Leighton says that for any replacement index to be consistent with the intention of annexure G it must relate to the costs of the Project Works. Leighton submits that the key question in comparing candidate indexes is how well they measure the rate of change of costs of the kind to be incurred in carrying out the Project Works. Differences between various candidate indexes will only be significant to the extent that those differences mean that the index is not a good measure of the rate of change of costs of the kind to be incurred under the Project Deed. The contractual intention is to provide for risks inherent in the nature of the works to be carried out under the contract. If the risk is to be provided for in any commercially relevant sense then the index must relate to the costs of the kind of works being undertaken under the contract. Nearness of the indexes as a measure of the costs of the project works being undertaken is essential for the rise and fall provision to be able to carry into effect its evident intent.
On the other hand, PTA submits that the intention of annexure G is that the parties should make or receive Rise and Fall payments in accordance with an agreed formula in the schedule to annexure G which employs the Table 42 index and the labour index in combination. PTA says that the parties intended rise and fall payments to be made upon the particular basis of the indexes agreed for use in the prescribed formula. The intention of annexure G is contained in the schedule to annexure G and is represented by the formula which is implemented by the terms of annexure G. The provisions of annexure G are mechanical provisions designed to implement the formula prescribed in the schedule. The terms of annexure G do not contain any general statement of purpose or intention.
Annexure G cannot be meaningfully understood without reference to cl 13.1(d) and annexure F of the Project Deed. I have already outlined important provisions of the Project Deed. The Project Deed provides that PTA must pay Leighton the Contract Sum in accordance with the deed for the progressive completion of the project works and maintenance work. The Contract Sum is subject to adjustment in accordance with Rise and Fall. Rise and Fall is defined as the rise and fall calculations set out in annexure G. Annexure G contains the calculation for Rise and Fall and the definition of the terms in the calculation together with some ancillary provisions. Viewed in isolation, annexure G has no intention other than setting out a calculation or formula for calculating Rise and Fall. One component of the calculation is the specified materials index. Where a replacement index to be substituted for a discontinued or altered index is to be determined by reference to the intention of annexure G, the parties must have intended that the intention of annexure G refers to something more than the calculation, the definition of terms and the ancillary provisions of annexure G.
Annexure F to the Project Deed provides that the amount of each progress payment is to be increased or decreased in accordance with annexures F and G. The function of annexure G is to provide for calculating the rise and fall cost adjustment. It is entitled 'Rise and Fall'. 'Rise and Fall' is defined by cl 1.1 to mean 'the rise and fall calculation set out in annexure G'.
Reference to the terms of the Project Deed to which I have referred suggest that the words 'consistent with the intention of this annexure G' means consistent with the intention of the rise and fall provisions of the Project Deed.
The primary duty of the court is to construe the Project Deed so as to endeavour to discover the intention of the parties from the instrument itself.
In Seddon N C and Ellinghaus M P, Cheshire and Fifoot's Law of Contract (9th Aust ed, 2008) the authors say:
The interpretation of contracts cannot be fettered by maxims or presumptions. Its methodology must necessarily be flexible and resourceful. It must rest on the premise that the contract was made in good faith with the object of mutual benefit by due performance. The court should be astute to give effect to discernible commercial purpose. 'The fact that a document happens to contain infelicities and mistakes is not a sufficient reason for a court to interpret its provisions in a narrow or unreal way.' 'Ambiguities and inconsistencies have to be resolved as best as the Court can.'
The High Court has repeatedly emphasised that the court approaches the task of ascertaining the meaning of the parties' expressions objectively. It is not interested in their subjective understanding, but applies the meaning that an objective outsider would attribute to the contract in the circumstances.
…
Similarly, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd the High Court said:
References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purposes and object of the transaction.
In the case of a disputed clause in a commercial agreement, therefore, 'the essential question is what would reasonable business people in the position of the parties have taken the clause to mean'.
…
In ascertaining the objective meaning of a contract, the court must consider its terms in their context. This includes the objective background of the transaction, that is, its factual matrix, its genesis and aim, and the common assumptions of the parties.
The cases are replete with admonitions against technical or artificial interpretation, in particular of commercial contracts: 'expressions in a mercantile contract are to be read in no narrow spirit of construction'. 'It is inimical to the effective administration of justice in commercial disputes that a court should use a finely tuned linguistic fork.' Questions of meaning are 'to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements'.
Taking account of context also requires that particular terms be considered in the light of the whole text of the contract, and particular phrases in the light of their setting.
…
A much‑quoted dictum of Gibbs J, pronounced in Australian Broadcasting Commission v Australasian Performing Right Association Ltd, is that 'if the language [of a contract] is open to two constructions, that will be preferred which will avoid consequences which appear capricious, unreasonable, inconvenient or unjust'. So in Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland, a case involving a rise‑and‑fall clause which, if literally applied, yielded more than was required by way of compensation for the cost of inflation, the High Court held that the clause should be interpreted in conformity with its evident rationale. 'The clause being open to two constructions, it is proper to construe it so as to avoid consequences which appear unreasonable.' [10.30 ‑ 10.34]. (footnotes omitted)
Annexure G, annexure F and cl 13 of the Project Deed provide for progress payments to be increased or decreased in accordance with the rise and fall provisions of the Project Deed. Annexure F deals with Leighton submitting progress payment claims and the calculation of the value of progress payments. The progress value of the work includes Rise and Fall in accordance with the terms of the annexure. Clause 4 deals with the application of Rise and Fall. The clause states:
The mechanism for calculating the factor for adjusting the contract payments for future variations in the cost of labour and materials is contained in annexure G.
Clause 4 further provides:
The purpose of this cl 4 of annexure F is to define with particularity the mechanism for application of the factor so calculated.
Each of the parties made submissions to the effect that other clauses, or parts of clauses in annexure G and annexure F, help to disclose the intention of annexure G or at least the meaning of the words 'consistent with the intention of this annexure G'. In particular reference was made to cl 7 of annexure G. I do not find that clause helpful in construing the meaning of the words of cl 5. Nor do I find other clauses of annexure F helpful in construing the meaning of cl 5 of annexure G.
The authors of the fourth edition of Brooking on Building Contracts wrote that the device of the rise and fall clause appears to be a modern phenomenon and to be part of the afterbirth of inflation. The raison d'etre of the clause is the need to protect contractors against spiralling costs during the period between tender and completion of the work. Teague J in CC (Victoria) Pty Ltd & Concrete Constructions Group Pty Ltd v State Electricity Commission of Victoria (1993) 12 Aust Cons LR 158, 161 said of the rise and fall clause in that case that its purpose was 'to provide a degree of protection to the contractor by giving the contractor a limited right to recover certain increases in his costs which occur between the time of the reference date, and the time of completion'. The authors wrote that flexibility is the main obvious advantage of a rise and fall clause. By virtue of rise and fall, such flexibility should mean in principle the pricing of a construction project at its true market level: see generally Cremean D J, Shnookal B A and Whitten M H, Brooking on Building Contracts (4th ed, 2004) ch 7.
The intention of the rise and fall provisions of the Project Deed is to provide a limited reimbursement to Leighton of the increase in its costs over the term of the contract. In the circumstances and in light of the whole Project Deed there is no other sensible and commercial purpose. That intention is reflected in cl 4 of annexure F which, as I have said, provides that the mechanisms contained in annexure G for calculating the factor is 'for adjusting the contract payments for future variations in the cost of labour and materials'.
The amount to be paid by PTA to Leighton under the contract as a result of increases (or decreases) in the cost of labour and materials during the course of the contract is to be adjusted in accordance with the formula contained in annexure G and in accordance with annexure F. Reasonable business people in the position of the parties would have intended the cost adjustments effected by the rise and fall provisions to reflect, although in a limited way, the actual increase (or decrease) to Leighton of its costs of carrying out the project works.
The formula in the schedule to annexure G provides a certain result in circumstances that may be quite complex. The application of the formula may in particular circumstances produce a result which is different from the actual additional (or lesser) costs incurred by Leighton in carrying out the Project Works. Nevertheless the adjustment mechanism is related to the actual additional (or lesser) costs to be incurred by Leighton in carrying out the Project Works. Reasonable business people in the position of the parties must be taken to have selected the indexes in the schedule to annexure G on the basis that they provided the best reliable measure available to the parties of changes over time in the cost of labour and materials in carrying out the Project Works. I do not mean by that that the materials index specified in the schedule to annexure G measures movements in the cost of materials used in carrying out the Project Works.
Reasonable business people in the position of the parties must be taken to have intended that in comparing the nearness of possible replacement indexes the nearest index to the discontinued or altered index would continue to provide the best reliable measure available to the parties of changes over time in the cost of labour and materials in carrying out the project works.
The 'nearest index consistent with the intention of this annexure G so as to give effect to it' refers to the index nearest to the discontinued or altered index. The replacement index to be substituted for the discontinued or altered index must be consistent with the intention of the rise and fall provisions as I have explained that intention. In comparing possible replacement indexes to be substituted for the discontinued or altered index, the criteria for measuring nearness is consistency with and giving effect to the intention of the rise and fall provisions of the Project Deed.
In determining which index is 'the nearest index consistent with the intention of this annexure G so as to give effect to it' regard must be had to the materials index selected by the parties (ie the Table 42 index) and to the type of materials to be employed in carrying out the Project Works and the manner in which the parties agreed to calculate the Rise and Fall adjustment. The manner in which the parties agreed to calculate the Rise and Fall adjustment is the formula in annexure G. That includes the calculation of a factor with reference to the relevant category of work, a labour index, a materials index and a proportion applicable to each index.

Availability

The Project Deed provides by cl 13.1(a) that PTA must pay Leighton the Contract Sum in accordance with the deed for the progressive completion of the Project Works and the Maintenance Work. Clause 13.1(c) provides that the Project Payment Schedule sets out:
i.those parts of the Project which must be completed before Leighton may claim each progress payment;
i.the payment Leighton may claim for each progress payment; and
ii.any limitations or constraints on Leighton's entitlement to make a payment claim and to receive a progress payment.
The Project Payment Schedule is annexure F to the Project Deed.
Annexure F at cl 1 (preamble) provides that the project is divided into a number of Cost Centres each of which, with the exception of Cost Centre no 1 (preliminaries and general requirements) represents a major item or series of interrelated items associated with the project. The Cost Centres are further divided into a series of milestones, each of which is valued as a lump sum. For other than Cost Centre No 1, progressive payments are to be made against work done on each milestone within each Cost Centre. Payment is to be made for the work described in Cost Centre No 1 on a progressive basis, or upon achievement of specific events. Clause 2 of annexure F provides that the contractor must submit each month to PTA's Representative a payment claim of the progress value of the work at the time of the claim. Clause 3 provides that the progress value of the work comprises the sum of certain values. In relation to Cost Centre No 1 the values include the proportionate or agreed value of work completed against certain milestones. In relation to Cost Centre No 20 the values include the proportionate value of the work completed against any milestone. In relation to the other Cost Centres the values include the proportionate value of the work completed against any milestone item in any of the Cost Centres with certain qualifications that are not presently relevant. Clause 3(e) provides that the progress value of the work includes rise and fall on the base value of certain elements of the progress claim set out in cl 4 of annexure F calculated in accordance with annexure G and cl 4 of annexure F. Clause 4 in turn provides that the elements comprising the progress value of the work are described in cl 3 of annexure F. Those are the elements to which I have already referred.
The effect of the provisions I have referred to is that Leighton is entitled each month to payment of the progress value of the work at the time of the claim. The progress value of the work includes rise and fall on the value of the work completed as particularised in annexure F. Leighton is required to make a progress claim each month. Accordingly, Leighton is required each month to make a claim for the progress value of the work completed including rise and fall on that progress value of work completed.
Clause 13.2(b) of the Project Deed provides that PTA must, within 25 days of receipt of Leighton's claim, pay Leighton the payment due less deductions that are not presently relevant. Leighton submits that the indexes to be applied in calculating rise and fall must be available to the parties within 25 days of receipt of Leighton's claim.
The PTA submits that the important point at which the replacement index must exist is when the dispute as to which index is substituted is resolved. The PTA submits that this is because it is only at that point that any decision about calculation of an amount based upon the index must be made. In the intervening period, the PTA may withhold payment of disputed rise and fall amounts but is at risk of paying interest on these amounts. The PTA refers to cl 20.4 of the Project Deed. That clause provides that PTA may withhold payment of that part of any amount which is the subject of a dispute or difference. The PTA says that while a dispute or an interim agreement exists there is no need to calculate a rise and fall amount using an index.
I do not accept the PTA argument. The parties may disagree about the correct substitute index, but they are each entitled to assert rights that depend upon the existence of the substitute index at the time the progress claim is made. To put it another way, for a dispute or difference to come into existence the PTA must nominate a different substitute index than Leighton. PTA cannot nominate an index that does not then exist.
Subject to a qualification which I will shortly state, a replacement index to be substituted for a discontinued or altered index must be available to the parties within 25 days of PTA receiving Leighton's claim. The qualification relates to when a discontinued or altered index is taken to have been discontinued or altered. When an index is discontinued or altered, a replacement index will not be substituted for the discontinued or altered index unless the replacement index has an index number available subsequent to the last available index number for the discontinued or altered index.
The formula in the schedule to annexure G which is to be used in calculating Rise and Fall includes the Current Index Number. Relevantly to the circumstances of this case, cl 3 of annexure G defines Current Index Number to mean the index number applicable to the date in column 4 of the schedule. There is no date in column 4 of the schedule. However, note (c) to the schedule provides that where there is no date in column 4 the date for a Current Index Number shall be 42 days prior to the last day of the period to which the valuation for the purpose of the relevant progress or final payment relates.

Clause 4 of annexure G provides that if a final index number is not available the preliminary index number will be used for calculation and where there is no preliminary number the last available index number will be used for calculation. The increase or decrease may be recalculated on the basis of the final index number.
The indexes chosen by the parties in the schedule to annexure G are indexes that were produced by ABS. The labour index was produced quarterly: ABS Information Paper, Producer and International Trade Price Indexes, Concepts, Sources and Methods, 2006 [15.12]. The materials index was a producer price index produced quarterly and released approximately 15 working days after the end of the reference quarter: ABS Information Paper [14.2]. The parties intended that the index number to be used in calculating Rise and Fall each month was to be the index number for the previous quarter or the last available index number.
When considering substituting a replacement index for a discontinued or altered index, it is not the date on which the ABS announced that it would discontinue or alter the index that is important. It is the last available index number and the period to which it relates that is relevant.
The position may be illustrated in relation to an altered index. The ABS might announce that at some time in the future the basis on which an index is calculated is to be altered. The relevant time for determining a replacement index is when an index number is released that is calculated on a different basis - that is the time when the altered index ceases to be available, not the time at which ABS made the announcement that it would alter the basis on which an index is calculated. Similarly, where ABS announces that it will cease to publish an index the relevant time for considering a replacement index is the time when the next quarterly index number would have been released ‑ not the time when ABS makes the announcement that it will cease to publish an index.
An index number is discontinued for the purposes of annexure G when a quarter has expired since the last index number for the series was released and the ABS has indicated that it will not be releasing any further index numbers for the series. To be a possible replacement index the candidate index must have released an index number for a quarter subsequent to the last quarter for which the discontinued index released an index number and the replacement index number must be available by the end of that month when PTA is obliged to pay the claim ‑ that is, within 25 days of the Leighton claim.
Any other construction would produce the result that in calculating the progress payment for a period in relation to which an index number from the index specified in the schedule to the annexure was available, a different replacement index was to be substituted. That is a capricious and unreasonable consequence which is unlikely to have been intended: see Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 11 ALR 305; (1976) 50 ALJR 769.

Was the Table 48 index an available index?

The Table 42 index was last published for the June quarter 2004. Note (c) of the schedule to annexure G provides, in relation to the materials index, that the date for a Current Index Number shall be the date 42 days prior to the last day of the period to which the valuation for the purpose of the relevant progress payment relates. Leighton's progress claim no 9 was for work completed on 31 October 2004. The date 42 days prior to that date is 19 September 2004. There was no Table 42 index number available for that date. The Table 42 index had been discontinued. By 31 October 2004 there were index numbers available for the September quarter 2004 for materials indexes produced by ABS and others. The replacement index must have been available to the parties 25 days after Leighton's claim received on or about 3 November 2004 ‑ that is, 28 November 2004. Furthermore, the replacement index must have an available index number for the September quarter 2004. The Table 48 index had not been produced and was not available to the parties by that date. The Table 48 index cannot be substituted for the Table 42 index in calculating Rise and Fall due to Leighton.

Was the 4113 WA index available?

There is a further aspect to the availability issue. The substitute index must not only exist at the relevant time but must also be available to be used by the parties in making the Rise and Fall calculation. An index cannot be substituted for a discontinued index if the substitute index is not available to the parties at the relevant time even if it exists. An index will not be available if it has been produced by the ABS, or some other entity, but has not been published or otherwise is not available to the parties.
Matthew Berger is and has been since January 2003 the Director of Producer Price Indexes in the Prices Branch at the ABS. Mr Berger's evidence was that the ABS continuously collected the data used to produce the 4113 WA index commencing in September 1996. Index 4113 WA was first available in an unpublished format, but available to anyone who specifically requested it, from June 2001. In July 2004 Mr Berger decided that 4113 State level indexes should no longer be made available until all State aggregates were available. There was discussion between ABS staff about that matter in August and September. On 17 September 2004 Mr Berger disseminated guidelines for general construction indexes in which it was stated that the Director of Producer Price Indexes had directed that as from September quarter 2004 no general construction State level indexes could be disseminated until a problem with the prices system compilation was fixed. The general construction State level indexes included index 4113 WA. I find that from 17 September 2004 index 4113 WA was no longer available to the parties. The last index number for index 4113WA available to the parties was the June quarter 2004.
From July 2004 to January 2006 index 4113 WA was not provided, even to people who requested it, with one exception. During this period, one of the regional offices of the ABS provided index 4113 in relation to all states and territories, including index 4113 WA, to Rider Hunt, a private consulting company. The ABS had a commercial contract with Rider Hunt under which Rider Hunt supplied data for use in the price indexes of the Output of the General Construction Industry, including data used in index 4113. The provision of index 4113 in relation to all states and territories to Rider Hunt was contrary to ABS policy at that time. During the period from July 2004 to January 2006 the provision of index 4113 WA to anyone was contrary to ABS policy. The fact that that policy was breached in relation to Rider Hunt does not lead to an inference that it would have been breached in relation to PTA or Leighton had they requested a copy of index 4113 WA.
Upon the proper construction of annexure G the substituted index is not to be applied in making the calculation unless and until the replacement index has an index number available to be used in the calculation for a date subsequent to the date of the last index number available from the discontinued index.
The last 4113 WA index number available to the parties was that for the June 2004 quarter. The Table 42 index number for the June quarter 2004 was available to the parties. The Table 42 index was effectively discontinued after the June quarter 2004. The replacement index was required for the September quarter 2004. Index 4113 WA was not available to the parties for the September quarter 2004. The 4113 WA index is not eligible to be a replacement index to be substituted for the Table 42 index under cl 5 of annexure G to the Project Deed.

Is Table 48 an index for the purposes of the Project Deed?

Leighton submits that to be an index for the purposes of the Project Deed, an index must be a measure of relevant cost increases from period to period and it must be independent, reputable and commercially accepted by experience over time. Leighton submits that the Table 48 index is not an independent, reputable and commercially accepted index and therefore is not eligible to be a replacement index to be substituted for the Table 42 index pursuant to cl 5 of sch G to the Project Deed. I will first consider whether the Table 48 index is an independent index in the relevant sense.

Is the Table 48 index an independent index?

After becoming aware that the ABS did not intend to continue producing the Table 42 index, PTA, in conjunction with Main Roads, made submissions to ABS to try and persuade ABS to continue producing the Table 42 index. On 19 January 2005 Mr Trewin wrote to Mr Hanneveld and Mr Waldock declining their offer to fund a continuation of the Table 42 index. Mr Trewin wrote:
Although it is unlikely that any of the individual indexes we compile would cover those materials specific to public works infrastructure, we do compile price indexes for a large number of individual commodities and we would be happy to talk to you about options for combining some of these to produce a measure suitable for your purposes. Attachment 1 contains a brief description of the major families of indexes that may be relevant together with a list of their component series.
Mr Trewin suggested that PTA and Main Roads contact Paul McCarthy, who was responsible for ABS' prices branch, to further discuss the matter.
On or about 7 February 2005 Mr Mann telephoned Mr McCarthy. Mr Mann asked whether the Table 42 index could be reinstated. Mr McCarthy said that that would be impractical and was unlikely to happen. Mr McCarthy suggested that Mr Mann consider developing a new index to substitute for the Table 42 index. Mr McCarthy suggested that a substitute index might be able to be developed from data collected by the ABS for other indexes and offered that the ABS could assist with that. Mr Mann telephoned Alan Hubbard of ABS to discuss options for producing an index to substitute for the Table 42 index.
Main Roads and PTA then came up with the idea of compiling a replacement index for the Table 42 index using house building data. In cross‑examination Mr Mann explained the origin of this idea:
That was your idea, I put it to you, Mr Mann. What do you say to that? House building was your idea?---Certainly appears in my letter I think of February 2005 responding to the contractor's payment claim.
I'm talking about your idea propounded to the ABS. Wasn't it?---You mean once ABS responded confirming they were unable to reintroduce table 42?
Yes. ABS told you they would not continue the index or reinstate it, didn't they?---That's right.
And your response to that was to explore with them the possibility of using other data, namely house‑building data, and you proposed house‑building?---The initial proposal came from Randall at Main Roads, He had seen similarity in the commodities between other than house‑building and house‑building and we thought that we may well be able to take up the ABS's offer using house‑building as the obvious proxy given that apparent similarity in materials and therefore likelihood of similarity in price movements.
So when was it that Mr Field came up with the idea?---That would have been in early 2005 at about the time and probably shortly after the ABS confirmed that they were unable to reintroduce table 42.
So shortly after 21 January 2005 when the ABS wrote back saying they wouldn't reinstate the index?---I believe so, yes, following on ‑ that is the ABS letter where they suggest that we might need to look at an alternative using existing data.
Yes, so you and Field ‑ or Field came up with the idea, you embraced it and the two of you put it to the ABS?---Correct [ts 1418 ‑ 1420]
Mr Mann and Mr Field met with Mr Hubbard and Ms Beckwith of the ABS in Perth on 22 February 2005 and put forward their proposal to compile an index to replace the Table 42 index using data from the house building index. In an internal email of 22 February 2005 Mr Field explained:
Richard Mann and myself met with ABS today to further discuss ABS producing a materials index that replicates the discontinued material index using existing data collected by the ABS for producing other indexes (eg the residential building construction materials index for WA). ABS will advise within a week whether they can help.
On 23 February 2005 Mr Mann wrote to Mr Trewin and stated that Main Roads and PTA 'were keen to explore options for development of a new index based on existing data collected and compiled by ABS'.
On 3 March 2005 Mr Whennan sent an email to Mr Mann and Mr Field in which he said:
I am working on constructing a price index for you that you may consider as a possible replacement for the discontinued materials used in building other than house building (OTHB) price index.
I understand after speaking to Alan Hubbard earlier this week, that you would like to see what sort of result you would get if you tried to match the OTHB commodities to an equivalent series in the Materials Used in House Building (HB) price index and then applied the HB movements to these series. The new index would then be constructed by weighting together the individual component series, but using the OTHB weights.
Mr Mann was then actively involved in the development of the new index. He replied to Mr Whennan's email of 3 March stating:
Thanks Steve ‑ Precisely what we are after, we await the outcome with anticipation. It would be appreciated if you would include lists of commodities and weightings in the newly constructed index for comparison against the discontinued OTHB index so we can compare the 'equivalents' and determine the need (if any) to modify weightings in the new index.
On 4 March Mr Whennan forwarded to Mr Mann a spreadsheet with the data Mr Mann had requested. Mr Mann responded by thanking Mr Whennan and stating:
We're in the process of analysis ‑ the outcome is not quite as promising as we had hoped ‑ and will be in touch soon to discuss further. In the interim, could you please provide the weightings for the relevant Materials Used in House Building group descriptors for comparison with the OTHB weightings to assist us in understanding the trends.
On 14 March Mr Mann sent an email to Mr Whennan requesting a meeting to discuss the matter in detail and to assess the best way forward as 'the outcome as it stands is not as favourable as we had hoped'. Their meeting took place in Canberra on 23 March. At that time PTA and Main Roads had worked on the proposed replacement index for Table 42 which they had called 'WA Main Roads Material Index'. Graphs plotting the discontinued Table 42 index, the House Building index and the WA Main Roads Material Index showed a disparity in the performance of those three differently constituted indexes that Mr Mann then considered to be not as favourable as he had hoped.
The issues were discussed at the meeting on 23 March. At the meeting there was a discussion about producing the new index using HB data for a range of commodities combined with new data collected for certain critical commodities, described as special collection items.
On 24 March Mr Whennan forwarded to Mr Mann and Mr Field further spreadsheets that they had worked on at the meeting. On 30 March Mr Mann requested that Mr Whennan provide further index values.
In April 2005, at the instigation of PTA, David Smith from the WA Department of Treasury and Finance contacted Mr Trewin and said that they would like to commission a survey that would give a price index that could be called a price index for building materials used for WA which included about 10 special collection items. Mr Hubbard from the WA ABS office emailed to Mr Trewin on 28 April 2005 confirming that the replacement index option that Mr Smith had spoken about was a replacement index constructed of some items that are drawn from other published indexes and some (say the 10 most important) items for which price data is collected by the ABS again.
In April or May 2005 Mr McCarthy and Mr Harper (Deputy Australian Statistician for Economic Statistics at the ABS) discussed the construction of a substitute index. The method they settled on involved using prices collected for the HB indexes and, in addition, collecting prices from respondents in Perth for the several product groups that behaved differently historically between the HB and OTHB indexes. ABS agreed to contact respondents for some of the most heavily weighted material groups from the OTHB index that had been identified as behaving differently from similar items in the HB index. In a majority of these cases the respondents had previously been reporting prices for the OTHB indexes. ABS agreed that they would publish the index as the price index of materials used in building other than house building, Perth, Table 48 of Catalogue 6427.
On 4 May 2005 Mr Trewin sent an email to Mr Smith in which he put forward the following proposal:
Following our phone conversation last week, I have discussed with Peter [Harper] and Paul [McCarthy]. This is what we propose.
We will produce a Perth OTHB index if the additional costs can be funded. It will be published electronically and will be referred to as the Materials Other Than House Building Index for Perth. It will maintain the same expenditure categories, weights and index methodology as the recently discontinued index. However, there will be differences in the commodities included in the index compared with the discontinued index. The commodities will be a mixture of the most important commodities in the OTHB index (principally structural steel and readymix concrete) and items collected for our other producer price indexes which are either relevant to OTHB or shown to be good proxies for commodities relevant to OTHB.
In May 2005 Mr Mann corresponded with ABS about what commodities should be the subject of special collection by ABS.
On 18 May 2005 Mr Mann sent an email to Mr Whennan. Mr Mann said that incorporation of the OTHB structural steel series in the re‑worked index dramatically improved the correlation in the historical comparison up to June 2004, but that the modified index value still lagged the published OTHB value at June 2004, albeit marginally. Mr Mann said that it was necessary to undertake a thorough analysis of the impact of the key OTHB contributors in the index to determine the optimum scope for new data collection. Mr Mann attached a modified version of Mr Whennan's spreadsheet which identified the top 10 weighted contributors to the OTHB index as at June 2004. Mr Mann suggested further work that should be done by Mr Whennan. Subsequently there were further communications concerning the substitute index being worked on.
On 31 May 2005 a meeting took place between Mr Mann, Mr Field and ABS representatives including Mr McCarthy. Mr Mann presented an analysis of options for the substitute index showing that if the OTHB data was used for six key commodities, namely structural steel, readymix concrete, aluminium windows, glass products, reinforcing steel bar and other pre‑cast concrete products, with a proxy data series used for the remaining commodities, then the resulting index exhibited extremely close correlation with the OTHB index. The two key issues at this meeting were how to deal with the retrospective period since the Table 42 index was discontinued and the number of special collection items.
Mr Mann presented his analysis of various options for the substitution of special collections ranging from a special collection of the six highest weighted commodities for the OTHB index to the option of collecting the 10 highest weighted commodities for the OTHB index. It was agreed that the ABS would proceed on the basis of the 'OTHB 1‑6' option ‑ that is, collection of data for the top six highest weighted commodities for the OTHB index. Mr McCarthy expressed confidence that ABS would be able to collect data for the retrospective period ‑ that is, for the periods back to the June quarter 2004.

Table 48 index is statistically nearest index

In an appendix to the September quarter 2005 publication of Producer Price Indexes, the ABS announced that it had started to produce the Table 48 index. In the appendix the ABS produced a graphical comparison of the Table 42 index and the Table 48 index. The ABS recreated the Table 48 index for the 18 quarters up to June 2004 using historical price data and the item definitions and weights from the Table 48 index. This index, which Professor Dowrick described as the back‑cast Second OTHB index, was displayed as a graph alongside the Table 42 index. Further graphs displayed the quarterly and annual percentage changes in the indexes. The ABS commented:
As can be seen from the graphs, the [Table 48 index] behaves similarly to the [Table 42 index]. In this analysis both series began in March quarter 2000 with an index number of 115.8. At June quarter 2004 (the link period for the new index) the [Table 42 index] has an index number of 134.9, whilst the [Table 48 index] has an index number of 135.8. The two series differed by no more than one index point in any quarter over the entire period investigated.
In their conferral report the experts reported that the back‑cast modified OTHB index, that is the Table 48 index, approximates the OTHB index most closely empirically over the 2000 ‑ 2004 period. Professor Hill questioned the relevance of this agreed statement because about 56% of the total weight in the back‑cast modified OTHB index is taken directly from the OTHB index. Professor Bloch also noted the 'spurious nature of the relationship between the back‑cast modified OTHB and the OTHB indexes'. Dr Armknecht disagreed that the relationship is spurious. Professor Dowrick notes that the ABS in commissioning new surveys attempted to match previous surveys as closely as possible and that a majority of respondents were the same according to the ABS. The conferral report went on as follows:
Dowrick and Armknecht agree that if the OTHB index had continued after June 2004, it would probably have been closer to the modified OTHB index than to any of the other indexes under consideration as a logical inference from the fact that ABS would continue to collect the same detailed specifications. Hill, Angel and Bloch argue that it is not possible to determine how well the modified OTHB index would have approximated the OTHB index during this period since there is no period of overlap.
I find that the back‑cast modified OTHB index, that is the retrospectively compiled Table 48 index, approximates the OTHB index most closely empirically over the 2000 ‑ 2004 period. That is to be expected since about 56% of the total weight in the retrospective Table 48 index is taken directly from the OTHB index. I accept the opinions of Professor Dowrick and Dr Armknecht that if the OTHB index had continued after June 2004, it would probably have been closer to the modified OTHB [Table 48] index than to any of the other indexes under consideration.
Professor Hill undertook an analysis using dissimilarity measures. Professor Hill ranked the candidate indexes by tracking performance over the periods March 2000 ‑ June 2004 and March 2003 ‑ June 2004. Professor Hill then compiled tables ranking the candidate indexes by tracking performance over the two periods. Professor Hill noted that the two tables revealed that the rankings are quite sensitive to the choice of time horizon. The modified OTHB, or Table 48, index in both cases provides the best approximation to the OTHB index. Professor Hill observes that this is to be expected given that it was constructed with that purpose in mind.
Applying the criteria of historical performance or measure of statistical closeness, the Table 48 index approximates the discontinued Table 42 index more closely than the other candidate replacement indexes.

Historical performance or statistical closeness - excluding Table 48 index

It is necessary to consider which index most closely approximates the historical performance of the Table 42 index or is statistically closest to the discontinued Table 42 Index, excluding the Table 48 index. The experts in their conferral report stated:
Hill, Dowrick and Armknecht agree that over the period 1989 ‑ 2004, the HB index was closest empirically to the OTHB index (Angel was not instructed to consider the issue).
Hill and Armknecht agree that over the period 1998 ‑ 2004 the 4113 WA index was closest to the OTHBH index (Dowrick did not make this comparison and Angel was not instructed to consider the issue).

Graphical analysis

Leighton submits, and I accept, that the following matters emerge from the graphs:
1.The HB index has shown a markedly different (flatter) increase compared to all other indexes.
2.In the period leading up to its discontinuation the Table 42 index showed a pattern of movements that was similar to the output indexes for other than house building.
3.All indexes other than the HB index show a more rapid increase from the end of 2002 compared to the period before that date, with a further increase in the rate of change in mid 2004.
Professor Dowrick undertook a graphical comparison of the candidate indexes over the period September 1979 ‑ September 2005. Professor Dowrick also measured the proportional deviations of each index from the extended first OTHB index over the period September 1979 ‑ March 2006. Professor Dowrick also measured the growth of the candidate indexes over the period September 1996 ‑ December 2005. Consideration of all those matters led Professor Dowrick to conclude that in terms of the graphical analysis the HB index is the most comparable to the Table 42 index. I place little weight on that analysis because greater significance should be attached to the relative movements of the indexes in the years closer to 2004. The graphs comparing the indexes over the periods September 1999 to approximately June 2004 and September 2000 to approximately June 2004 show that the Table 42 index behaved more similarly to the output indexes (4113 National, 4113 WA, Rawlinsons and DHW) than the HB index.

Regression analysis

PTA submitted that the regression analysis carried out by Professor Dowrick and Dr Armknecht show that the HB index should be judged to be the nearest index ahead of other candidate indexes, if the Table 48 index is excluded.
Professor Dowrick undertook a regression analysis to compare the candidate indexes with the Table 42 index over the period September 1996 ‑ March 2006. Professor Dowrick then ranked the candidate indexes in order of closeness based on regression statistics. Professor Dowrick described his results as 'mixed'. The HB index is the closest in terms of the R squared coefficient but was only the third or fourth best in terms of the closeness of the beta coefficient to unity, reflecting Professor Dowrick's observation that the average rate of growth of the HB index is substantially below the rate of growth of the Table 42 index after 1996. The index with the beta coefficient closest to unity for the period 1996 - 2006 is the DL index. That index was considered by Professor Dowrick but is not put forward by either party as a candidate replacement index and I will disregard it. Professor Dowrick ranked the candidate indexes, in terms of the beta coefficient, for the period 1996 ‑ 2006 in the following order: 4113 National, HB, 4113 WA and DHW equally, Rawlinsons. Professor Dowrick ranked the candidate indexes, in terms of the beta coefficient, for the period 1996 ‑ 2004 in the following order: DHW, 4113 WA, HB, 4113 National, Rawlinsons. Professor Dowrick concluded that the HB index or the DL index is closest in terms of graphical analysis and statistical analysis depending on whether more weight is given to the long run evidence, which favour the HB index, or the shorter run evidence, which favour the DL index. Professor Dowrick's analysis tends to confirm the graphical demonstration that over the long run the HB index is more similar but over the shorter period the output indexes are more similar. I accept Professor Hill's opinion that the shorter period comparisons are more important.
Dr Armknecht has derived an R squared statistic which demonstrates that in the period between 1997 ‑ 2004 the HB index explains almost 59% of changes in the Table 42 index whereas the Rawlinsons index only explains about 32% of such changes, the DHW index only explains about 18% of such changes and 4113WA only explains about 14% of such changes. Dr Armknecht does not consider that it is necessary to consider the beta coefficient for the Rawlinsons index, the DHW index or the 4113WA index as the R squared statistic shows that it is an unreliable predictor of any changes in the Table 42 index. Dr Armknecht concludes that, leaving aside the Table 48 index, the HB index has by far the highest R squared statistic of any candidate index. Whilst the R squared coefficient is relevant I do not consider that comparisons of the R squared coefficient alone is of great value in determining which of the candidate replacement indexes is 'nearest' to the OTHB index.

Dissimilarity measures

Professor Hill ranked the similarity between the candidate indexes and the Table 42 index by tracking performance over the periods March 2000 ‑ June 2004, March 2003 ‑ June 2004 and September 1998 ‑ June 2004 and presented his results in Tables 5, 7 and 9 in his report of 8 August 2006. Professor Hill noted that the tables revealed that the rankings are quite sensitive to the choice of time horizon. Professor Hill says that greater weight should be attached to the results in Table 5 than Table 7 because of its longer time horizon and the rankings in Table 9 warrant even greater attention since its time horizon is longer still.
The rankings in Table 5 are:
1.Table 48;
2.Index 4113WA;
3.Rawlinsons;
4.DHW;
54113 National;
6.Table 17 (HB).
The rankings in Table 9, which excluded Table 48, are:
1.4113WA;
2.DHW;
3.4113 National;
4.Rawlinsons;
5.Table 17 (HB).
Professor Hill says that the rankings are highly sensitive to the choice of time horizon. Nevertheless, Professor Hill says that the broad picture that emerges is that the preferred index is probably 4113WA or one of the non‑ABS indexes such as DHW.

Historical performance or statistical analysis as a whole

I find that the 4113WA index approximates the OTHB index most closely empirically over the 1998 ‑ 2004 period. That is more relevant than the period 1989 ‑ 2004 during which the HB index most closely approximated the OTHB index empirically.
Excluding the 4113WA index, the 4113 National and DHW indexes more closely approximate the OTHB index over the 1998 ‑ 2004 period than the Rawlinsons or HB index. That emerges from Professor Hill's dissimilarity rankings and from the graphs in Dr Gelber's reports, comparing the candidate indexes over the periods June 1998 ‑ June 2004, September 1999 ‑ June 2004 and September 2000 ‑ June 2004.
The regression analyses carried out by Professor Dowrick and Dr Armknecht do not persuade me otherwise. I am not satisfied that measures of the R squared coefficient alone are a reliable guide to the statistical nearness of the different indexes. When the beta coefficients are considered, the HB index is not shown by regression analysis to be more similar to the Table 42 index than the output indexes.
Applying the criterion of past historical performance alone, the DHW index is to be preferred to the 4113 National index as the 'nearest index' to the discontinued Table 42 index. For the reasons I have stated, the 'nearest index' to the discontinued index is not to be determined by comparing the past historical performances of the candidate indexes. However, if past historical performance is a relevant criterion to be taken into account together with the conceptual criteria to which I have referred, I find that the 4113 National index is to be preferred to the DHW index as the 'nearest index' to the discontinued index. I find that the DHW index is to be preferred to the 4113 National index on the criterion of past historical performance largely on the basis of Professor Hill's rankings based on dissimilarity measures. In his opinion Professor Hill did not express any strong preference for the DHW index over the 4113 National index. Professor Hill said that the rankings he derived from his dissimilarity measures are highly sensitive to the choice of time horizon and this 'makes it hard to draw any clear conclusions from a purely empirical analysis'. Professor Hill concluded only that
the broad picture that seems to emerge from these tables is that the preferred index is probably one of the PPI construction [indexes] (particularly [general construction (41)], [building construction (411)], [residential building construction nec (412)] or [4113 WA] or one of the non‑ABS [indexes] such as [DHW].
The 4113 National index is to be preferred to the DHW index when both conceptual criteria and closeness of historical performance are taken into account. The DHW index is a tender price output index. It is subject to an adjustment based on a subjective 'overheads and profit factor'. PTA submitted that the ad hoc nature of the preparation of the DHW index is illustrated by the lack of a fixed release date as well as the method of selecting the overheads and profit factor. I accept that submission. Having regard to all of the conceptual criteria which I have earlier discussed the 4113 National index is to be preferred to the DHW index.

The nearest index - conclusion

If the candidate indexes proposed by the parties are all eligible substitute indexes, I find that the 'nearest index' to be substituted for the discontinued Table 42 index pursuant to cl 5 of annexure G is the Table 48 index. If the Table 48 index is excluded then the 'nearest index' is the 4113 WA index. If the Table 48 index and the 4113 WA index are both excluded the 'nearest index' is the 4113 National index.
I have found that the Table 48 index and the 4113 WA index are not eligible to be substituted for the discontinued Table 42 index pursuant to cl 5 of annexure G. Therefore, the 'nearest index' to be substituted for the discontinued Table 42 index pursuant to cl 5 of annexure G is the 4113 National index.

Counterclaim

PTA counterclaims that if the HB index is determined to be 'the nearest index' then it has overpaid Leighton for Rise and Fall. The overpayment claim is based upon an alleged term of the Project Deed that any overpayment would be repayable or was paid in the mistaken belief that Table 48 was the appropriate substitute index.
I have found that the HB index is not the 'nearest index' to be substituted for the discontinued Table 42 index. Therefore, the counterclaim does not arise. However, in case I am wrong in that finding, I will briefly state my findings and conclusions on the counterclaim.
In its defence PTA pleaded its claim to be repaid the overpayment on three bases. First, PTA pleads that on a proper construction of the interim arrangement pleaded by Leighton in [11] of the statement of claim, alternatively by implication into that arrangement, Leighton agreed that in the event of there being overpayment in respect of Rise and Fall by PTA, that amount would be repaid by Leighton following resolution of the determination of a substitute index. The interim arrangement pleaded by Leighton is that in February 2005 the parties agreed an interim arrangement for the payment of Rise and Fall being quarterly increases of 2% in respect of Table 42 for the period from 1 July 2004 until resolution or determination of a substitute index on the basis that payments for Rise and Fall processed under this arrangement would be subject to adjustments (if necessary) at a later date.
Secondly, and alternatively, PTA pleads that there was an implied term under the Project Deed and the conduct of the parties that to the extent that PTA paid Leighton any monies to which it was not entitled, Leighton would repay those monies to PTA unless they were set off pursuant to cl 13.6 of the Project Deed.
Thirdly, and alternatively, PTA pleads that since October 2005 it made payments to Leighton for Rise and Fall on the basis that they were due and owing in the belief that Table 48 was the appropriate substitute index and that belief was mistaken.
PTA did not pursue the claim on the basis of an implied term under the Project Deed. I will consider the other two bases of PTA's claim.

The interim arrangement

Leighton says that there was no ongoing interim arrangement after Mr Mann's direction to calculate Rise and Fall on the basis of Table 48.
The interim arrangement pleaded by Leighton and admitted by PTA arose from, or was constituted by, a letter from Leighton to PTA dated 4 February 2005, a letter from PTA to Leighton dated 7 February 2005 and emails dated 10 February 2005 between Danny Vowles on behalf of Leighton and Geoff Watson on behalf of PTA.
On 22 December 2004 Mr Wallwork wrote to Mr Mann rejecting the proposal to use the Non‑Building Construction index as a substitute for both the labour and materials indexes nominated in the Project Deed. Mr Wallwork wrote:
Pending resolution of these matters, we are agreeable to PTA's suggestion that interim progress claims are indexed by extrapolating quarterly increases along the lines indicated in our letter of 12 November 2004, namely 8% (2004) and 7% (2005).
On 10 January 2005 Mr Mann wrote to Mr Wallwork confirming that PTA and Main Roads had made a joint submission to the ABS to have Table 42 reinstated. Mr Mann wrote:
I confirm PTA's agreement pending resolution of this matter to extrapolate quarterly increases based on the linear projection of the Table 42 index from the Base Index value at September 2003. Payments for Rise and Fall processed under this interim arrangement will be subject to adjustment (if necessary) at a later date.
There was further correspondence between PTA and Leighton concerning a replacement index and an interim arrangement pending resolution of that matter.
The Leighton letter of 4 February 2005 noted that PTA's earlier advice that an interim incremental change of two points per quarter from the September 2004 quarter would be applied to progress claims was not acceptable. PTA's letter of 7 February 2005 said that it had reconsidered its position in respect of the interim arrangements for payment of Rise and Fall and would accept quarterly increases of 2% in the Materials Index commencing from the September 2004 quarter. PTA stated:
As previously advised, payments for Rise and Fall processed under this interim arrangement will be subject to adjustment (if necessary) at a later date.
On 10 February 2005 Mr Vowles sent an email to Mr Watson referring to the interim adjustment for Rise and Fall. On 10 February 2005 Mr Watson sent an email to Mr Vowles saying:
To avoid any further debate PTA agrees to interim adjustments of 2% from and including the September 2004 quarter through to the end of 2005, commencing from progress payment number 13.
On 10 May 2005 Mr Mann wrote to Mr Wallwork concerning the replacement of the discontinued Table 42 index. Mr Mann confirmed that ABS had agreed to the publication of a replacement materials index that, in PTA's view, satisfied the intent of the Project Deed in respect of substitution for the discontinued index. Mr Mann said that publication of the new index would commence for the September 2005 quarter. Mr Mann then said:
The interim arrangements detailed in my previous correspondence (PTA reference C1349/7M008D‑2 of 7 February 2005) will continue to apply until publication of the replacement index commences.
When the replacement index has been published, it is PTA's intention to:
i.substitute the index in the formula in accordance with cl 5 of annexure G of the deed;
ii.enter into discussions with [Leighton] to agree the adjustment to [Rise and Fall] payments made under the interim arrangement.

On 24 October 2005 ABS published the September quarter 2005 producer price indexes in which it announced the release of the Table 48 index. On 24 October Mr Mann wrote to Mr Wallwork about the replacement of the discontinued Materials Index. Mr Mann said that the Table 48 index was the nearest index consistent with the intention of annexure G and accordingly it was his determination that:
(i)[The Table 42 Index] is replaced with the [Table 48 Index];
(ii)the replacement index applies from the September 2004 quarter (June 2004 being the last quarter for publication of the discontinued index);
(iii)subject to (ii) above the replacement index is to be adopted in all subsequent calculations of [Leighton's] [Rise and Fall] payment entitlement.
As indicated in my 10 May 2005 correspondence, I will discuss the necessary adjustment to [Leighton's] [Rise and Fall] payment to date in due course.
On 31 October 2005 Leighton gave notice of a dispute under cl 20.1 of the Project Deed. The dispute or difference was said to arise as a consequence of PTA's letter of 24 October 2005 in which PTA's representative purported to make a determination and give a direction for the adoption of the Table 48 index to replace the Table 42 index. Leighton asserted that the Table 48 Index could not be substituted for the Table 42 index.
On 3 November 2005 Leighton sent its progress claim no 21 to PTA. In its claim Leighton applied the DHW Index as the substitute for Table 42 in its claim for Rise and Fall. On 11 November 2005 PTA issued a payment certificate for progress claim 21. The amount of Rise and Fall was calculated by applying Table 48. PTA noted that it would progressively make adjustment for the resultant Rise and Fall overpayment.
The effect of these communications is that the interim arrangement did not continue beyond 24 October 2005. Mr Mann's letter of 10 May 2005 said that the interim arrangement would continue only until the new ABS index was published. On 24 October 2005 Mr Mann said that the Table 48 index was to replace the Table 42 index, that Rise and Fall was to be calculated applying Table 48 and that overpayments that had been made under the interim arrangement would have to be repaid. The effect of Mr Mann's letter of 24 October 2005, in light of the letter of 10 May 2005, and PTA's subsequent conduct in recovering the overpayments was that the interim arrangement was at an end.

The restitution claim

The second basis on which PTA puts its claim for repayment of the overpayments is restitution of a payment by mistake. PTA says that after October 2005 it made payments of Rise and Fall on the basis that the Table 48 index was the nearest index to the Table 42 index and that cl 5 of annexure G to the Project Deed permitted an index not in existence at the time of the discontinuance of the Table 42 index to be substituted for the Table 42 index. PTA says that if it was mistaken about either or both of those matters then that is a ground for seeking repayment of the amounts paid on the basis of the Table 48 index to the extent that they exceed PTA's true contractual liability on the basis of the HB index. PTA says that payments made on the basis of a mistake about a matter of fact are recoverable on the basis of an action for unjust enrichment and payments made on the basis of a mistake of law, which includes a mistake as to the existence of a contractual liability, are recoverable: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353.
Leighton says that there was no mistake made by the PTA in relation to the payments. The claims by Leighton in relation to the replacement index were known to the PTA. The PTA made a choice to make payments to Leighton based upon Table 48 knowing that there was a dispute as to the applicable index. PTA was prepared to assume that there was at least a liability to pay according to Table 48. It did not reserve its rights when making the payment. Leighton submits that in those circumstances the payment was made voluntarily and not under a mistake and refers to David Securities (373 ‑ 374), Hookway v Racing Victoria Ltd [2005] VSCA 310; (2005) 13 VR 444 [25] ‑ [44], Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners [2006] UKHL 49; [2006] 3 WLR 781, [25] - [27], [65] - [70], [162], [175] ‑ [176].
In Hookway the appellant's horse finished second at a race meeting held by the second respondent. The horse that finished first was disqualified and the appellant's horse was declared the winner. Under the racing rules there was a right to appeal the disqualification decision. Unaware of the right of appeal, an officer of the first respondent distributed the first place prize money to the appellant. An appeal was lodged and the disqualification decision overturned. The respondent sought to recover the first place prize money from the appellant. The appellant's answer to the respondent's claim in restitution was that the respondent's payment was voluntary in the sense comprehended by the authorities, especially David Securities. Ormiston JA, with whom Warren CJ and Harper AJA agreed, discussed the concept and meaning of a voluntary payment in the law of restitution. Ormiston JA said:
Moreover, if one has regard to the two relevant paragraphs accepted from Goff J's judgment in Barclays Bank and the passage also defining the expression 'voluntary' which appears in David Securities after the analysis of earlier authorities, then, apart from cases of discharge for good consideration (para (b) in Barclays Bank) in order to satisfy the term 'voluntary' there must otherwise be a conscious choice to make a payment notwithstanding any possible defects in the claim. To this end there must be an assumption as to the validity of the obligation, notwithstanding that ultimately it may turn out there is no obligation in law. Until it was made clear in David Securities that ignorance of law may properly be a basis for restitution, then it was not difficult to identify for these purposes the circumstances in which payers were treated as having been prepared to make payment regardless of their liability. But when total ignorance is included, then it is not surprising that the court should require something more, namely, a conscious decision to make payment regardless of possible invalidity or want of liability. In my opinion, as worked out by the majority in David Securities, it was not intended that a person, who makes a payment in ignorance of a basis of invalidity for denying liability, can thereby be treated, without more, as having intended voluntarily to pay the sum regardless of what might be shown to have been a mistake of law. It was intended only to restrict claims by those who consciously decided to pay regardless of what might arise in the future, as well as those who were otherwise bound by accord and satisfaction or any other compromise, or by submission to judgment, each of which will amount to a satisfaction of the payee's claim. These may be said, in general terms, to be paid in satisfaction of honest claims [44]. (footnotes omitted)
The court found that the respondents chose to make the payment in ignorance of the first placegetter's legal rights of appeal and thus in ignorance of the potentiality for a lawful change in the placings for the race. Their ignorance was as to the legal requirements of the contract constituted by the parties' arrangements under the rules of racing but nothing further was said or done between the parties about these requirements. There was no bargain involved in the making of the payment nor compromise freely entered into, nor any payment made 'in satisfaction of an honest claim' which would otherwise have imported at least the implied settlement of an obligation. The court found that the respondent's officer and therefore the respondents would not have made the relevant payment if the respondent's staff had been aware of the true legal position, namely that there was a right of appeal, and that the placings announced by the stewards were not final in terms of the legal requirements of those rules. There was therefore a relevant mistake of law involved in the payment by the respondents such that it could not be properly characterised as voluntary in the sense understood in the law relating to claims in restitution.
In Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners the House of Lords had to consider the legal principles where there had been an overpayment of tax. The English law requiring certain payments to be made had been ruled unconstitutional by the European Court of Justice which had directed that restitution be made. Lord Hoffmann discussed the dicta of Lord Hope in Kleinwort v Benson [1999] 2 AC 349 that a person who pays when in doubt takes the risk that he may be wrong [25]. Lord Hoffmann said he did not think that Lord Hope could have meant that a state of doubt was actually inconsistent with making a mistake. Lord Hoffmann continued:
Likewise, the circumstances in which a payment is made may show that the person who made the payment took the risk that, if the question was fully litigated, it might turn out that he did not owe the money. Payment under a compromise is an obvious example. I would not regard the fact that the person making the payment had doubts about his liability as conclusive of the question of whether he took the risk, particularly if the existence of these doubts was unknown to the receiving party … It would be more rational if the question of whether a party should be treated as having taken the risk depended upon the objective circumstances surrounding the payment as they could reasonably have been known to both parties, including of course the extent to which the law was known to be in doubt.
These thoughts may be said to support the view of Professor Birks that English law should be less concerned with whether the person who paid the money made a mistake (involving an enquiry into his subjective state of mind) than with whether there was a valid cause for the payment, such as a debt, compromise or gift, these being matters of objective enquiry into the circumstances of the payment as they would have been known to both parties [27] - [28].
In this case there was no accord and satisfaction or compromise. In the circumstances of this case the question is whether PTA, when it made payments on the basis that Rise and Fall was to be calculated applying the Table 48 index, took the risk that, if the question of its liability to pay Rise and Fall was fully litigated, it might turn out that its liability was less than the amount it paid.
There is no evidence of the state of mind of Mr Mann, and therefore PTA, when he caused PTA to make the payments of Rise and Fall based on the Table 48 index. PTA's intention must be inferred from the circumstances. On 10 May 2005 Mr Mann had written to Mr Wallwork stating that it was PTA's intention to substitute the new index to be published by the ABS in the formula in accordance with cl 5 of annexure G of the Project Deed and to adjust Rise and Fall payments made under the interim arrangement. On 24 October 2005 Mr Mann wrote to Mr Wallwork about the replacement of the discontinued index. Mr Mann said that the Table 48 index was the nearest index consistent with the intention of annexure G and accordingly it was his determination that the Table 42 index should be replaced with the Table 48 index and was to be adopted in all subsequent calculations of Rise and Fall payments.
On 31 October 2005 Leighton gave notice of dispute. Leighton asserted that the Table 48 index could not be substituted for the Table 42 index. PTA subsequently made payments of Rise and Fall by calculating Rise and Fall on the basis that the Table 48 index was to be substituted for the Table 42 index. At the time of making those payments Leighton contended, to the knowledge of PTA, that the Table 48 index could not be substituted for the Table 42 index. It was Leighton's contention that the only relevant index for substitution which was in existence at the time when the Table 42 index was discontinued was the DHW index. It is to be inferred that when it made the relevant payments, PTA believed that the Table 48 index was the index to be substituted for the discontinued Table 42 index in accordance with the contractual provisions of the Project Deed. PTA knew that Leighton disputed that. However, there was no contention that the Table 42 index was to be replaced by the HB index. There is no evidence that PTA doubted that its liability was at least the amount due to Leighton if the Table 48 index was to be substituted for the Table 42 index. Put another way, the inference from all the circumstances is that at the time it made the relevant payments PTA believed that it was obliged to pay to Leighton at least the amount due if the Table 48 index was to be substituted for the Table 42 index. There is no sufficient basis in the evidence to infer that when it made the relevant payments PTA took the risk that, if the question of the appropriate substitute index was to be fully litigated, it might turn out that the amount due to Leighton for Rise and Fall was less than the amount paid by PTA.
The relevant payments made by PTA were not voluntary in the relevant sense. If Rise and Fall is properly to be calculated on the basis that the HB index is to be substituted for the Table 42 index, then PTA is entitled to recover the amount of the overpayment. However, as I have found that the HB index is not the replacement index that is to be substituted for the Table 42 index PTA's counterclaim fails.

Conclusion

The 4113 National index should be substituted for the Table 42 index in the schedule to annexure G to the Project Deed for the purposes of calculating the relevant Rise and Fall progress payments. The counterclaim should be dismissed.