State of Tasmania v Leighton Contractors Pty Ltd (No 2)

[2004] TASSC 49

[2004] TASSC 49

CITATION:          State of Tasmania v Leighton Contractors Pty Ltd (No 2) [2004] TASSC 49

PARTIES:  STATE OF TASMANIA

v
LEIGHTON CONTRACTORS PTY LTD (NO 2)
(ACN 008 893 667)

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  458/2002
DELIVERED ON:  26 May 2004
DELIVERED AT:  Hobart
HEARING DATE:  5 May 2004
JUDGMENT OF:  Cox CJ

CATCHWORDS:

Evidence – Course of evidence and addresses – Course of evidence – Evidence in reply – In general – Splitting case – When plaintiff may call evidence in reply to counterclaim.

Downs Irrigation Co-operative Association Limited v The National Bank of Australasia Limited [1983] Qd R 130, followed.
Aust Dig Evidence [196]

REPRESENTATION:

Counsel:
             Plaintiff:  P Vickery QC, G L Sealy
             Defendant:  G J Digby QC, R J Manly SC

Solicitors:
             Plaintiff:  Director of Public Prosecutions
             Defendant:  Dobson Mitchell & Allport

Judgment  Number:  [2004] TASSC 49
Number of paragraphs:  13

Serial No 49/2004
File No 458/2002

STATE OF TASMANIA v LEIGHTON CONTRACTORS PTY LTD (NO 2)
(ACN 008 893 667)

RULING  COX CJ

26 May 2004

1. The plaintiff seeks a ruling that in respect of those parts of the defendant's counterclaim which seek payment of portion of the contract price withheld by the plaintiff, it should be permitted to reserve its evidence until after the defendant has adduced its evidence in support of those claims.

1. The relevant part of the counterclaim is set out in pars91 and 92 of the amended defence and counterclaim as follows:

"91In breach of clause 12 in Volume 1 of the Project Deed the Principal has failed, refused and neglected to make payment to Leighton of the balance of the adjusted contract sum, namely $556,977 which had otherwise been certified by the Principal's Representative.

PARTICULARS

Leighton refers to the Principal's Representative's Payment Certificate No 33 dated 13 May 2002.

The following amounts have been withheld:

(i)     $120,000 withheld regarding painting to bridge railings;

(ii)     $300,000 withheld regarding Hoggs Lane design issue;

(iii)    $50,000 withheld regarding outstanding documentation;

(iv)    $40,000 withheld regarding bridge abutment and pavement defects;

(v)     $25,000 withheld regarding outstanding defects;

(vi)    $10,000 regarding Mitchelson's noise fencing and testing; and

(vii)   $11,977 regarding Tas Rail - Rail encroachment.

The amounts have been improperly withheld in circumstances where Leighton has provided the Principal with four unconditional undertakings as required by clause 2.7(a) in Volume 1 of the Project Deed, and the Defects Correction Periods provided in Clause 11 of the Project Deed are extant.

A copy of the Payment Certificate No 33 is in the possession of the solicitors for Leighton and may be inspected by appointment.

92By reason of the matters aforesaid in paragraph 91 herein Leighton has suffered loss and damage.

PARTICULARS

The Principal has improperly withheld $556,977 from monies properly due to Leighton.

Interest continues to accrue."

1. To this pleading, the plaintiff responded in pars84 and 85 of its reply and defence to counterclaim as follows:

"84      As to Paragraph 91

84.1Save that the Principal admits that it has retained the sum of $556,977.00, the Principal denies each and every allegation contained in paragraph 91

84.2Save as to the sum of $11977 referred to in paragraph 84.5 hereof, the Principal says that pursuant to Clause 12.5 of Volume 1 of the Project Deed the obligations of the Principal to make payment under Clause 12.3(d) to Leighton are subject to certain conditions precedent, one of which is that the Quality Verifier engaged by Leighton, Quality Assurance Services, has given to the Principal's Representative:-

(i)        verification by the Quality Verifier in the form of Schedule 17; and

(ii)the report by the Quality Verifier referred to in Clause 3.4.2 of the Scope of Works and Technical Criteria,

for the relevant claim under Clause 12.3(a) of Volume 1 of the Project Deed.

84.3The Principal says further that Leighton's Quality Verifier, Quality Assurance Services has not given the Principal's Representative verification in the form of Schedule 17 for the amounts which are referred to in paragraph 91 of the Counterclaim in connection with the relevant claim under Clause 12.3(a) of Volume 1 of the Project Deed.

84.4Further and in any event the Principal has the right to deduct from moneys otherwise due to Leighton, any debt or any other moneys due from Leighton to the Principal or any Claim to money which the Principal may have against Leighton whether for damages, including liquidated damages or otherwise, whether under this Project Deed or otherwise.

PARTICULARS

The Principal refers to Clause 12.8 of Volume 1 of the Project Deed.

84.5The Principal says further that in respect to the $11,977.00 regarding TasRail/Rail Encroachment, this constitutes a negative Change Order issued by the Principal's Representative by reason of costs incurred by the Principal as a result of Leighton's encroachment on the TasRail land in breach of the Project Deed.

PARTICULARS

The Principal refers to Clause 3.6 of Volume 1 of the Project Deed and Clause 1.3 of Volume 2a of the Project Deed.

84.6The Principal says further that the four unconditional undertakings were required under Clause 2.7(a) of Volume 1 of the Project Deed and the Principal elected to exercise its rights pursuant to Clause 12 in lieu of recovering such claims from Leighton by having recourse to such unconditional undertakings.

85        As to Paragraph 92

The Principal denies each and every allegation contained in paragraph 92."

1. In its Rejoinder, the defendant pleaded:

"102     As to the allegations in paragraph 84.3 thereof:

(i)Leighton denies that the Quality Verifier was entitled to withhold verification; and

(ii)further, the Plaintiff is in breach of the Project Deed by interfering with the certification by the Quality Verifier.

103Leighton admits the allegations in paragraph 84.4 thereof but says further that the Plaintiff must act reasonably and in good faith."

1. The parties are in agreement as to the relevant principles which should guide the exercise of the trial judge's discretion in relation to such a ruling.  They are conveniently stated in Downs Irrigation Co-operative Association Limited v The National Bank of Australasia Limited [1983] Qd R 130 by Thomas J at 142 – 143 where he summarised the Queensland position, defining a "defendant's issue" for that purpose as one "the proof of which lies on the defendant":

"1   Where a plaintiff desires to reserve the right to call evidence in answer to a defendant's issue, he should disclose that intention to the Court before finally closing his case, so that the Judge may decide upon the preferable course.  (Compare Beevis v Dawson [1957] 1 QB 195 at pp 204-5 per Singleton LJ and pp 215-6 per Jenkins LJ).

…

2    No party has a right to call rebutting evidence or an entitlement to reserve evidence upon a defendant's issue.  The right lies entirely in the discretion of the trial Judge.  (Compare Wigmore on Evidence, Chadbourne Revision, vol 6, para 1867; and Beevis v Dawson (supra) at 215-6.

…

3    However, where there is a defendant's issue, and the plaintiff desires to reserve his evidence on that issue, the usual expectation is that he will be permitted to do so.  (Shaw v Beck (1853) 8 Ex 393; 155 ER 1401; Penn v Jack (1866) LR 2 Eq; Beevis v Dawson (supra) at pp 203-4).  But the Court's discretion to order otherwise is completely unfettered.

…

6    The following compendious passage conveniently states the general rules applicable in this area of practice:

'When the onus of proof on all issues is on one party, that party must ordinarily, when presenting his case, adduce all his evidence, and may not, after the close of his opponent's case, seek to adduce additional evidence to strengthen his own case.  In theory, when the onus is partly upon the plaintiff and partly upon the defendant, the plaintiff may in the first instance limit his evidence to proving those issues in respect of which the onus is upon him, and then, after the close of the defendant's case, adduce evidence in rebuttal upon those issues where the burden was upon the defendant.  Such evidence in rebuttal must be confined solely to rebuttal and not merely be evidence in confirmation of evidence in chief.'

Halsbury's Laws of England 4th ed, vol 17, para 18.

Within that framework, the trial Judge has the discretion mentioned in para 2 and 3 above."

For present purposes, the plaintiff is in the position of defendant to the counterclaim and vice versa.

1. Of assistance also are the cases referred to by Marks J in Protean (Holdings) Ltd v American Home Assurance Co [1984] VR 187, a case in which, while the plaintiff had to prove the terms of a policy of fire insurance and an insurable interest thereunder, the defendant's issue was an allegation that the fire had been fraudulently lit by the plaintiff. At 191 he said:

   "In the exercise of my discretion in this case, I place some importance on what was said in McLaren & Sons v Davis (1890) 6 TLR 372 by Cave J as a member of a bench of three Judges in the Queen's Bench Division, at p 373: 'It was never convenient to prove a negative. When the defendant had set up something affirmative then was the time to dispose of it. The learned Baron [a reference to Huddleston B who sat with the jury at first instance] had exercised an erroneous discretion in refusing to allow the rebutting evidence'.

   Further, in Jerome v Anderson (1964) 44 DLR (2d) 516, Cartwright J at p 531, observed: 'In view of the nature of the particulars of the plea of justification delivered in this action, it would, I think, have been highly inconvenient to call upon the plaintiff to prove the negative of that issue before having heard the evidence offered by the defendants in support of it.'

   In each case, emphasis was laid on the burden which the plaintiff is likely to have of proving a negative if he is to go first in relation to issues on which the defendant has the burden of proof.

   In the exercise of a discretion, I think it is proper to take into account the extent to which this so-called proof of a negative would be placed on a plaintiff,  This aspect in this case, I think, is highly pertinent and of considerable weight.

   Here it would be not only inconvenient but quite unfair and contrary to the interests of justice if the plaintiffs are called upon to adduce all their evidence in disproof of a case with respect to which they have heard no evidence."

2. It is necessary, in my view, to consider each of the counterclaims individually and to consider where the onus of proof rests and what fairness and convenience require in the circumstances.

1. The claim in par91(i) was for $120,000 withheld in respect of bridge painting.  In opening the case on the counterclaim, Mr Digby QC for the defendant, indicated that the argument was fundamentally over whether the contract required the defendant to paint the guard rail fences on some six bridges.  There would be evidence that the defendant has already applied a coat of galvanising over the bridges and has indicated to the principal's representative that it intends to recoat steel work within six months prior to the end of the ten year maintenance period.  He referred to a number of clauses in the contract upon which each party relies for its position and to correspondence in which those positions were stated.  The pleadings indicate that the counterclaiming contractor relies on a progress payment certificate for works completed which is prima facie payable by virtue of cl 12.3(d) of vol 1 of the project deed.  This provides:

"(d)Within 14 days of the issue of a progress certificate in accordance with clause 12.3(c) with respect to the Design and Construction Contract Sum, subject to clauses 11.8, 12.3(e) and 12.5 to 12.8 and the Design and Construction Payment Schedule, the Principal must pay the Contractor the progress payment due to the Contractor as certified in the progress certificate."

The principal, defending the claim, acknowledges the retention of the sum, but says that a condition precedent to payment has not been fulfilled.  That condition requires the contractor to furnish a Quality Verifier's payment certificate for the sum claimed, certifying that all work the subject of the progress claim has been executed and is in accordance with the requirements of the deed.  To this the contractor does not allege the performance of the condition precedent, but asserts in the Rejoinder that the Quality Verifier (which it was required to engage and which, by virtue of cl 8.2(e), covenanted with the principal that it would owe a duty of care to the principal and would exercise reasonable skill and care) was not entitled to withhold verification.  It also asserts that the principal interfered with the certification of the quality verification.  In these circumstances, the onus is, in my view, on the contractor to show why the non-fulfilment of the condition precedent nevertheless entitles it to payment of the sum mentioned in the progress certificate.  But for the fact that the principal is the plaintiff in an action seeking declarations, it would ordinarily be entitled to present all its evidence on the claims made in the counterclaim at the conclusion of the contractor's case.  I see no reason why it should be in any different situation in respect of the issue whether or not the contract required the contractor to paint the bridges because, for the purpose of advancing its claim for declarations, it has been required to call its evidence on that claim first.

1. The claim in par91(ii) is for $300,000 withheld regarding Hoggs Lane design issue.  In opening, Mr Digby said that this sum of money was withheld from the contract sum for what were nominated by the principal as "design inadequacies".  The principal's representative indicated that the sum had been deducted as this represented its estimate of the costs for rectification works associated with the Hoggs Lane cracking problem.  The defendant's position is that the pavement thickness with respect to this lane was prescribed by a specific clause in the project deed for certain assumed sub-grade CBR values.  However, the clause provided that should it be necessary to place only clay at sub-grade level infill, then the pavement design thickness should be increased to a different figure.  The defendant claims that Hoggs Lane was constructed on fill and the sub-grade was a mixture of clay and ironstone and that the pavement was accordingly constructed at a thickness in accordance with the specifications.  The plaintiff also contended that the drainage design, moisture regime and miscellaneous issues in respect of a culvert were in breach of the project deed requirements.  The nub of the issue appears to be whether or not the works were constructed to the thickness that they should have been.  This claim differs from the first one in that the former is based on the proposition that the contract imposed no obligation on the contractor to paint the bridges, whereas the latter is for payment in respect of works in fact carried out, but which the plaintiff, it would seem, claims were carried out defectively.  Once again I am of the view that the onus is on the contractor to justify the non-fulfilment of the condition precedent, namely the certification of the Quality Verifier.  It must prove the proper execution of the works.  In my view, the principal should have the right to offer evidence in rebuttal.

1. The claim in par91(iii) is for $50,000 withheld because of the failure of the defendant to supply certain documentation.  The figure is said by the defendant to be an arbitrary one and evidence will be led of the presentation of the bulk of the material which was initially claimed by the plaintiff not to have been supplied.  Notwithstanding this fact, the full amount was withheld and the plaintiff continued to maintain that certain critical documents had not been supplied.  I have difficulty in seeing how the plea of non-fulfilment of the condition precedent applies to this claim.  It would seem that par84.4 of the reply and defence to counterclaim is relied upon.  That asserts a right of set-off in respect of any debt or other moneys due from the plaintiff to the defendant or claim for money by the latter.  The onus is on the plaintiff to prove that such a debt exists or other claim is legitimately made.  In my view furthermore, convenience and fairness require the plaintiff to advance its evidence on this aspect of the counterclaim.  I decline to make the ruling sought.

1. The claim in par91(iv) and (v) is for $40,000 for bridge abutment and paving defects and $25,000 for other pavement defects.  As I understand Mr Digby's opening, the defendant concedes that there are some defects, but says that it has rectified many and that it is endeavouring to rectify the balance.  He claims that the retention of $65,000 is heavy handed and unjustified, given that the plaintiff holds substantial bank guarantees pursuant to the deed.  Nevertheless, the same considerations apply here as apply in respect of the alleged defects of work the subject of par91(ii).  It is for the plaintiff contractor to prove proper execution of the work.  The plaintiff should be entitled to call evidence in rebuttal.  The existence of the guarantees does not preclude the plaintiff from exercising such other rights as it has under the deed.

1. The claim in par91(vi) was resolved by agreement and does not require attention.

1. The claim in par91(vii) is for $11,977.  There was an encroachment by the defendant on to the land leased to TasRail upon which the railway line stands.  The issue was resolved as between TasRail and the plaintiff, but the latter incurred legal costs in preparing the necessary documentation.  It has withheld this sum from the defendant.  This is also said to be heavy handed and unjustified when regard is had to the existence of the guarantees.  The plaintiff pleads in defence of this counterclaim that it is a negative Change Order.  It does not rely on non-fulfilment of any condition precedent.  A Change is defined in the deed, cl 1.1, as follows:

"Change means any change to:

(a)       the Project Works; or

(b)       the Maintenance Work,

and includes additions, increases, decreases, omissions, deletions, demolition or removal to or from any of these."

Clause 7.2 enables the plaintiff's representative at any time by a written document titled Change Order to direct the contractor to implement a change as specified therein.  The contract price can then be adjusted according to what additional work is required or existing obligation reduced.  How the deduction of these costs can amount to a Change Order will no doubt be elaborated upon in due course, but in my view it is for the plaintiff to establish it is entitled to have made the deduction by reason thereof.  I see no reason for enabling it to split its case on this claim.