Mainteck Services Pty Ltd v Stein Heurtey SA
[2014] NSWCA 184
•6 June 2014
|
New South Wales |
Case Name: | Mainteck Services Pty Ltd v Stein Heurtey SA |
Medium Neutral Citation: | [2014] NSWCA 184 |
Hearing Date(s): | 8, 9, 10, 11 April 2014 |
Decision Date: | 6 June 2014 |
Before: | Ward JA at [1]; |
Decision: | 1. Notice of motion filed 8 October 2013 dismissed. |
Catchwords: | APPEAL - application to amend notice of appeal - extension of time - significance of unexplained delay |
Legislation Cited: | Civil Liability Act 2002 (NSW), Part 1A |
Cases Cited: | Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270 |
Texts Cited: | Sir Richard Buxton, "'Construction' and Rectification after Chartbrook" [2010] CLJ 253 |
Category: | Principal judgment |
Parties: | Mainteck Services Pty Ltd (Appellant) |
Representation: | Counsel: |
File Number(s): | 2013/125562 |
Publication Restriction: | Nil |
Decision under appeal: | |
Court or Tribunal: | Supreme Court of New South Wales |
Jurisdiction: | Equity Division |
Citation: | [2013] NSWSC 266 |
Date of Decision: | 31 May 2013 |
Before: | Sackar J |
File Number(s): | 2007/266650 |
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
HEADNOTE
In 2004, BlueScope Steel (AIS) Pty Ltd (BSL) and Stein Heurtey SA (Stein Heurtey) entered into a contract (Main Contract) for the design, supply and installation of a walking beam furnace and associated equipment at BSL's steel plant in Port Kembla. Stein Heurtey then sub-contracted with Mainteck Services Pty Ltd (Mainteck) in order that Mainteck perform some of Stein Heurtey's obligations under the Main Contract, executing an agreement titled the Second Consortial Agreement (SCA). Disputes subsequently developed between Mainteck and Stein Heurtey as to whether Mainteck had performed its obligations and supplied equipment beyond the terms of the SCA. Mainteck commenced proceedings against Stein Heurtey, advancing a raft of claims, including breach of contract, misrepresentation, claims related to delay and disruption, and claims for unreasonable variations.
The entire matter was referred to a referee who delivered 4 reports in 2011. In May 2013 Sackar J ordered that both interim reports be adopted in full and, additionally, that specified paragraphs in the June and December 2011 reports also be adopted.
Mainteck subsequently filed a notice of appeal from these orders. The grounds of appeal fell into two broad categories: (a) a challenge to the primary judge's findings on contractual construction and (b) challenges to the adoption and rejection of aspects of the referee's reports. Some 3 months later, Mainteck sought to amend its notice of appeal to include a challenge to the primary judge's discretion in disallowing Mainteck to withdraw concessions.
The Court held, dismissing the appeal:
A. The referee's reports
1. The Court's task on appeal from Mainteck's challenges to the adoption and rejection of the reports was not to review the referee's reports. Rather, Mainteck needed to identify appellable error in the manner in which the primary judge had exercised the discretion conferred by r 20.24 of the Uniform Civil Procedure Rules 2005 (NSW) [19]-[20].
Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd [1994] NSWCA 235; Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228, applied.
2. It was necessary for Mainteck to demonstrate House v The King error in the exercise of the discretion by the primary judge [21]-[23].
Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [2013] NSWCA 6; Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd) v BestCare Foods Ltd [2013] NSWCA 90; Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd [2002] VSCA 113; 5 VR 353, applied.
3. On disputed matters of fact, the primary judge was entitled to be brief and to form the view that the reasoned conclusions of the referee were open [24].
Chocolate Factory Apartments Limited v Westpoint Finance Pty Ltd [2005] NSWSC 784; Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Wenco Industrial Pty Ltd v WW Industries Pty Ltd [2009] VSCA 191; 25 VR 119, applied.
B. Contractual construction
4. Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 88 ALJR 447 endorses and requires a contextual approach to the construction of commercial contracts [69]-[71], [78]-[80].
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 88 ALJR 447 at [35], applied
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1, not followed
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, applied and explained
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [17] followed.
5. The role of text, context, ambiguity, literal meaning, clear meaning and legal meaning, considered and explained [69]-[86].
Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853; Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] 1 All ER 667; Charter Reinsurance Co Ltd v Fagan [1997] AC 313; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522, followed and applied.
6. Punctuation and grammar inform meaning; however, in this instance they were not meaningful indicators of grammatical or legal meaning [99]-[107].
Houston v Burns [1918] AC 337; AMCI Investments Pty Ltd v Rio Doce Australia Pty Ltd [2008] QCA 387; Chalmers Leask Underwriting Agencies v Mayne Nickless Ltd (1983) 155 CLR 279, followed and considered.
7. Mainteck's submission that the Technical Specification ought not to be incorporated by reference was wrong on the facts and bad in law. The "ticket" cases upon which Mainteck relied had no application where a written contract is executed [109]-[114].
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165, applied.
8. Mainteck's submission in relation to contractual rectification failed because there was no absurdity, nor was it self-evident what the objective intention was to be taken to have been [115]-[121].
National Australia Bank Ltd v Clowes [2013] NSWCA 179, Wilson v Wilson (1854) 5 HL Cas 40; 10 ER 811; Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2013] QCA 183; Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; 9 BPR 17,521; Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297; 15 BPR 29,545, followed and applied.
9. The evidence of surrounding circumstances was too general and too removed to inform the construction of the contract [126]-[131].
C. Leave to amend
10. Mainteck was not granted leave to amend its notice of appeal, having regard to the absence of evidence of any mistake on its behalf or on behalf of its lawyers, Mainteck's unexplained delay, and the lack of strength to the proposed challenge [25]-[26], [132]-[148].
Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; Le Meilleur Pty Ltd v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115; Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; In re the Will of FB Gilbert (1946) 46 SR (NSW) 318; Rich v Westpac Banking Corporation [2014] NSWCA 136, referred to.
D. Global claim for delay and disruption
11. No special principles of fact or law apply to contractual claims relating to building and construction. Where there is a significant cause of loss not attributable to the defendant a global claim will fail. Any apportionment of damages must have an evidentiary basis [182]-[206].
John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681, applied
Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2004] BLR 295; 2004 SC 713, disapproved
Irene Henderson Ltd v Eddie Mair Ltd [2012] CSOH 66; Musselburgh And Fisherrow Co-Operative Society Ltd v Mowlem Scotland Ltd (No 2) [2006] CSOH 39; Lichter v Mellon-Stuart Company 305 F 2d 216 (1962); Astley v Austrust [1999] HCA 6; 197 CLR 1; Pilmer v Duke Group (in liq) [2001] HCA 31; 207 CLR 165, considered.
JUDGMENT
| INDEX | |
| WARD JA: Concurring reasons | [1] |
| EMMETT JA: Additional and concurring reasons | [2] |
| LEEMING JA: Introduction | [14] |
| Principles applicable to appeals from decisions adopting or rejecting referees' reports | [18] |
| Factual background | [28] |
| Main Contract | [28] |
| Second Consortial Agreement | [33] |
| Procedural background | [39] |
| Was the Second Consortial Agreement binding? | [46] |
| Reasoning of the primary judge on construction and overview of Mainteck's submissions on appeal | [59] |
| The contractual text and its legal meaning | [66] |
| Error in relation to reliance by the primary judge on Jireh? | [69] |
| The relationship between the First and Second Consortial Agreements | [87] |
| The nature of the drafting in the Second Consortial Agreement | [94] |
| The grammatical meaning of Art II.1 | [99] |
| Incorporation by reference | [109] |
| An erroneous reference, to be corrected by contractual rectification? | [115] |
| The construction of Art II.1 | [122] |
| Scope Meetings | [126] |
| Ground Eight: leave to withdraw admissions | [132] |
| Ground Seven: delay and disruption | [149] |
| Ground Four: miscellaneous contractual variation claims | [207] |
| Variation directions 9 - 13 | [208] |
| Variation directions 7 and 8 | [213] |
| Variation 99 | [216] |
| Variations 125 and 127 | [218] |
| Variations 116 and 122 | [219] |
| Ground Five: (a) variation 120 (roof formwork) | [220] |
| Ground Five: (b) Andreco Hurll deed of settlement | [224] |
| Ground Six: error in construing condition 64 | [235] |
| Ground Nine: costs | [246] |
| Orders | [255] |
WARD JA: I have had the opportunity of reading in advance a draft of Leeming JA's comprehensive reasons, with which I agree. The orders his Honour proposes should be made.
EMMETT JA: This appeal arises out of a dispute between the appellant, Mainteck Services Pty Ltd (Mainteck), and the respondents, Stein Heurtey SA (SHSA) and Stein Heurtey Australia Pty Ltd (SH Australia), concerning the supply and erection of a walking beam furnace and associated equipment (the Furnace) for BlueScope Steel (AIS) Pty Ltd (BlueScope). On 24 August 2004, BlueScope and SHSA entered into a contract for the design, supply and installation of the Furnace (the Principal Contract). On 9 September 2004, Mainteck entered into an agreement with SHSA (the Consortial Agreement), under which Mainteck was to perform certain of the obligations of SHSA under the Principal Contract. On the same day, SHSA, SH Australia and Mainteck entered into a Deed of Novation, whereby the Consortial Agreement was transferred by SHSA to SH Australia and SHSA guaranteed the obligations of SH Australia.
Relevantly to the present appeal, disputes subsequently developed between Mainteck, on the one hand, and SHSA and SH Australia, on the other, as to whether Mainteck had supplied equipment and performed services in connection with the Principal Contract beyond those that it was contractually bound to supply or perform under the Consortial Agreement. Mainteck commenced proceedings in the Technology and Construction List seeking, inter alia, recompense for equipment provided and services performed beyond those required by the Consortial Agreement. The dispute was referred to the Hon R L Hunter QC for report. Mr Hunter delivered reports dated 22 June 2011, 21 July 2011, 20 October 2011 and 14 December 2011. Thereafter, further disputes developed between Mainteck, on the one hand, and SHSA and SH Australia, on the other hand, as to the extent to which Mr Hunter's reports should be adopted by the Court.
On 26 August 2011, Hammerschlag J ordered that specified paragraphs of Mr Hunter's report of 22 June 2011 be adopted. His Honour expressly noted that the remaining paragraphs of that report were neither adopted nor rejected. On 14 December 2011, Mr Hunter provided a further report. On 31 May 2013, for reasons given on 28 March 2013, Sackar J ordered that further paragraphs of the report of 22 June 2011, specified paragraphs of the report of 14 December 2011 and the whole of the interim reports of 21 July 2011 and 20 October 2011 be adopted. His Honour ordered specifically that the Court did not adopt the finding made by Mr Hunter that the scope of work under the Consortial Agreement was void for uncertainty. On 5 December 2013, Sackar J made orders relating to the costs of the proceedings in the Supreme Court, and the reference to Mr Hunter.
On 23 April 2013, Mainteck filed a notice of intention to appeal from the judgment of Sackar J on 28 March 2013. It filed a notice of appeal on 28 June 2013. In that notice of appeal, Mainteck sought to have certain of the orders made by Sackar J set aside and certain other orders varied. It also sought judgment against SHSA and SH Australia in the sum of $5,254,485.25.
The notice of appeal set out some 39 grounds related to the following topics:
contract terms;
contract construction;
original scope claim;
contractual construction variation claims;
manifestly unreasonable variation claims;
project consent award claim;
disruption claim;
leave to amend.
On 8 October 2013, Mainteck filed a notice of motion seeking leave to amend its notice of appeal. The proposed amended notice of appeal identified nine grounds, some of which have several paragraphs. The nine grounds generally relate to the same matters as outlined in the original notice of appeal, but also include a new ground concerning leave to withdraw certain admissions. In the course of oral argument on the hearing of the appeal, Mainteck sought leave to make a further amendment to the ground relating to the contractual construction variation claims.
SHSA and SH Australia oppose the granting of leave to file the amended notice of appeal insofar as it raises a new ground relating to the withdrawal of admissions. They also oppose the further granting of leave to amend that was sought during the oral hearing.
A considerable part of the argument was directed to the construction of the Consortial Agreement and the extent to which it incorporated, by reference, provisions of the Principal Contract. The main question concerned the proper construction of Article II of the Consortial Agreement. The language of that provision is not felicitous. It exhibits considerable ambiguity, both on its own and in the context of the Principal Contract to which it refers.
I have had the considerable advantage of reading in draft form the proposed reasons of Leeming JA. I agree with his Honour's observations concerning the probable source of ambiguity in the Consortial Agreement. That is to say, it was executed in France and SHSA is a French entity and SH Australia is a wholly owned subsidiary of that French entity. For the reasons given by his Honour, it is clear that the English text resulted from a translation of French text.
A particular example of that is the statement in Article I that the parties did not intend to constitute a company or a separate legal entity and that any form of affectio societatis, agency or partnership was to be strictly excluded. Affectio societatis is not a common law concept. Rather, as Leeming JA observes, it is a civil law concept derived ultimately from Roman law. The Roman law concept of partnership, or societas, was much wider than that of the common law. A pre-requisite for partnership in the common law is the object of carrying on a business with a view to deriving a profit. There was no such pre-requisite in Roman law. In Roman law, any union of funds, skill or labour, or any combination of funds, skill and labour, for a common purpose, sufficed. There was no need for profit to be an aim. On the other hand, common ownership of property was not of itself enough. There needed to be some intention of joint exploitation. That is to say, an affectio societatis was required.
Another significant distinction between Roman law and the common law is in the ability of a partner to bind his partners to third parties. Under the common law, partners are, subject to certain limits, agents for each other and can bind each other in dealings with third parties in the course of carrying on a partnership business in the ordinary course of business. In Roman law, however, one partner could not in general bind his partners to third parties. The Roman law of societas was concerned almost entirely with the relations of the parties inter se (see Digest, 17.2 and in particular 17.2.31).
I agree with Leeming JA, for the reasons given by his Honour, that leave to amend the notice of appeal should be refused. I also agree with his Honour, for the reasons given by him, that the appeal should be dismissed. Finally, I agree with the orders proposed by Leeming JA concerning submissions as to costs.
LEEMING JA: The appellant (Mainteck) appeals from parts of the primary judge's decision in relation to the adoption and rejection of parts of reports by a referee, the Honourable RL Hunter QC, pursuant to r 20.24 of the Uniform Civil Procedure Rules 2005 (NSW). Its appeal is as of right, pursuant to s 101 of the Supreme Court Act 1970 (NSW), from the final orders of the Court made on 31 May 2013 entering judgment in its favour in the amount of $159,813.01; it seeks by its appeal to have a judgment for millions of dollars more. Mainteck also seeks leave to expand its appeal, out of time, to challenge the decision of the primary judge not to permit it to resile from paragraphs of the Referee's report of June 2011 to whose adoption it had consented in August 2011 (proposed ground 8).
The issues arising on this appeal fall into two broad categories. First, there is Mainteck's challenge to the primary judge's findings on contractual construction. Secondly, there are Mainteck's challenges to the primary judge's adoption and rejection of aspects of the Referee's reports. In addition, there is Mainteck's application for leave to argue proposed ground 8, which raises separate discretionary issues.
The categories of issues summarised above overlap. In particular, Mainteck wishes to rely upon some factual matters the subject of proposed ground 8 as "surrounding circumstances" as an aid to contractual construction. Moreover, a small minority of Mainteck's residual challenges to the primary judge's adoption and rejection also turn on questions of construction, although most of these grounds are wholly factual.
Because of the overlapping nature of the grounds of appeal and the application for leave, it has been convenient to address them substantially in the order in which they were advanced orally. That means dealing with grounds 1-3 on construction, then proposed ground 8, then ground 7 on the claim for delay and disruption, and then the remaining grounds (which were largely or wholly undeveloped orally). Before doing that, these reasons will summarise, as concisely as is possible, the factual and procedural background. But it is desirable at the outset to recall the principles which govern Mainteck's appeal and application for leave.
Principles applicable to appeals from decisions adopting or rejecting referees' reports
At times, Mainteck's submissions failed to grapple with the true nature of the task it faced in this Court. In particular, as will be seen below, parts of Mainteck's submissions resembled a reprise of the battle fought and lost before the primary judge. It is vital to bear steadily in mind the issues arising on appeal, all of which are uncontroversial.
First, Mainteck's approach on appeal in part (I have in mind aspects of grounds 3, 4 and 7) collided with what Gleeson CJ said in Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd [1994] NSWCA 235, "It is not for this Court to review the referee's report". That was reiterated by Beazley, Ipp and Tobias JJA in Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270 at [16] and by Handley, Ipp and McColl JJA in El-Mir v Risk [2005] NSWCA 215 at [85].
In Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228, Spigelman CJ and Allsop P said of the nature of this Court's task:
"This is an appeal from orders of the Court made by Einstein J, adopting the recommendations of the referees. As the form of the rules and the authorities to which we have referred make clear, Einstein J was exercising a power in the nature of a discretion. It is the approach taken by his Honour and any asserted error therein that is the subject of the appeal, not the referees' report itself."
Secondly, the reason for this unconcern with the Referee's report is that, save in relation to proposed ground 8, the primary judge was exercising the wide discretion conferred by r 20.24 relevantly to adopt, vary, reject all or part of a report, or decide a matter on the evidence before the Referee. This Court is emphatically not determining a second appeal by way of rehearing from a trial, as the High Court often does and the Privy Council often did; second appeals as of right are rare in the Australian legal system. This Court is determining an appeal from the primary judge's exercise of discretion, and accordingly Mainteck's appeal will fail unless it can establish House v The King error: Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [59]; Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [2013] NSWCA 6 at [17]-[19] and Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd) v BestCare Foods Ltd [2013] NSWCA 90 at [76].
The exercise of that discretion was materially informed by the primary judge's construction of the contract. That is a question of law, to be determined by this Court afresh, and any error found here is apt to vitiate the exercise of discretionary power to adopt or reject. However, on most remaining matters - including questions of causation, and quantum of loss, and discharge of burden of proof - to the extent that his Honour evaluated the submissions put to him, in light of the terms of the Referee's reports and the evidence to which he was directed, and exercised the discretion under r 20.24, the burden of demonstrating House v The King error is a heavy one.
This error, of failing to appreciate the true nature of the onus borne by the appellant in this Court, is recurring. Plainly it was repeated before Ormiston JA, who said with the agreement of Winneke P, Phillips, Buchanan and Vincent JJA in Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd [2002] VSCA 113; 5 VR 353 at [12]:
"It is necessary to emphasise that an appeal to the Court of Appeal is quite different in nature from that which is conferred on Trial Division judges to review awards. ... This court cannot re-exercise the judge's powers or discretions unless and until it is satisfied that the judge erred in the application of the [Victorian counterpart to r 20.24]."
Thirdly, on disputed factual matters, the primary judge was well entitled to be brief, and to form the view that the reasoned conclusions of the Referee were open to him. That course has long been settled at law, and the principles were correctly stated and applied by the primary judge at [48]-[51]. Here the formulation of principle by McDougall J in Chocolate Factory Apartments Limited v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7] has been highly influential, as a succinct distillation of earlier decisions, notably by Gleeson CJ in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 562-564. Of particular relevance is its restatement in the joint reasons of Redlich and Bongiorno JJA and Beach AJA in Wenco Industrial Pty Ltd v WW Industries Pty Ltd [2009] VSCA 191; 25 VR 119 at [17]:
"[G]enerally, the referee's findings of fact should not be re-agitated in the court. The court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence."
Fourthly, in relation to proposed ground 8, the primary judge's discretionary decision was a decision relating to practice and procedure attracting the deference associated with In re the Will of FB Gilbert (1946) 46 SR (NSW) 318 at 323 and Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177. What is normally required is demonstration of a clear case of material error. Appellate courts exercise particular caution in reviewing such matters: Rich v Westpac Banking Corporation [2014] NSWCA 136 at [33]-[36], not least because appellate intervention is not usually conducive to the "just, quick and cheap resolution of the real issues": Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [21]. Those considerations are apposite here, where Mainteck wishes, having made oral submissions twice on the point before the primary judge, to revisit out of time an order to which it consented in 2011. There must ultimately come an end to appellate review of all litigation.
Fifthly, in circumstances where, as will be seen, there was no evidence adduced by Mainteck to explain its delay, there is a threshold question as to the grant of leave. This Court is of course required to exercise the power to grant or refuse leave in accordance with ss 56-58 of the Civil Procedure Act 2005 (NSW). An out-of-time change of stance by a party represented by competent lawyers in long-running litigation which is unexplained will tend to collide with ss 56-58. The absence of explanation will support an inference that there is no good explanation. The result will tend to be that the "dictates of justice" to which the Court is required by s 58 to have regard will not favour leave being granted.
It will be seen below that these grounds have been addressed substantially, mostly at the level of detail in which they were advanced. They were capably argued by both parties, for whom the issues are important, and it seemed better to err on the side of comprehensiveness than scantiness, a course which has been adopted in other appeals (see for example HSH Hotels (Australia) Ltd v Multiplex Constructions Pty Ltd [2004] NSWCA 302). It should not be thought that such a level of detail is necessary in appeals of this nature, which ultimately turn on the question: is House v The King error disclosed in the reasons of the primary judge? That question is often capable of concise answer.
Factual background
(a) Main Contract
On 24 August 2004, BlueScope Steel (AIS) Pty Ltd (BSL), as Principal, and Stein Heurtey SA (Stein Heurtey), as Contractor, entered into a contract "for design supply and installation of walking beam furnace and associated equipment". It is convenient to call this the Main Contract. More is said as to the nature of the contract for "design supply and installation" later in these reasons. The name "walking beam furnace" describes the mechanism for moving steel through a furnace, by a series of hydraulically powered beams; the Court was told this is part of the larger process of hot roll milling. The new furnace was to be installed adjacent to an existing walking beam furnace, and is often referred to as "WBF2".
The Main Contract's table of contents was as follows:
“1. General Conditions (GC's) and Associated
Schedules Volume C1
2. Technical Specification (schedule 3 of GC's)
and Associated Appendixes (sic) Volume S1-S5
3. Contract Drawings Volume D1”
The meaning of the words "technical specification" in a contract between Mainteck and Stein Heurtey is central to grounds 1-3 and proposed ground 8. To introduce the documents relevant to those issues, it may be noted that "Specification" was a defined term in the General Conditions of the Main Contract: "Specification" meant "the combined Contractor's and Principal's Technical specification in Schedule 3". Schedule 3 was one of the "Associated Schedules" following the General Conditions. Schedule 3 was a single page, in these terms:
"Schedule 3
Technical Specification
The Technical Specification is contained in Volume S1 titled ‘Hot Strip Mill Capacity Increase Project - Technical Specification’. Specifications, Appendices and Drawings referenced in the Technical Specification can be found in Volumes S2 to S5 and D1."
The Main Contract nominated Mainteck as an approved subcontractor. Schedule 1A to the General Conditions was headed "Breakdown of Contract Sum" and contained a column identifying parts of the supply and installation of WBF2 as the "Mainteck Portion (AUD)" and a price for that work of $27,924,279. The entries included amounts for Project Management, Safety Management & Inductions, Site Mobilisation & Establishment, and then elements of WBF2, such as "Recuperator $128,890", "Burner Assemblies $85,597", and "Burner Valving $52,250". The four largest items were "Furnace Metal Parts $6,993,792", "Slab Handling Equipment $6,077,419", "Furnace Refractory and lagging $4,250,344" and "Hot Air Pipe Work / Ducting $2,266,549". Schedule 4 to the General Conditions was headed "Milestones and Payment Schedules". It was divided into three sections: a Stein Heurtey Portion, a Mainteck Portion and an Alstom Portion. The Stein Heurtey and Alstom sections identified various work portions against which a proportion of the contract price (for example, "5% of the Stein Heurtey Portion of the Contract Sum") would be paid. The Mainteck section was in more general terms, and specified some dates as "Varies" and for many payments referred merely to "Progress Payments".
Provisions of the Main Contract established a regime for the Principal to give a variation direction to the Contractor, and for the Contractor to give a variation proposal to the Principal: cll 19.3, 19.5 and 19.9. In certain circumstances, the exercise of those powers entitled the parties to an amount of money. The details of the regime (which was unremarkable) do not presently matter. It suffices to note that those powers were exercised very many times (more than a hundred times) during the design, supply and installation of WBF2, and gave rise to a large number of disputes, some of which remain live in this appeal. It is common ground that some, but not all, of those disputes were resolved by the question of construction raised by grounds 1-3.
(b) Second Consortial Agreement
On 9 September 2004, Stein Heurtey and Mainteck entered into what was described at first instance and on appeal as the Second Consortial Agreement, whose terms give rise to the principal question of construction in this appeal. It was so described because the same parties had entered into a similarly worded "agreement for consortial cooperation" on 8 June 2004 (First Consortial Agreement), and it is plain that much of that agreement had been repeated, even though it was no longer accurate. For example, the preamble referred to Stein Heurtey wishing to propose a complete offer to BSL "covering Engineering, Procurement and Construction, in association with Mainteck", whereas by the time the Second Consortial Agreement was executed, this had occurred. The same phenomenon may be seen in the opening words of Art II.1 (which is the critical clause for the purposes of grounds 1-3 and proposed ground 8):
"ARTICLE II. - PURPOSE OF THE AGREEMENT
1. The Parties shall jointly negotiate and carry out the Contract awarded by the Principal, their respective areas of responsibility being as laid down in technical specification of main Contract specifying the scope of supply and services to be performed by each Party, and the work program.
Each Party shall assume the full responsibility for the fulfilment of its obligations under the Contract and shall bear the full technical and commercial risk associated with its own scope of supply and services. This applies also to the non-receipt or late receipt of payment(s) or instalments agreed upon or not with the Principal."
The Second Consortial Agreement defined the Main Contract as the "Contract" (although it will be seen that in Art II.1 there were references to both "Contract" and "main Contract"). There are many other references to the "Contract" throughout the Second Consortial Agreement.
There was no definition of "technical specification" or "Technical Specification" in the Second Consortial Agreement.
The Second Consortial Agreement defined at least some of the obligations of its parties by reference to those under the Main Contract. One way in which this was done may be seen from Art II.1 reproduced above. Another was by what became known as the "mutatis mutandis" clause, Art II.2:
"2. Any and all stipulations of the Contract shall apply mutatis mutandis to each Party for its own scope of supply and services."
Another indication of the link between the Main Contract and the Second Consortial Agreement is that the latter did not itself specify the price agreed between Stein Heurtey and Mainteck. Nor did it in terms specify work Mainteck was called upon to do. To this end, Mainteck placed heavy reliance upon a revised Bill of Materials which was annexed to the Second Consortial Agreement. That document was a composite, some of whose pages were dated 9 September 2004, some earlier. Speaking very generally, Mainteck submitted that the scope of its obligations to supply and install components of WBF2 was determined by the Bill of Materials; if so, then it said it was entitled to succeed on many claimed variations. Conversely, Stein Heurtey submitted, in accordance with the findings of the primary judge, that the scope of Mainteck's obligations was found by reference to the Main Contract, especially the delineation in two schedules (Schedule 1A for the Mainteck Portion, and Schedule 4 for Milestones and Payment).
Also dated 9 September 2004 was a Deed of Novation between Mainteck, Stein Heurtey SA and Stein Heurtey Australia Pty Ltd, which purported to transfer the agreement dated 9 September 2004 "retroactively at the Effective Date", on terms that Stein Heurtey SA guaranteed the performance of its Australian subsidiary's obligations. It is not necessary to say anything more about that deed, and except in relation to one aspect of ground 4 of the appeal, it will not be necessary in what follows to distinguish between the two Stein Heurtey companies.
Procedural background
Mainteck's second further amended summons filed in the Technology and Construction List of the Equity Division was 73 pages long, not counting a schedule of 20 pages listing its claims which amounted to $4,809,180. Mainteck stated that all issues in the proceedings were appropriate for referral to a referee.
Speaking broadly, Mainteck's summons advanced three claims based on the pre-contractual conduct of both Stein Heurtey companies. Mainteck said that by reason of misleading and deceptive conduct, it had underpriced its tender, and sought orders under s 87 of the Trade Practices Act1974 (Cth) setting aside the contract, or alternatively pecuniary remedies under statute or at general law. It also claimed that both Stein Heurtey companies had breached a fiduciary obligation owed to it, and it claimed in negligence and sought damages. All these claims failed and were not part of the appeal, and it is not necessary to summarise them in any detail. It is convenient to note that the evidentiary material the subject of these pre-contractual representation claims was sought to be relied on by Mainteck before the primary judge and on appeal in aid of Mainteck's case on construction.
Mainteck also advanced a raft of claims for breach of contract, which included allegations as to the terms of the contract. These have been narrowed following the reference, the Referee's reports, and the decision of the primary judge. The most efficient course is to turn immediately to the procedural history, and to address the various contractual claims which continue to be in issue when dealing with the grounds in the amended notice of appeal.
On 30 August 2010 the whole of the proceeding was referred for enquiry to and report by the Hon Mr R L Hunter QC. The reference hearing occupied 37 days commencing on 5 October 2010, and concluded in February 2011, with concluding oral submissions on 5 and 6 April 2011. The Referee delivered a report on 22 June 2011 (June Report) rejecting the misrepresentation case but finding that the contract was void for uncertainty in a material respect (at [574]). The Referee also delivered a short "interim" report on 21 July 2011, addressing two of the representations.
Mainteck sought unsuccessfully to amend its pleading, to include, inter alia, allegations that the contract was uncertain as to scope. Leave was refused, and Mainteck's application for leave to appeal was dismissed: [2011] NSWSC 844; [2012] NSWCA 12.
Following the refusal of leave to amend, there was a further hearing before the Referee, leading to his delivering a report on 14 December 2011 (December Report) addressing Mainteck's fiduciary duty claim, the delay and disruption claims and the variation claims.
It will be necessary when dealing with proposed ground 8 to examine in more detail the process by which those reports came to be adopted. For present purposes, it suffices to note that the final orders from which Mainteck appeals are those made by the primary judge on 31 May 2013 following a hearing occupying 16-20 July 2012, with further oral submissions on 29 October 2012. His Honour gave reasons of 308 paragraphs on 28 March 2013: [2013] NSWSC 266, following which there were further submissions over four days as to orders and costs, and further reasons on 23 August 2013: [2013] NSWSC 1165. Finally, the orders were varied, pursuant to the slip rule, for reasons given on 25 October 2013: [2013] NSWSC 1563. Those orders were entered on 5 December 2013, and are to the effect that Mainteck pay the entirety of Stein Heurtey's costs of the proceedings, including on an indemnity basis for costs incurred after 2 July 2010.
Was the Second Consortial Agreement binding?
The parties debated before the Referee, the primary judge and on appeal whether the Main Contract could fairly be described as a "turnkey" contract. Mainteck submitted that it could, and that that was necessary in order to construe it. As will be seen below, it would appear that the Referee was persuaded by Mainteck's submission. Stein Heurtey submitted that it could not be described as a "turnkey" contract, and that in any event it was not helpful to do so.
The Main Contract included a "combined Contractor's and Principal's Technical specification in Schedule 3", and "Contractor's Drawings", however it did not include a "Final Design". Hence the Main Contract's title, whose essence was that Stein Heurtey would first design, then supply, then install the new walking beam furnace. Although the Final Design was yet to occur, it was required to satisfy the obligations in cl 4.1, which included complying with the provisions of the Main Contract, satisfying the Performance Criteria and, subject to cl 4.3, complying with the Specification and the Contractor's Drawings. BSL had a right to reject the Final Design if it did not comply with the Main Contract: cl 4.6. It is not possible to gauge the extent to which those constraints of themselves constrained the Final Design; most of the drawings were not reproduced in the appeal pages. (Even if they had been, it may be expected that the extent to which those drawings (which it may be presumed were for design, not construction) were prescriptive would be difficult or impossible to assess.) Clause 4.3 was in these terms:
"The Contractor may provide a Final Design which is inconsistent with the Specification or the Contractor's Drawings but only if:
(a) it has the prior written approval of the Principal's Representative to the change (which may be withheld at the discretion of the Principal);
(b) the Final Design complies with the Performance Criteria;
(c) the quality and performance characteristics of the Equipment depicted in the Final Design are equivalent to or greater than the quality and performance characteristics depicted in the Specification and Contractor's Drawings; and
(d) the Contractor has no Entitlement in relation to the differences between the Specification or Contractor's Drawings and the Final Design."
It will be seen that the Final Design could vary from the Specification and Contractor's Drawings, but only in limited circumstances. It was necessary to have BSL's prior written approval, which could be withheld at BSL's discretion. Further, the Final Design was required to satisfy elaborate performance criteria, and any changes could not give rise to any greater remuneration to Stein Heurtey. That said, there was undoubtedly a basis for concluding that the parties anticipated Stein Heurtey employing newly refined features which would lead to efficiencies in construction and performance, such that the scope for a significantly altered Final Design was real, for as may readily be seen it might well be in both parties' commercial interest to alter the Final Design.
By some accounts, to describe a contract as "turnkey" is to signify that the final design responsibility rests with the contractor. Hudson's Building and Engineering Contracts (12th ed, 2010) states at 495 that "[t]he expressions 'turnkey' and 'design-and-build' can now be said to be synonymous". Builders have entered into contracts of this kind for very many years. The present Blackfriars Bridge across the Thames is an example: see Thorn v Mayor and Commonalty of London (1876) 1 App Cas 120; see also the decisions to which the Supreme Court of Canada referred in Steel Company of Canada Ltd v Willand Management Ltd (1966) 58 DLR (2d) 595 at 601-2.
Ultimately, the label used to characterise the nature of the contractual relationship can be a distraction, and in extreme cases can lead to error. The use of a label like "turnkey" is at best descriptive. It is certainly not normative: the label does not of itself assist in identifying the legal rights, privileges, powers and immunities enjoyed by the parties: cf Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; 192 CLR 226 at [8] (in respect of the term "discretionary trust") or United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 10 (in respect of the term "joint venture") or CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) [2005] HCA 53; 224 CLR 98 at [15] (in respect of the term "unit trust"). In any event, it is far from clear that there is a settled understanding of "turnkey". This Court was not taken to any evidence of a settled meaning of the term. In Cable (1956) Ltd v Hutcherson Bros Pty Ltd (1969) 123 CLR 143 it is recorded at 148 that an arbitrator found that "neither the word 'turnkey' nor the phrase 'turnkey basis' nor the phrase 'turnkey proposition' or any of them had as at February 1964 acquired, nor have they or any of them yet acquired in Australia any usually accepted meaning in the building industry or in connexion with civil engineering works or in connexion with mechanical and electrical works". Based on that evidence, Barwick CJ said at 151 that:
"Nothing can be made, in my opinion, of the use of the word 'turnkey'. It is not a term of art and, even if it could be taken to mean that the works must be handed over as a going concern, I would not have thought that in the context of these articles the word or expression meant that the builder warranted the efficacy of the works he had agreed to erect."
That statement is a proposition of fact, not law, and so does not attract the rules of precedent. The question whether words bear a technical meaning is a question of fact, and no case is a precedent for a factual finding: Gordon v Truong [2014] NSWCA 97 at [30]. It may be that Barwick CJ's words no longer apply, or at least are less applicable now, a view formed in Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49 at [55]-[60]. I respectfully agree with Bleby J's statement at [61] that Barwick CJ's words nevertheless emphasise the need to construe the actual effect of the terms of a contract. Bleby J was dealing with a contract which described itself as a "Turnkey Refurbishment Contract", which emphasises the lack of utility of this debate about labels in respect of the contracts relevant to the present appeal.
Whether or not the qualified but anticipated ability for the Final Design to depart from what was elaborately stated in the Main Contract, but on terms that the Performance Criteria were satisfied, means that the Main Contract is fairly regarded as a "turnkey" contract is not to the point. What is clear is that Mainteck, whose agreement to be a subcontractor has given rise to this dispute, promised for a fixed sum to supply and install the equipment whose Final Design turned on the exercise by Stein Heurtey and BSL of the rights under the Main Contract to which it was not a party.
The Referee regarded such an approach as commercially nonsensical. I readily acknowledge that it is risky and potentially disadvantageous to Mainteck. However, and with great respect to the Referee, whose experience in the field is immense, his finding that there was no contract fails sufficiently to have regard to the objective reality that the parties formally brought into existence and executed a lengthy document purporting to record their bargain.
The primary judge considered that the Referee had not sufficiently striven to give proper effect to the principles whereby courts conclude that a contract has been entered into, where a formal document is executed in a commercial context and where, especially, it has been partly performed. His Honour relied on what had been said by Barwick CJ in Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 437:
"So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 is not 'so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention', the contract cannot be held to be void or uncertain or meaningless."
To the same effect the primary judge relied on Mason J's observations in Meehan v Jones (1982) 149 CLR 571 at 589 that courts should be "astute to adopt a construction which will preserve the validity of the contract", and the proposition contained in, inter alia, Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] 2 Lloyd's Rep 76 at 89 and Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235; 12 BPR 23,021 at [97]-[111] that where parties to a commercial dealing have acted in the belief that they had a binding contract, "the courts are willing to imply terms, where that is possible, to enable the contract to be carried out".
His Honour was correct to reject the approach of the Referee. Steyn J said, rightly, that "The first imperative must be that the law ought to uphold rather than destroy apparent contracts": Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255 at 268, a passage approved by Lord Phillips MR in The Great Peace [2002] EWCA Civ 1407; [2003] QB 679 at [90]-[91]. This is axiomatic. The fact that the Main Contract permitted Final Designs which might vary from those in existence, thereby varying the obligations which Mainteck was promising to perform, does not mean there was no agreement.
No party to the appeal sought to contend otherwise. Of course, Mainteck was precluded (by the refusal of leave to amend in 2012) from contending that there was no contract. But here, where the parties had formally executed a large suite of documents, assisted by lawyers, where they had conducted their affairs on the basis of a contract, and where, when their relationship had broken down and they had litigated for 37 days before the Referee on the basis that there was a contract, there is every reason to conclude that indeed they had succeeded in their evident intent to create contractual relations. A court should strain to give effect to one obvious aspect of the shared and objectively manifested intention of the parties - namely, that they had created contractual relations. It is a signal element of the obligation of courts to approach the task of giving legal meaning to commercial contracts with "business commonsense": Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201. There are indubitably cases where there may be a real contest about what amounts to business commonsense: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [20], but the fact that the parties had, by executing pages described as a contract, entered into contractual relations with one another is not one of them. As was said by Ormiston JA in Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 68, in a passage approved by Young CJ in Eq in Helmos Enterprises at [96]:
"Where parties have deliberately written the terms upon which they wish to bargain but have omitted ... a term which might in other circumstances have been expressly ... stated, the courts will endeavour to give effect to the fact that the parties did not see the absence or deficiency of such a term as preventing them from reaching agreement."
There was no material before the Court nor, seemingly, before the primary judge, as to the perceived profitability to Mainteck of the Second Consortial Agreement, or of its capacity to undertake work at the time, or of other opportunities open to it to exploit. It is perfectly possible that, either because it desperately needed the job, or because it perceived that it would most likely be profitable even if the Final Design departed from the plans, or merely because there was nothing better in the offing, Mainteck was prepared to run that risk. The fact that Mainteck was promising for a fixed sum (and subject to the possibility of variations some of which might alter that amount) to supply and install something presently unknown is not sufficient to resist the conclusion that its promise was binding.
Reasoning of the primary judge on construction and overview of Mainteck's submissions on appeal
The existence of contractual relations being common ground, what was the content of the parties' promises? Insofar as is relevant to grounds 1-3, the essential question is whether, as Mainteck contended, Mainteck's scope of supply and services was limited by the Bill of Materials, construed in light of the "Scope Meetings". Alternatively, as Stein Heurtey contended, was Mainteck's scope of supply and services determined by reference to the provisions in the Main Contract which referred to the Mainteck Portion?
The primary judge rejected Mainteck's submission as to the Scope Meetings, relying on the fact that they had occurred in March and early April 2004, months before the Second Consortial Agreement had been entered into, that it seemed "highly inconsistent ... both with principle and common sense" that such pre-contractual negotiations would be utilised in preference to the later documents (at [88]), and that it was open to the Referee as a matter of fact to conclude that what was said at the Scope Meetings (which were "largely unrecorded") was ambiguous or inadequately established (at [88]-[94]). Mainteck challenged this reasoning (in ground 3, which is also impacted by proposed ground 8).
The primary judge had earlier (at [67]) referred to the "entirely different view" expressed by the High Court in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1 as a reason for departing from the approach of the Referee; Mainteck said that here too the primary judge had erred by not taking a more contextual approach, as had been endorsed (albeit only a month before the appeal was heard) in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 88 ALJR 447 at [35].
The primary judge concluded that the Main Contract and the Technical Specification were incorporated into the Second Consortial Agreement. Mainteck said this was "a bit tough to have incorporation of a document we never saw". The primary judge relied on the express references to Mainteck in the Main Contract, which stated that Mainteck was an approved sub-contractor, which referred to the "Mainteck Portion" and, not least, which specified the contract price (which is not to be found in the Second Consortial Agreement).
The Second Consortial Agreement provided (in Art II.2) that the stipulations of the Main Contract applied "mutatis mutandis" to its parties. The primary judge held that the critical words in Art II.1 "in the technical specification of the main Contract" were "simply a reference to the 'main Contract' where relevant" (at [105]). His Honour found that Schedule 1A did allocate all installation responsibilities other than electrical and automation services to the "Mainteck Portion" of the work, and that the content of Mainteck's obligations to supply and install could be derived from Schedules 1A and 4, in the manner set out at [124]-[128]:
"In summary, it seems to me that a proper construction of the Second Consortial Agreement is that section 5 of the Technical Specification is incorporated 'mutatis mutandis' into the Second Consortial Agreement. So incorporated, it should not properly be construed as referring only to SH's obligations.
I agree with SH that the proper approach to the 'mutatis mutandis' incorporation of the terms of the Head Contract into the Second Consortial Agreement is to regard any references in the Technical Specification to the 'Contractors' installation obligations as references to Mainteck's supply and installation obligations under that Second Consortial Agreement. It does seem to me, as SH contends, that this does accord with the Second Consortial Agreement and Article II.
It is clear in my mind that Article II.2 of the Second Consortial Agreement contemplates that the Head Contract would identify the Mainteck and the SH respective portions of work. This is corroborated for example by Article VI of the Second Consortial Agreement that refers to the 'sub-contractors portion of the Contract sum as defined in the contract'. This is in turn corroborated in my view by Schedules 1A and 4 of the Head Contract. Schedule 1A of the Head Contract differentiates between design, SH supply items, Mainteck's installation obligations and Mainteck's 'supply and install' obligations. It is plain from these materials, but especially items 7 and 8 of Schedule 1A especially when read with the more extensive description of the Work Portions in Schedule 4 of the Head Contract and the 'supply' and obligations detailed in the BOM, that SH had no relevant installation obligations. Further, it is also plain that Mainteck had obligations involving 'manufacture of equipment' and also had the exclusive installation obligations (other than those relating to electrical and automation systems).
In accordance with Schedule 1A and Schedule 4 Table B of the Head Contract as between itself and SH, Mainteck was the only party with 'work portion' obligations to manufacture the 'equipment'. In addition, it seems to me the materials support the view that Mainteck had the exclusive 'supply and install' obligations in Schedule 1A in relation to the furnace metal parts, slab handling equipment, and waste gas stack.
In addition, Schedule 4 Table B - the Mainteck Work Portion - attracted the application of section 5.4 of the Technical Specification. Section 5.4 of Schedule 4 Table B does not it seems to me relevantly apply to the SH Work Portion in Schedule 4 Table A. It seems to me that as a result of that, Mainteck was the contractor obliged to 'execute and complete the works under the contract including but not limited to...major components'. It also had to provide guarding and access platforms in accordance with clauses 5, 5.4.7 and 5.4.8 of the Technical Specification. It also had to provide building cladding for the pump house in accordance with clause 5.4.14 of the Technical Specification and provide grease and oil 'first fills' in accordance with clause 5.4.15 of the Technical Specification. It also follows that it had to provide all intrinsically required building modification - in accordance with clause 5.4.3.5 and 5.20 and clause 6.1 of the Technical Specification and, in addition, to source, manufacture and supply all equipment necessary to complete the Work under the contract - in accordance with clause 5.4.18 of the Technical Specification."
Mainteck challenged most of this reasoning. Mainteck said that the Bill of Materials amounted to a contractual limitation upon its scope of supply and services, and that it was wrong for scope to be derived from Schedules 1A and 4.
For its part, Stein Heurtey defended the primary judge's conclusions in their entirety. Essentially, by a process of construction, Schedules 1A and 4 were construed to identify most of the physical components of WBF2, and answer the description of "technical specification" in the Second Consortial Agreement.
The contractual text and its legal meaning
The Preamble and Article II.1-4 of the Second Consortial Agreement are in these terms:
"PREAMBLE
- Whereas SH has replied to the invitation for tenderers issued by B.S.L., (hereinafter called the Principal) for the supply of design, supply and installation of a four hundred fifteen tons per hour (415 t/h) Walking Beam Furnace and associated equipment, located in Port Kembla (Australia), (hereinafter called the Project) in order to be awarded the resulting contract (hereinafter called the Contract) by the Principal;
- Whereas SH wishes to propose a complete offer covering Engineering, Procurement and Construction, in association with Mainteck Services Pty Ltd;
- Whereas Mainteck Services is a company well known in Australia and specialized in fabrication and installation of mechanical, structures, piping, and refractory equipments for Hot Strip Mill;
Now, the Parties hereby agree as follows:
...
ARTICLE II. - PURPOSE OF THE AGREEMENT
1. The Parties shall jointly negotiate and carry out the Contract awarded by the Principal, their respective areas of responsibility being as laid down in technical specification of main Contract specifying the scope of supply and services to be performed by each Party, and the work program.
Each Party shall assume the full responsibility for the fulfilment of its obligations under the Contract and shall bear the full technical and commercial risk associated with its own scope of supply and services. This applies also to the non-receipt or late receipt of payment(s) or instalments agreed upon or not with the Principal.
2. Any and all stipulations of the Contract shall apply mutatis mutandis to each Party for its own scope of supply and services.
3. The Parties shall mutually coordinate the scope of supply and services of each Party in such a way that, particularly at the technical interfaces, completeness and fulfilment of the supplies and services of the Contract are ensured.
4. If parts or services are required which have not been specifically mentioned in the specifications of the Project or the tender for the Project or the Contract, and which should have been included to ensure proper functioning of the plant as per performance criteria, these parts or services shall be supplied free of charge by that Party to which such parts or services belong or can be attributed by their nature. In case of controversy between the Parties as to which party has to perform such parts or services, then the costs shall be borne by the Parties in the first instance according to the consortial quota of each Party. In the event of a dispute, Article IV A3 shall first apply and the functional assignment shall be decided later by arbitration. (The bill of materials in Annex 1 signed on 14 July 2004 and revised on 9 September 2004, shall clearly identify the Consortial Quota of each party)."
Article II.1 refers to "as laid down in technical specification of main Contract", and those words were treated by the parties as the key to the question of construction. They were correct to take that approach, bearing in mind that the clause refers to the parties' "areas of responsibility" and their "scope of supply and services". There was, of course, a "Technical Specification" in the Main Contract, to which reference has already been made. It identified six volumes of specifications, appendices and drawings, but did not distinguish between work to be done by Mainteck as opposed to Stein Heurtey or the other approved major subcontractor Alstom. Hence, in this dispute where few things were agreed, both parties agreed that "technical specification" did not mean the Technical Specification defined in the Main Contract.
Stein Heurtey supported the primary judge's reasoning, extracting the scope of Mainteck's obligations from Schedules 1A and 4, each of which included the suggestive words "Mainteck Portion" in its heading. On the other hand, there are problems, emphasised by Mainteck, in relying upon Schedules 1A and 4 to identify the scope of Mainteck's obligations. Those schedules were primarily directed to payment. The subheading to Schedule 1A was "This will be used as a guide for payment. The prices of the items are exclusive of GST". The position is even clearer in respect of the "milestones" and "payment schedules" in Schedule 4.
(a) Error in relation to reliance by the primary judge on Jireh?
Mr Corsaro relied upon the most recent statement by the High Court on contractual construction, made after the primary judge gave judgment, in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 88 ALJR 447 at [35] (Woodside) (footnotes omitted):
"[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'."
Mr Corsaro submitted that that passage made erroneous the reliance placed by the primary judge on the reasons for refusing special leave in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1 (Jireh). "[T]he primary judge knocks us out not on the entire contract clause but on Jireh, and the proposition that surrounding circumstances could not be used because the High Court in Jireh had precluded that as being a permissible means of construction."
To the extent that what was said in Jireh supports a proposition that "ambiguity" can be evaluated without regard to surrounding circumstances and commercial purpose or objects, it is clear that it is inconsistent with what was said in Woodside at [35]. The judgment confirms that not only will the language used "require consideration" but so too will the surrounding circumstances and the commercial purpose or objects. Although the High Court in Woodside did not expressly identify a divergence of approach, Jireh was notoriously controversial in precisely this respect. In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666 at [107] McLure P referred to the "heated controversy" created by Jireh; see further Kevin Lindgren's analysis in "The ambiguity of 'ambiguity' in the construction of contracts" (2014) 38 Aust Bar Rev 153 at 161-167. It cannot be that the mandatory words "will require consideration" used by four Justices of the High Court were chosen lightly, or should be "understood as being some incautious or inaccurate use of language": cf Fejo v Northern Territory [1998] HCA 58; 195 CLR 96 at [45].
The general issue is important, such that it may be useful to state the position in some little detail.
First, in principle, every legal text requires legal interpretation, in order to ascertain its legal meaning, although there is no real scope for dispute about the interpretation of many legal texts. Professor Wigmore long ago wrote that "the process of interpretation, then, though it is commonly simple and often unobserved, is always present, being inherently indispensable": JH Wigmore, A Treatise on the Anglo-American System of Evidence in Trials at Common Law (3rd ed 1940, Little Brown & Co, Boston), Vol 9 p 180; see now §2459 Chadbourn Revision, 1981. Lord Steyn said, in the first John Lehane Memorial Lecture, that "it is a universal truth that words can only be understood in relation to the circumstances in which they are used": J Steyn, "The Intractable Problem of The Interpretation of Legal Texts" (2003) 25 Syd L Rev 5 at 5. His Lordship regarded this as a "fundamental principle of linguistic jurisprudence and legal logic". I do not think there is any understatement in that statement. McHugh JA made substantially the same point in Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853 at 75-343:
"Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means."
Lord Hoffmann, in a passage adopted by the joint judgment in Marley v Rawlings [2014] UKSC 2; [2014] 2 WLR 213 at [20], had said in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] 1 All ER 667 at [64] that:
"No one has ever made an acontextual statement. There is always some context to any utterance, however meagre."
Secondly, very often, language when considered in its context will have a single, clear meaning. Very often, there is no dispute as to the ordinary grammatical or literal meaning of a sentence, and no dispute that that is the legal meaning. Very often, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text. "But not always": Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [78]; Taylor v Owners - Strata Plan No 11564 [2014] HCA 9 at [65].
The legal meaning may diverge from its literal or grammatical meaning, especially in the (self-selectingly contestable) cases that reach courts. Words do not have a "natural" meaning that can be determined in isolation. As Lord Hoffmann said in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 391, approved in Campbell v R [2008] NSWCCA 214; 73 NSWLR 272 at [48] (Spigelman CJ, Weinberg AJA and Simpson J agreeing) and Dale v The Queen [2012] VSCA 324 at [73] (Weinberg, Harper and Whelan JJA):
"[I]n some cases the notion of words having a natural meaning is not a very helpful one. Because the meaning of words is so sensitive to syntax and context, the natural meaning of words in one sentence may be quite unnatural in another. Thus a statement that words have a particular natural meaning may mean no more than that in many contexts they will have that meaning. In other contexts, their meaning will be different but no less natural."
What is the legal meaning of a promise to sell "my Dürer drawing", if the vendor's wife owns a Dürer drawing which is on display in their home, and the vendor keeps another secretly in his study? What is the meaning of a gift "to my niece Eliza Woodhouse during her life" in a will, if the testator had no such niece, but a grandniece of that name, and another grandniece, who was illegitimate, who lived with him: cf In re Fish; Ingham v Rayner [1894] 2 Ch 83? What is the meaning of cl 7 of the Wild Dog Destruction Regulation 1999, which provided "The Wild Dog Destruction Regulation 1994 is repealed"? Contracts, wills and statutes are very different legal texts, to the process of ascertaining whose legal meaning different rules apply, yet all are based on language, and language is unavoidably contextual. If I may repeat what I wrote of the uncertain meaning of the Wild Dog Destruction Regulation in Resolving Conflicts of Laws (Federation Press 2011), p 13, "The meaning of even the seemingly clearest legal text can be unclear, hence the importance of attending to context in the first instance."
For those reasons, to say that a legal text is "clear" reflects the outcome of that process of interpretation. It means that there is nothing in the context which detracts from the ordinary literal meaning. It cannot mean that context can be put to one side; otherwise the three legal texts mentioned in the previous paragraph would be "clear".
Thirdly, I would not regard anything in the foregoing as inconsistent with the passage in Mason J's reasons in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352 (which was the focus of Jireh):
"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning."
There is no inconsistency because whether contractual language has a "plain meaning" is (a) a conclusion and (b) a conclusion which cannot be reached until one has had regard to the context. That accords with what was said by Allsop P in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [17]:
"the phrase used by Mason J in Codelfa Construction (at 352) 'if the language is ambiguous or susceptible of more than one meaning' does not mean that the susceptibility of the language to more than one meaning must be assessed without reference to the surrounding circumstances ... "
Mason J was indicating that there are very real limits to the extent to which grammatical meaning can be displaced by contextual considerations. However, in order to determine whether more than one meaning is available, it may be necessary first to turn to the context.
Fourthly, what I have called "context" was formerly described as the "surrounding circumstances", and then, influenced by Lord Wilberforce in decisions such as Prenn v Simmonds [1971] 1 WLR 1381 at 1384 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 997, as the "matrix of facts". See Byrnes v Kendle [2011] HCA 26; 243 CLR 253 at [98]-[100] (Heydon and Crennan JJ) and J Carter, The Construction of Commercial Contracts (Hart Publishing, 2013), pp 8-9.
Although Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114 referred to a "fundamental change" in the approach espoused by Lord Wilberforce, the "modern" contextual approach had nineteenth century precursors, at least in relation to commercial contracts. Without seeking to be exhaustive, the Earl of Selborne had deprecated and rejected the "extreme literalism" in the mercantile contract construed in McCowan v Baine [1891] AC 401 at 403 (contrast the (dissenting) speech of Lord Bramwell, who had required "necessity, or [something] approaching to it" in order to displace the "primary and natural meaning of the words": see at 409). To the same effect was Lord Herschell's rejection of a process of construction by reference to dictionary meaning, and insistence that contractual language must be "construed in a business fashion" and "interpreted in the way in which business men would interpret" in Southland Frozen Meat and Produce Export Company Ltd v Nelson Brothers Ltd [1898] AC 442 at 444. The approach adopted by Lords Selborne and Herschell anticipated what was popularised by Lord Wilberforce in the following century. Professor Carter has examined the evolutionary process at pp 17-20 of his book referred to in the previous paragraph.
Paragraphs 99 and 100 of Mainteck's written submissions address these variation directions. They do not point to any error on the part of the primary judge. That of itself is sufficient to dismiss this claim; see the principles to which I have referred at the outset of these reasons. However, it may also be dealt with on its merits. Mainteck's argument is that these variations do not relate to differences in quantities of materials, rather they relate to differences in weights of materials, in that less mild steel was used. Mainteck submitted that because there was no change in the number of parts or items, Art II.5 of the Second Consortial Agreement precluded Stein Heurtey from issuing a negative variation. The Referee held that Art II.5 was not directed to these variations: December Report at [154] and [155], on the basis that it was not directed to "variations by way of addition or omission". That construction appears to be correct. It is supported by the second sentence of Art II.5: "This clause shall not apply to the stipulated numbers of equipment". These two variation directions were the result of the deletion of two items (hot air duct material, and hot air burner offtakes).
The primary judge stated (at [271]), that "So far as the hot air main and burner offtakes are concerned it appears that Mainteck does not oppose the adoption of the Referee's findings although it does express some reservations about quantum". It may be for that reason that Mainteck did not point to any error in the reasoning of the primary judge. The primary judge was entitled, in the circumstances, to deal with this aspect of the report concisely. He did so.
The Court pointed out, during the appeal, that the amended notice of appeal did not include a challenge to variation directions 7 and 8. Mainteck applied for further leave to amend. For the reasons earlier given, Mainteck has not advanced any basis warranting a grant of leave to challenge this aspect of the primary judge's acceptance of the Referee's report. I propose that leave be refused.
(c) Variation 99
Mainteck's claim arose out of the cracking, and subsequent rectification of refractory material designed by Stein Heurtey. The Referee found that the refractory had been installed by a third party, Andreco Hurll, under sub-contract to Mainteck, and that it was not suggested that Andreco Hurll's workmanship was to be criticised: December Report at [56] and [57]. The Referee then stated that "[t]o characterise the evidence as unsatisfactory is not overstating the position" at [59]. The Referee dealt with this claim at length, and concluded at [74] that "the subject rectification work could not be regarded as a variation under the MTK Contract". The Referee added that the work was required to rectify defects for which Stein Heurtey was responsible. Stein Heurtey's written submissions on the appeal stated that the Referee's conclusion that the claimed rectification work could not be regarded as a variation rested on the alternative propositions that either (i) the unsatisfactory refractory was not attributable to any party's contractual breach or (ii) Mainteck's claim was properly characterised as one for damages for breach of contract, rather than a variation. As to the former, the Referee had noted at [54] that it was "a common incident" that in the process of material drying out that "cracking will occur without the occurrence of defective design, workmanship or materials": at [54].
The primary judge concluded that it was open to the Referee to reject this as a variation claim. Mainteck submitted (at [103]) that the Referee's finding was based on "an assumed construction of [Mainteck's] scope, which deprived [Mainteck] of variation claims for the reason that [Mainteck] had a 'turnkey' responsibility for the refractory". Although the position in this regard is not entirely clear, the onus falls upon Mainteck to establish appellable error on the part of the primary judge. The thrust of Mainteck's submissions were not directed to the ultimate question, namely, whether appellable error is disclosed by the primary judge concluding that it was open to the Referee to reject this claim. There was no response to Stein Heurtey's submissions that the Referee "must have regarded such a claim as either one that had not been pleaded, or one which was already included within [Mainteck's] disruption claim". I would dismiss this aspect of Mainteck's appeal.
(d) Variations 125 and 127
Mr Corsaro said that "variations 125 and 127 ... [have their] own particular story ... and we're happy to rely on the writing" (by which was meant [108]-[112] of Mainteck's written submissions). These variations related to the installation cost and supply of additional refractory material. Mainteck's submissions concluded that the material as ultimately installed was "of a different type and in different quantities than anticipated by the BOM". The Referee rejected these claims on the basis that the Bill of Materials did not specify the scope of works: at [97] and [108]-[109] of the December report. The primary judge dismissed these aspects of Mainteck's submissions opposing the adoption of the Referee's report concisely: at [272]-[275]. On appeal, Stein Heurtey submitted that Mainteck's submission failed on the basis of the question of construction dealt with earlier in these reasons. That submission ought be accepted. Contrary to what was said on behalf of Mainteck, these claims do not have "their own particular story".
(e) Variations 116 and 122
These variations, involving claims for the installation of tapping lines and a change in design around the anchor heads inside the metal furnace roof were, essentially, that the work was more complex than had been contemplated, and priced, by Mainteck. The Referee found, favourably to Mainteck, that that was so ("I am clearly of the view that the complexity of the line installation ... [was] significantly more complex and extensive than had been (or could have been) contemplated and allowed by MTK in its pricing"): at [134]. However, the Referee found that it was required pursuant to the contract "on the basis that the MTK scope of works is to be defined by reference to those drawings". It is plain, as Stein Heurtey submitted, that these claims are determined by the question of construction, and do not involve any separate submission. Consistently with this, no submission was made in Mainteck's written submissions identifying any appellable error by the primary judge. This ground is not made out.
Ground Five: (a) variation 120 (roof formwork)
Before the Referee, "variation claim 120" was based upon a complaint that Stein Heurtey's delayed response led to an additional nine sections of formwork being installed. It was treated by Mainteck as a variation. The variation claim was submitted on 29 August 2006, in the amount of $37,060.
The Referee observed that a proposed variation under cl 19.10 of the Main Contract was required to remain open for a stipulated period. Mainteck's claim for variation 120 did not stipulate a period; it noted that the proposal was "Confirmation only - work complete". The Referee concluded that no variation had been established on the evidence. At best, the Referee regarded it as a claim for delay in failing to give the required directions in a timely manner. Even so, the Referee addressed the claim on its merits:
"However, treating the claim as falling into that latter category [delayed direction], I am of the view that the claim should be rejected. As a matter of good workmanlike practice, it is clear that the refractory for the roof would not be self-supporting until a reasonable curing period had elapsed during which there would be a need for formwork support."
The Referee then dealt with the evidence bearing upon this issue (emails of 24 January, 6, 7 and 15 February 2006) and concluded that "the raising of this issue was belated and a matter that should have been addressed well before the events of January/February 2006 and for that reason I would reject the claim". In short, the Referee rejected Mainteck's characterisation of what it did as a claim for a variation, and criticised it for not raising the issue earlier with Stein Heurtey.
Mainteck submits that the primary judge did not address this issue. Taking Mainteck's case at its highest, there is some infelicity in the expression in [279] and [280] of the reasons of the primary judge. However the primary judge squarely found that a number of variation claims, including variation 120, were misconceived as variations and/or unsubstantiated: at [277]. The question is whether appellable error is disclosed in the primary judge adopting either (a) the Referee's characterisation of the claim as a delay claim, as opposed to a variation, or (b) the Referee’s rejection of the variation claim. The latter was self-evidently a question of fact, as to which it was open and appropriate for the primary judge to be concise. As to the former, the Referee was, again, self-evidently, correct to reject this purported "variation" claim. Neither in 13 paragraphs of written submissions before the primary judge (Black 2/853-855) nor in 4 paragraphs of submissions in this Court, nor orally, did Mainteck make an attempt to explain how the documentation tendered by it satisfied cl 19.11 of the Main Contract. No material error is shown in the reasoning of the primary judge.
Ground Five: (b) Andreco Hurll deed of settlement
This ground of Mainteck's appeal stated that:
"[T]he primary judge incorrectly determined that claim and erred as a matter of fact, or erred in his construction of the [Second Consortial Agreement], in dismissing the Andreco claim. His Honour should have allowed the Andreco Claim."
Once again, this ground of Mainteck's appeal misconceived the limited scope of an appeal from the primary judge's decision to adopt this aspect of the Referee's report. Mere error of fact is insufficient. To the extent that this ground is based on Mainteck's construction of the Second Consortial Agreement, it fails for the reasons already given.
Stein Heurtey's written submissions grappled with the detail of the claim, asserted that Mainteck's submissions were "simply misleading" and misstated the evidence, and concluded that "[t]he evidence summarised in the preceding paragraphs shows conclusively that the judge's findings were open and that he did not misapprehend the Andreco Hurll Adjudication Determination". Mainteck filed no submissions in reply. Once again, no oral submissions were advanced by Mainteck during the course of the appeal on this ground.
The short response to this ground is to observe that the Referee found that "this claim is misconceived as a variations claim", had not been pleaded, had not been referred to in MTK's opening submissions, nor was its substance identified at any stage prior to closing submissions. Mainteck did not suggest that any aspect of the Referee's description was inaccurate.
In Bellevarde at [55]-[56], Spigelman CJ and Allsop P said:
"[55] It is important in this context to state how parties should approach the conduct of references. It is for the parties to make clear what their cases are. In appropriate cases, references are a tool for the convenient and expeditious conduct and despatch of controversies. Sometimes in technical matters the referee will not be legally trained. Here, the referees were a highly experienced former commercial judge of this Court and an architect. To effectuate the administration of justice in accordance with the overriding purpose in s 56 of the Civil Procedure Act 2005, and to make efficient use of referees, parties are obliged to express with clarity the issues that they wish to ventilate and upon which the referee will report.
[56] The nature of the review by the Court on adoption makes it imperative that referees deal with all matters referred to them. This makes it imperative, in turn, that parties express their cases clearly and without equivocation, ambiguity or opacity. If a party complains about how a referee has dealt with the issues on the reference, it may be difficult to persuade a judge that a referee has not dealt with an issue, or not dealt with it adequately, if that issue had not been placed before the referee with the requisite clarity."
The Referee said that reliance upon the Deed of Settlement (which provided for a lump sum payment by MTK of $701,075.56) was "fraught with difficulties". Further, the Referee stated that the claim "arose out the design changes to the hot air duct", and noted that it was apparent from the nature of that issue that "if there is any substance in relation to that subject matter, it would fall under the disruption claim of MTK".
The primary judge addressed this claim in considerable detail, at [284]-[299]. Even so, Mainteck submitted that the primary judge "simply misapprehended the evidence, and the claim". It submitted that the facts, as found, were incorrect, and that his Honour should have found that this variation claim arose out of changes to the hot air duct material, which in turn prevented Andreco Hurll from performing the work in the manner contemplated, and that the Andreco Hurll costs were merely a cost arising out of the variation to the hot air duct.
This was a factually intensive element of the claim. Mainteck's submissions resemble the way in which the ground has been drafted, namely, as if it enjoyed an appeal by way of rehearing following a trial. Neither the ground as formulated, nor the submissions summarised above, demonstrate House v The King error.
His Honour was also said to have been incorrect in finding that "an overlap existed between the disruption claim [sic]. These costs did not form part of the disruption claim advanced by the Appellant. There was no 'overlap' in the sense that his Honour believed".
However, it was unquestionably true that, before the Referee, Mainteck had advanced this claim, at least in the alternative, as part of its Disruption Claim: see Mainteck's closing submissions at [312] ("accordingly, this claim is also addressed as part of Mainteck's delay and disruption submissions").
Accordingly, this ground should be dismissed.
Ground Six: error in construing condition 64
The subject of this ground was "variation claim 98". It turned on condition 64 of the Head Contract. That condition contained (in 64.1) an acknowledgment by BSL and Stein Heurtey that the Contract Sum was based on "in respect of the Mainteck Portion of the Work, the labour rates and allowances set out in" a nominated enterprise bargaining agreement dated 12 March 2004. Condition 64.2 acknowledged that a new award ("the Hot Strip Mill Project Consent Award") was presently being finalised. The condition provided:
"If the rates and allowances set out in the finalized Project Consent Award are higher than, or in addition to, the rates and allowances set out in the Mainteck EBA and Alstom EBA, that will trigger an entitlement to an alteration to the Contract Sum under Clause 36. Any alteration to the Contract Sum will be based on the difference in rates and allowances between those set out in the Project Consent Award and the Mainteck EBA and the Alstom EBA multiplied by the relevant man hours set out in the table 64.1."
It was common ground that Mainteck paid its workers on the WBF2 a travel allowance equivalent to obligations under the terms of the Project Consent Award. Mainteck's project manager, Mr Fitzpatrick, gave evidence that Mainteck was obliged under the Mainteck EBA to pay an allowance of $13.80 per day, but in fact paid $25 per day. To the additional $11.20 over and above the award rate, Mainteck applied a 28% increase, said to be "by reason of on-costs such as superannuation, payroll tax and the like resulting in an amount per employee per day of $14.34". Mainteck calculated a total of 15,086 working days during which the additional $14.34 was paid, resulting in a claim of $216,271. Mr Fitzpatrick's affidavit summarised correspondence between the parties (which was not included in the appeal books) to the effect that Stein Heurtey had approved the variation, but its "approval of the variation was subject to the approval of the head contractor, BlueScope Steel Ltd (BSL), which approval has not been given". Mainteck's letter of 22 August 2005 summarised this claim (which was for $868,580) in terms which amply supported the factual findings. It is plain that the $25 per day travel allowance was being paid prior to the finalisation of the Project Consent Award.
The only question was whether Mainteck's additional payments were compensable payments under condition 64 of the Main Contract (applied mutatis mutandis to the Second Consortial Agreement).
The Referee found that:
"the payment by MTK of a $25 per day travel allowance was not made under the project consent award but was one forced upon MTK by the payment under the award to other employees on the site of the $25 travel allowance and the threat of industrial action by the CFMEU if the allowance was not paid to MTK's employees. MTK submitted to those demands and paid the allowance to avoid industrial action."
Even so, the Referee found that condition 64.2, read with the mutatis mutandis provision of the Second Consortial Agreement, entitled MTK to an adjustment of its Contract Sum.
The primary judge refused to adopt this aspect of the Referee's findings. He said at [257]-[258]:
"The Referee held therefore, it is contended implicitly, that the entitlement arose irrespective of any legal obligation of Mainteck to pay the relevant comparison rate or allowance. I think that is a fair interpretation of what the Referee has done.
It would follow that the effect of the Referee's interpretation of the price adjustment clause was to entitle Mainteck to a price increase adjustment notwithstanding that it had no obligation to pay under any award."
This is a question of law. The Referee said that it was "enough that the entitlement extracted by the union activity was 'triggered' by the consent award". However, that reasoning fails to accord fully with the language of condition 64.2. The "triggering" of an entitlement to an increase in Contract Sum is made where "the rates and allowances set out in the finalised Project Consent Award are higher than, or in addition to", the existing EBA, in which case that increase "will trigger" the entitlement (emphasis added). It is plain that condition 64.2 contains a temporal element, in that the increase in Contract Sum requires the Project Consent Award to have been "finalised". Moreover, the acknowledgments in condition 64.1 were that the current Mainteck EBA determined the labour rates and allowances on which the Contract Sum had been calculated.
Mainteck's submission, which was accepted by the Referee, is one which is inconsistent with the acknowledgement in condition 64.1, and inconsistent with the requirement in 64.2 for the Project Consent Award to have been finalised before an entitlement is triggered. There is no good reason for the condition to be construed so as to depart from the literal meaning. I acknowledge that the consequence is a disconformity between the actual amount paid by Mainteck to its workforce and the calculation of payments for labour in the Main Contract. That disconformity does not warrant departing from the contractual language. After all, Mainteck's obligations under the Second Consortial Agreement depended upon matters outside its control in relation to the Final Design, and the possible extent of change in that respect was far greater than that caused by voluntary payments to avoid industrial action.
Mainteck submitted that "[t]here is no justification for giving clause 64 a construction other than its literal construction. There is no ambiguity in clause 64". I agree that the literal meaning is to be used, but the result, having regard to the temporal element present in "will trigger" and "finalized Project Consent Award" is to uphold the reasons of the primary judge on this ground.
I note the following only for completeness. The Project Consent Award was executed on 14 October 2004. It purported to bind not only BSL and nominated unions and their members but also Contractors performing Project Work: cl 6.2. However, no argument was advanced by Mainteck that in fact there was a legal obligation upon it to pay the $25 per day allowance (and, as noted above, the contemporaneous documents were to the effect that Mainteck took the view that it was not legally bound, although as a practical matter it was forced to pay in order to avoid industrial action). The reason for this is not completely clear to me; it may be that the Mainteck EBA displaced the prima facie operation of the Project Consent Award, it may be that there are other documents material to this issue not reproduced in the appeal books, or it may be that I have misconstrued one of those documents. However, in circumstances where (a) Mainteck's written submissions and the contemporaneous documents were premised upon the payments being voluntary, (b) where Mainteck did not challenge the Referee's finding to that effect, and (c) where Mainteck chose to advance no oral submissions on this ground, it is not necessary to explore (on the limited materials available to this Court) whether indeed the payments were obliged to be made. To do so in these circumstances would go outside the issues raised by Mainteck on appeal, and would be procedurally unfair to Stein Heurtey.
The only question of law is whether a payment not required in law by the Project Consent Award engaged condition 64 of the Main Contract. For the reasons above, which slightly diverge from those of the primary judge, his Honour's conclusion that it does not is correct.
Ground Nine: costs
The last ground of appeal challenges order 3 made by the primary judge on 5 December 2013, which was that Mainteck pay the entirety of Stein Heurtey's costs of the proceedings on an indemnity basis in respect of costs incurred after 2 July 2010. The basis for that order was a Calderbank letter of that date, which proposed a payment of $1,000,000 in full and final settlement of all claims (including a cross-claim) with each party paying their own legal costs of the proceedings. The offer was expressed to remain open for seven days. It was made some three months before the trial, and after the parties had substantially completed their evidence.
The primary judge addressed this (and a series of other issues) in separate reasons dated 23 August 2013: [2013] NSWSC 1165 at [14]-[22]. The primary judge noted that the parties accepted that the letter was a Calderbank offer. His Honour said that, in New South Wales, a Calderbank offer will not justify an indemnity costs order unless the offer embodied a compromise and its rejection was unreasonable: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344. There was no doubt that the letter embodied a compromise. The primary judge considered that its rejection was unreasonable, notwithstanding (a) the fact that it was only open for acceptance for seven days, (b) that it involved a "real element of compromise": at [20], and (c) difficulties in the evidence served by Mainteck. The primary judge rejected Mainteck's submission that it was reasonable to reject the offer of $1,000,000 because it had already incurred costs in excess of $3,000,000. That submission was correctly rejected, and Mainteck did not submit otherwise when the appeal was heard.
The notice of appeal identified two bases on which the costs discretion was said to have miscarried. The first was that the Calderbank letter of 2 July 2010 did not disclose a reasonable basis for the offer made. That basis was not developed in Mainteck's written submissions (and, for that reason, not addressed by Stein Heurtey's written submissions in response), and is to be taken as not pressed.
The second basis was that while the primary judge accepted that Mainteck was "substantially successful in respect of determinations made by the referee in respect of key issues", he did not take that fact into account in the exercise of his discretion.
Mainteck's written submissions went beyond that second basis. No objection was taken by Stein Heurtey to that course. It was said that the primary judge failed to consider its submission below that the Calderbank offer was based on Stein Heurtey's letter of 24 December 2009, which letter was not in any way relevant to the dispute. It submitted that the primary judge "failed to have proper regard to the principle that costs should only be awarded to a successful party and not be awarded to punish an unsuccessful party". Finally, it submitted that although acknowledging the death of Mr Atie and the significant "forensic blow" occasioned by that, the primary judge did not take that into account when exercising his discretion.
All those submissions must be rejected. Reliance by Mainteck on a finding that it "did succeed in establishing a number of critical elements of its claims" is selective and misleading. The entire sentence of the primary judge (in a context where his Honour rejected Stein Heurtey's submission for a broader indemnity costs order) was:
"The plaintiff did succeed in establishing a number of critical elements of its claims, but ultimately failed as the result of (admittedly serious) gaps in its evidence."
Mainteck's reliance on the first clause of that sentence is misplaced. The sentence does not support any conclusion that the primary judge ordered costs to punish an unsuccessful party.
The letter dated 24 December 2009 (to which the primary judge did not refer) was not material to the orders made, based as they were upon the 2 July 2010 Calderbank offer. Even if the earlier letter misapprehended the basis on which Mainteck put its claim, the primary judge correctly had regard to the fact that Mainteck was well-placed to make an informed assessment of the reasonableness of the offer and its prospects of success. The complaint by Mainteck that the primary judge failed to refer to Stein Heurtey being "unsuccessful in both bases advanced by them in defence of the claims" is, once again, selective. The matters relied upon by Mainteck are Stein Heurtey's claims that the Scope Meetings informed Mainteck that the design of the works was that of WBF1, and that the photographs handed over at the Scope Meetings were for the purpose of demonstrating the benefits of trial assembly. However, the Referee found that he could not determine the content of what was said at the Scope Meetings, which finding was adopted by the primary judge (in part, by consent - see ground 8 above). In short, Mainteck failed in relation to the Scope Meetings as well. Finally, Mainteck is, once again, wrong to assert that the primary judge did not take into account the death of Mr Atie when exercising his discretion in relation to costs. He did. He expressly said that his comments were relevant to both "the extent of the compromise offered, and also to the plaintiff's prospects of success assessed as at the date of the offer" that:
"The referee's comments indicate that there were a number of fundamental difficulties with Mainteck's case which were unrelated to Mr Atie's unavailability at the hearing. For example, as I have already noted in the principal judgment, the referee criticised Mr Atie's evidence as being extremely general, not compelling, and in some respects unhelpful."
His Honour concluded that:
"It is by no means clear to me that the outcome of the case would have been any different if Mr Atie had been present during the course of the hearing."
Stein Heurtey's submissions conclude that, contrary to what was put by Mainteck, "it is clear beyond debate that the primary judge had proper regard to the fact of Mr Atie's death". That submission is manifestly correct. This ground of appeal should be dismissed.
Orders
I propose that leave to amend the notice of appeal be refused, and the appeal dismissed. Prima facie, costs should follow the event, although there may be considerations of which the Court is presently unaware. Stein Heurtey said that it would be appropriate for the parties to be heard separately on costs after the delivery of judgment. I would propose that the parties file a note of any orders which may be made by consent as to costs, failing which they are to file and serve short submissions not exceeding five pages, within 14 days of today, as to the orders as to costs they propose and the reasons they should be made.
**********
Amendments
06 June 2014 - Formatting in table amended
Amended paragraphs: 175
18 August 2014 - The spelling of Lord Hoffmann's name has been corrected.
Amended paragraphs: 75
04 March 2016 - Index - "Mainteck's submission on appeal" replaced by "Mainteck's submissions on appeal"
[17] - "scarcely" replaced by "largely"
[23] - "Court" replaced by "court" in quote
[24] - "Court" replaced by "court" in quote
[29] - quotation marks added around quote
[31] - quotation marks amended so that "Burner Valving $52,250" and "Slab Handling Equipment $6,077,419" appear in quotes
[33] - "Contact" replaced by "Contract" in quote
[47] - "to comply" replaced by "complying"
[40] - "(1956)" inserted into "Cable (1956) Ltd"
[62] - "Main Agreement" replaced by "Main Contract"
[65] - "Schedule" replaced by "Schedules"
[67] - "the" in quote in first line deleted
[73] - spelling of "Chadbourn" corrected
[82] - spelling of "McCowan" corrected, "them" deleted from quote
[84] - "for the Court" deleted
[86] - "that" inserted into "expressly identified that the"
[89] - "with" replaced by "from"
[105] - "quite" inserted into "sometimes quite significantly", "2" inserted into "[2009] 2 All ER 234"
[123] - "Schedule" replaced by "Schedules"
[144] - "the" inserted into "to the adoption of paragraphs", "have" replaced by "has" in the last line
[191] - "had" replaced by "have" and "of" replaced by "or" in quote
[199] - "Ltd" inserted into "Austrust Ltd" and "Duke Group Ltd"
[202] - "Constructions" replaced by "Construction"
[223] - "the" inserted into "reasons of the primary judge", "rejecting" replaced by "the Referee's rejection of"
[247] - "NSW" replaced by "New South Wales" and "Pte Ltd" inserted into "Miwa Pty Ltd v Siantan Properties Pte Ltd"
04 March 2016 - Formatting fixed
07 March 2016 - [73] - "McHugh J" replaced by "McHugh JA"
423
37
7