Riverland Water Pty Ltd v Baulderstone Hornibrook Engineering Pty Ltd
[2005] SASC 73
•4 March 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
RIVERLAND WATER PTY LTD v BAULDERSTONE HORNIBROOK ENGINEERING PTY LTD
Judgment of The Honourable Justice Besanko
4 March 2005
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT - PLEADINGS
Application for an order striking out paragraphs of the Statement of Claim or alternatively an order that the defendant plead further material facts in relation to those paragraphs - where plaintiff claimed an indemnity and damages for breach of contract in relation to defective work carried out by defendant - whether paragraphs 14 and 14A of the Statement of Claim made it clear whether the claim was a claim for an indemnity or a claim for damages for breach of contract - whether paragraphs 14 and 14A made it clear how the plaintiff's obligations arose - where defective work had not been rectified and plaintiff sought rectification costs - whether paragraph 15.1 was deficient because it did not specify the matters on which the plaintiff would rely to establish that the carrying out of rectification work was a reasonable course to adopt - whether the particulars in paragraph 15.2 were inadequate - application for strike out refused - application for further material facts refused in relation to paragraphs 14, 14A and 15.2 but granted in relation to paragraph 15.1.
The Laws of Australia: Contract (Lawbook Co, 2003) Chapter 2; Supreme Court Rules 1987 rr 3, 3.04, 46A.03, 46A.09, 46A.16, 46.18, referred to.
Pacific Blues (Fiji) Ltd v Levi Strauss (Australia) Pty Ltd [2004] SASC 125; Bosma v Larsen [1966] 1 Lloyd's Rep 22; Marini v MLH Insurance Brokers Pty Ltd & Ors [2004] SASC 400; Bellgrove v Eldridge (1954) 90 CLR 613; De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28; Alucraft Pty Ltd (in liquidation) v Grocon Ltd (No 2) [1996] 2 VR 386, considered.
RIVERLAND WATER PTY LTD v BAULDERSTONE HORNIBROOK ENGINEERING PTY LTD
[2005] SASC 73Civil
BESANKO J: This is an action in this Court by Riverland Water Pty Limited (“Riverland”) against Baulderstone Hornibrook Engineering Pty Limited (“BHE”) claiming damages in the sum of $8,951,583.56 or an indemnity in relation to Riverland’s liabilities, losses, damages, costs and expenses and other relief.
On 10th December 2004, Riverland filed a second Further Amended Statement of Claim/Orders Sought. I will refer to this as the Statement of Claim. BHE claims that Riverland’s pleas in the Statement of Claim in relation to damages are deficient in ways I will outline in a moment. It seeks an order striking out various paragraphs in the Statement of Claim or an order that Riverland plead further material facts in relation to those paragraphs.
It is convenient to begin by outlining briefly the nature of Riverland’s claim. In broad terms, the claim relates to the design, construction, operation and maintenance of 10 water treatment plants in 10 locations in the State of South Australia. On 22nd August 1996 Riverland entered into a contract with the South Australian Water Corporation (“SA Water”) and the Minister of Industry, Manufacturing, Small Business and Regional Development for South Australia whereby Riverland undertook the design, construction, operation and maintenance of the water treatment plants. This contract is referred to in the Statement of Claim as the Water Treatment and Economic Development Agreement (“WTEDA”).
On 13th September 1996 Riverland entered into two further contracts. It entered into a contract with a company now called United Utilities Australia Pty Limited (“UUA”) whereby Riverland engaged UUA to perform Riverland’s operation and maintenance obligations under the WTEDA and certain of Riverland’s obligations to commission the plants and economic development obligations under the WTEDA. This contract is referred to in the Statement of Claim as the Operation Maintenance and Economic Development Agreement (“OMEDA”). Riverland also entered into a contract with BHE whereby it engaged BHE to perform Riverland’s design and construction obligations under the WTEDA and to commission the plants in accordance with the requirements of the WTEDA and to perform the other obligations undertaken and agreed to by BHE in the contract. This contract is referred to in the Statement of Claim as the Detail Design and Construction Agreement (“DD and C Agreement”). Riverland pleads that one of the terms of the DD and C Agreement is as follows:
“6.12BHE shall indemnify, defend and save harmless Riverland, its directors, officers, employees, and agents from and against all liabilities, damages, losses, penalties, demands, suits, costs and/or expenses (including reasonable solicitor’s fees and expenses) and proceedings of any nature whatsoever by third parties for loss of or damage to property or economic loss arising out of or as a consequence of:
6.12.1the performance or non-performance of the DD&C Agreement by or on behalf of BHE;
6.12.2any act or omission in relation to the Project of BHE or its directors, officers, employees, representatives, subcontractors or agents;
6.12.3any failure in relation to the Project of BHE or its subcontractors or agents to comply with any Laws (as defined in the DD&C Agreement);
6.12.4any representation or warranty made or given by, or on behalf of, BHE being proven to have been false, misleading, deceptive, incomplete or inaccurate in any material respect when made or deemed to have been made,
except to the extent that such injury or damage is attributable to the negligent or unintended act or omission, or the express direction of Riverland or its directors, officers, employees or agents (clause 22.1).”
A copy of the DD and C Agreement put before me does not include the words “and/or” between the words “costs, expenses”, but that is not material for present purposes.
Riverland alleges that BHE did not carry out the design and construction work in accordance with the terms and conditions of the DD and C Agreement. There are ten schedules annexed to the Statement of Claim and each relates to a particular water treatment plant. Each schedule follows a similar form in that it is divided into three sections. The first section contains details of the breaches of the DD and C Agreement, the second section contains details of the loss and damage said to flow from the breaches and the third section contains details of the quantification of the damages said to have resulted from the breaches.
Riverland also alleges that BHE failed to rectify the defects and/or omissions after notice from Riverland.
Riverland’s claims for the loss and damage said to have resulted from BHE’s breaches of the DD and C Agreement are set out in paragraphs 14, 14A and 15 of the Statement of Claim. Those paragraphs relevantly provide:
“14. In the premises of paragraphs 6 to 12, BHE’s breaches of contract as specified in paragraph 12 have caused Riverland loss and damage for each Plant, on and from the dates specified below for each Plant, being the date on which SA Water issued a notice to Riverland pursuant to clause 12.7 of the WTEDA confirming that the Plant may enter into commercial service (the ‘SA Water Commissioning Notice’) thereby rendering Riverland immediately liable within the meaning of clause 22.1 of the DD and C Agreement to SA Water and/or UUA for the consequences of BHE’s breaches due to Riverland’s obligations to each of SA Water under the terms of the WTEDA (as specified in paragraph 3 of Part 1 of this Statement of Claim) and UUA as Operator under the OMEDA (as specified in paragraph 3C of Part 1 of this Statement of Claim). Riverland’s losses and damages caused by BHE’s breaches of contract that have been presently identified are detailed and quantified (subject to assessment at trial) in Sections 2 and 3 of Schedules 1 to 10 inclusive and Annexure A hereof. Riverland continues to suffer losses and damages for each Plant and, insofar as they have been identified and can be quantified, Riverland will provide further details of the same prior to trial.
Particulars Plant Date Summit 15 January 1998 Swan Reach 12 March 1998 Waikerie 11 August 1998 Barmera 15 July 1998 Mannum 16 October 1998 Berri 24 October 1998 Tailem Bend 25 February 1999 Renmark 4 March 1999 Murray Bridge 10 October 1999 Loxton 3 September 1999
14A.In the premises of paragraphs 6 to 13, BHE’s breaches of contract as specified in paragraph 13 have also caused Riverland loss and damage for each Plant on and from the dates specified below for each Plant being the end of the Defects Correction Period for each Plant due to BHE’s failure to rectify the notified defects and omissions within the Defects Correction Period and, further Riverland has suffered and continues to suffer losses and damages for each Plant as such failures further rendered Riverland immediately liable within the meaning of clause 22.1 of the DD and C Agreement to SA Water and/or UUA for the consequences of BHE’s breaches due to Riverland’s obligations to each of SA Water under the terms of the WTEDA (as specified in paragraph 3 of Part 1 of this Statement of Claim) and UUA as Operator under the OMEDA (as specified in paragraph 3C of Part 1 of this Statement of Claim). Riverland’s losses and damages caused by BHE’s breaches of clause 7.23 of the DD&C Agreement and further, by BHE’s breaches of clause 7.22 of the DD&C Agreement are also those detailed and quantified (subject to assessment at trial) in Sections 2 and 3 of the Schedules 1 to 10 inclusive and Annexure A hereof.
Particulars Plant Date Summit 26 December 1998 Swan Reach 30 February 1999 Waikerie 3 June 1999 Barmera 24 June 1999 Mannum 28 September 1999 Berri 6 October 1999 Tailem Bend 6 February 2000 Renmark 13 February 2000 Murray Bridge 22 September 2000 Loxton 22 September 2000
15.In the premises of paragraphs 1 to 14A of this Statement of Claim, Riverland:
15.1 has incurred and/or suffered and will continue to incur and/or suffer liabilities, damages, losses, penalties, demands, costs and/or expenses for loss of or damage to property and/or economic loss as and in the manner described in each of Schedules 1 to 10 in this Statement of Claim which has arisen out of or as a consequence of:
15.1.1the inadequate performance and/or non-performance of the DD&C Agreement by or on behalf of BHE;
15.1.2the acts or omissions in performing the Works by BHE’s officers, employees, representatives, subcontractors and/or agents; and/or
15.1.3the failure by BHE and/or its subcontractors and/or its agents to comply with the Occupational Health Safety & Welfare Act, 1986 (SA); and
15.2 claims indemnity from BHE pursuant to clause 22.1 of the DD&C Agreement for the loss and damage detailed in Schedules 1 to 10 and Annexure A of this Statement of Claim. Insofar as the costs claimed in Annexure A have been incurred by UUA, those costs were incurred by UUA for and on behalf of Riverland pursuant to the terms of various Remedial Works Agreements and by which Riverland became liable to reimburse UUA ….”
On 22nd September 2004 a Judge of this Court made an order in the following terms:
“That within 21 days the plaintiff file and deliver an Amended Statement of Claim stating the time when the liabilities were incurred to third parties, if the liabilities have been satisfied and when they were satisfied and, in clause 15.2, stating the third parties to whom it is liable.”
Following that order, Riverland amended the Statement of Claim and added to it an annexure, Annexure A, which is in tabular form. In order to describe what is contained in Annexure A, I will take the breaches and loss and damage identified in Schedule 3 as an example. The item of rectification work is identified. If the rectification work has been carried out, the identity of the party carrying out the work and the cost is specified. There are details as to whether UUA or Riverland has paid the person who carried out the work and, if payment has been made by UUA, details of whether Riverland has reimbursed UUA. If rectification work is yet to be carried out an estimate of future costs is provided.
BHE’s Applications
By Notice for Specific Directions dated 22nd December 2004, BHE seeks the following orders:
“1.That the Second Further Amended Statement of Claim be struck out on the ground that it does not comply with the order dated 22 September 2004 unless, by Friday 28 January 2005, the plaintiff obtains leave of the Court or the consent of the defendant to file a Further Amended Statement of Claim.
2.Further and in the alternative to paragraph 1, that the plaintiff file and serve a Further Amended Statement of Claim which provides sufficient details of the material facts relating to the allegations in paragraphs 14, 14A, 15.2 and Annexure A of the Second Further Amended Statement of Claim.
3.Further and in the alternative to paragraph 1, that the parts of the second Further Amended Statement of Claim referred to in Schedule A of this notice be struck out pursuant to Rule 46.18.”
It is not necessary for me to identify the paragraphs set out in Schedule A of the Notice for Specific Directions.
In support of its application BHE relies on rr 3, 3.04(d) 46A.09 and 46.18 of the Supreme Court Rules 1987.
I reject BHE’s first submission to the effect that Riverland has not complied with the order made on 22nd September 2004. The matters referred to in the order are now specified in the Statement of Claim and Annexure A.
As he developed his oral submissions, counsel for BHE identified four areas where he said the Statement of Claim is deficient. In saying that, I do not overlook the written submissions of BHE which I have read carefully. Counsel for BHE submitted that in the four areas he identified, the Statement of Claim is so deficient that the allegations should be struck out because they have a tendency to cause prejudice, embarrassment, or delay in the proceedings (rr 46A.16, 46.18). In the alternative, he submitted that an order should be made pursuant to r 46A.09 for the provision of further material facts. I discussed the requirement to plead the material facts relied upon to constitute the cause of action (r 46A.03) and further material facts (rr 46A.03(b), 46A.09) in Pacific Blues (Fiji) Ltd v Levi Strauss (Australia) Pty Ltd [2004] SASC 125 and Marini v MLH Insurance Brokers Pty Ltd and Ors [2004] SASC 400.
I turn now to consider the four areas where it is said by BHE that the Statement of Claim is deficient.
1. Paragraphs 14 and 14A
BHE’s first submission is that these two paragraphs do not make clear whether the claim made in the paragraph is a claim for an indemnity pursuant to clause 22.1 of the DD and C Agreement or a claim for damages for breach of contract. Counsel for Riverland submitted that it is clear that paragraphs 14, 14A and 15.2 contain claims for an indemnity pursuant to clause 22.1 of the DD and C Agreement. He said that paragraph 15.1 contains a claim for damages for breach of contract. I agree with that submission, and I think it is clear enough that the nature of each claim is adequately identified in each paragraph.
There is a dispute between the parties as to the proper construction of clause 22.1 of the DD and C Agreement. That dispute relates to the event or circumstance which gives rise to the obligation to indemnify under clause 22.1. Riverland claims that the obligation to indemnify arises on the incurring of the liability whereas BHE claims that the obligation to indemnify only arises at a later time such as the date of demand for payment by the third party, or the date of the determination of the liability by judicial process, or the date of the discharge of the liability by payment. Counsel for BHE made it clear that he was not suggesting on this application that Riverland’s construction of clause 22.1 was not arguable. Riverland’s construction does appear to be arguable (Bosma v Larsen [1966] 1 Lloyd’s Rep 22) and whether it is the correct one is, absent any further application, an issue for trial.
BHE’s second submission is that references to Riverland’s obligations to each of SA Water under the terms of the WTEDA and UUA as operator under the OMEDA in paragraphs 14 and 14A respectively are vague and unclear. BHE claims that the pleas do not make it clear whether Riverland’s obligations to SA Water and UUA arise because of a clause equivalent to clause 22.1 of the DD and C Agreement in the WTEDA and OMEDA, or because notices to rectify have been served, or because of an obligation to mitigate a perceived risk of loss, or because of a debt pursuant to a settlement or judgment. I do not think the pleas are deficient because they do not refer to one or more of these matters. That is not Riverland’s case on what it says is the proper construction of clause 22.1. In other words, on Riverland’s construction of clause 22.1 it is unnecessary to establish one or more of those matters. Riverland is not bound to plead an alternative case.
I reject BHE’s challenge to these aspects of paragraphs 14 and 14A.
2. Paragraph 15.1 and the Schedules
Paragraph 15.1 contains a claim for damages for breach of contract in relation to the allegedly defective work carried out by BHE. The focus of the present complaint is the defective work which has not yet been rectified. Riverland makes claims for damages for breach of contract in relation to this work. A typical plea in relation to defective work which has not yet been rectified is contained in Schedule 3 and is as follows:
“Due to and/or in order to remedy BHE’s breaches of contract referred to in paragraph 1.2 of this Schedule 3, Riverland:
…
2.2.4will incur the costs of purchasing and installing Bedford Pumps in replacement for the Forrers Pumps supplied by BHE or other efficient and reliable pumps which are appropriate for the duty as the raw water pumps at the Swan Reach Plant.”
Counsel for BHE referred to various bases upon which damages for breach of contract may be awarded including expectation damages, reliance damages and indemnity damages (The Laws of Australia: Contract (Lawbook Co, 2003) Chapter 2). He submitted that if the basis of the claim for damages is expected performance by way of rectification costs, such costs will only be awarded if the carrying out of the rectification work is a reasonable course to adopt. That proposition is correct (Bellgrove v Eldridge (1954) 90 CLR 613 at 618 – 619; De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28). BHE claims that the plea as it stands is deficient because there is no plea that the carrying out of rectification work is a reasonable course to adopt. It is said that Riverland does not own the land upon which the water treatment plants are situated, and that there are a number of matters which will be relevant to the question of reasonableness including whether Riverland intends to carry out the rectification work, whether Riverland has the capacity to carry out the work in the sense of being able to go onto the land and whether Riverland is under an obligation to carry out the work. BHE claims that the relevant pleas are deficient because none of these matters are pleaded. The relevance of intention to the question of whether the carrying out of the rectification work is a reasonable course to adopt was considered by the Chief Justice in De Cesare v Deluxe Motors Pty Ltd (supra). The Chief Justice said (at 33 –34):
“In my respectful opinion that passage puts the question of intention into its proper context. Sometime the intention of the owner will be relevant to the reasonableness of a course of action. To my mind the decision in Wigsell v School for Indigent Blind (1882) 8 QBD 357 is an illustration of this point. In that case the defendants had purchased a plot of land on which they intended to build a school for the blind, and covenanted to erect a wall between the plot and the adjoining land retained by the vendor. Neither school nor wall was built. The vendor did not seek specific performance of the covenant to build the wall, but sued for damages claiming the cost of erecting the wall. There was now no purpose in erecting the wall, the building project having been abandoned. It apparently being common ground that the vendor had no intention of building the wall, it may be said that the absence of any intent to build the wall was supportive of the conclusion that what the vendor had lost was not the value of the wall itself. In those particular circumstances that seems to me to be a sensible conclusion. On the other hand, when building work is clearly defective, it seems to me that the absence of the intention of the building owner to remedy the defective work in no way supports or leads to the conclusion that it would be unreasonable to award the cost of remedying the defective work.”
In this case, Riverland’s case is that the work carried out by BHE is clearly defective.
The question for me at this stage is whether the relevant pleas have a tendency to cause prejudice, embarrassment or delay in the action (r 46.18(c)) or whether the relevant pleas are such that BHE does not have fair notice of the case which it has to meet and whether BHE would be significantly prejudiced in the conduct of its case by not having further material facts of the relevant pleas (r 46A.09). At their highest, the deficiencies alleged by BHE are not such that an order striking out the paragraphs is justified. In those circumstances the question comes down to whether an order for the provision of further material facts should be made pursuant to r 46A.09.
On the one hand it might be said that if Riverland’s allegations are correct this is not a case where the defective building work has no effect on the value or utility of the contract works. On the other hand, I note that this is not a case in which a building owner, who may or may not have sold the land, is claiming the cost of rectification works. It seems to me having regard to all the circumstances that whether the carrying out of the rectification works is a reasonable course to adopt is likely to be a real issue in this case.
It is true that BHE could plead in its defence that the carrying out of the rectification work is not a reasonable course to adopt. However, that may involve BHE pleading that Riverland does not intend to carry out the work and then that allegation in turn being denied by Riverland in its reply. It is also true that, as near as one can tell, the type of matters relevant to reasonableness (eg., intention and ability to go onto the land) may not involve the gathering of significant evidence by BHE before the trial. However, these matters are not decisive.
I think it is appropriate to infer from the Statement of Claim that insofar as a claim is made for damages for breach of contract in relation to rectification work not yet carried out, Riverland alleges that the carrying out of rectification work is a reasonable course to adopt. I think in order for BHE to have fair notice of the case it will have to meet, Riverland should specify the matters it will rely on to establish reasonableness. On balance, I think BHE would be significantly prejudiced in the conduct of its case if these matters are not specified. BHE is entitled to know before the trial whether Riverland will assert that it intends to carry out the rectification work, has permission to go onto the land and other matters relevant to reasonableness.
I will make an order pursuant to r 46A.09 that Riverland provide further material facts of why it says the carrying out of rectification work is a reasonable course to adopt. I will hear the parties as to the precise terms of the order.
BHE put a further submission in relation to the claim for damages for breach of contract for rectification work not yet carried out, and that was that insofar as Riverland’s claim is put on the basis of indemnity damages the relevant pleas are deficient in that there is no plea that Riverland has been called to account by SA Water and UUA. There appears to be no such plea, but in my opinion that is not a deficiency in the pleading which calls for the provision of further material facts. It may be that Riverland will put an argument at trial that it is entitled to be compensated for the chance that a claim will be made by SA Water and UUA (Alucraft Pty Ltd (In liquidation) v Grocon Ltd (No 2) [1996] 2 VR 386). It is not for me at this stage to say whether this Court would adopt the reasoning of Smith J in that case.
3. Paragraph 15.2
BHE contends that the particulars of the Remedial Works Agreements in paragraph 15.2 are inadequate. I have not set these particulars out. In my opinion, the particulars of the agreements are adequate and I reject BHE’s challenge on this ground.
4. The breaches of the DD and C Agreement and the breaches of the OMEDA
BHE pointed to paragraph 2.3.4 in section 2 of the third schedule and the reference therein to Riverland’s breach of its obligations to UUA under the OMEDA as specified in paragraph 3C of the Statement of Claim. I do not propose to set out the details of this challenge. It is sufficient for me to say that I am satisfied that in this regard BHE has fair notice of the case it will have to meet and that it would not be significantly prejudiced in the conduct of its case in not having further material facts.
Conclusion
In relation to the claim for damages for breach of contract in paragraph 15.1 of the Statement of Claim and the rectification work not yet carried out and identified in the Schedules to the Statement of Claim, I will make an order pursuant to r 46A.09 of the Supreme Court Rules 1987 that Riverland provide further material facts of the matters it relies on to assert that the carrying out of rectification work is a reasonable course to adopt. I would otherwise dismiss the application in paragraphs 1, 2 and 3 of the Notice for Specific Directions dated 22nd December 2004.
I will hear the parties as to the appropriate form of the orders and costs.
1
3
1