The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd - [2007] WASCA 257

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: THE PILBARA INFRASTRUCTURE PTY LTD -v- BGC CONTRACTING PTY LTD [2007] WASCA 257

CORAM: PULLIN JA
BUSS JA
NEWNES AJA

HEARD: 7 NOVEMBER 2007

DELIVERED : 7 NOVEMBER 2007

PUBLISHED : 21 NOVEMBER 2007

FILE NO/S: CACV 125 of 2007

BETWEEN: THE PILBARA INFRASTRUCTURE PTY LTD
Appellant
AND
BGC CONTRACTING PTY LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :TEMPLEMAN J
Citation  :BGC CONTRACTING PTY LTD -v- THE PILBARA INFRASTRUCTURE PTY LTD [2007] WASC 200
File No  :CIV 1783 of 2007

Catchwords:

Practice and procedure - Memorandum of appearance filed with wrong action number indorsed - Default judgment entered - Application to set aside default judgment refused - Whether appearance was a nullity or an irregularity - Whether order should have been made under O 2 r 1(2) to deal with the irregularity

Legislation:

Rules of the Supreme Court 1971 (WA), O 2 r 1

Result:

Application to adduce additional evidence granted
Leave to appeal granted
Appeal allowed

Category: A

Representation:

Counsel:

Appellant: Mr C L Zelestis QC & Mr M Van Brakel
Respondent: Mr C G Colvin SC & Mr D J Marsh

Solicitors:

Appellant: Clayton Utz
Respondent: Hotchkin Hanly

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

ACN 076 676 438 Pty Ltd (In Liq) v A‑Comms Teledata Pty Ltd [2000] WASC 214
ANZ Banking Group Ltd v Kostovski (Unreported; SCt of Vic; 5511/97; 2 July 1997)
Bates v Queensland Newspapers Pty Ltd [2001] QSC 083
BGC Contracting Pty Ltd v The Pilbara Infrastructure Pty Ltd [2007] WASC 200
Bill Discount Services Pty Ltd (In liq) v Dill‑Macky (Unreported; WASC; Library No 6700; 7 May 1987)
Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79
Hall v Hall [2007] WASC 198
Harkness v Bell's Asbestos and Engineering Ltd [1967] 2 QB 729
Kanyilmaz v Nominal Defendant (Qld) [2000] QSC 180
Metroinvest Ansalt v Commercial Union Assurance Co Ltd [1985] 1 WLR 513
Monteleone v The Owners of the Old Soap Factory [2007] WASCA 79
Parker v Transfield Pty Ltd [2000] WASCA 382
Perez v Transfield (Qld) Pty Ltd [1979] Qd R 444
Pontin v Wood [1962] 1 QB 594
Re Zagoridis; Ex parte Q'Plas Group Pty Ltd (1990) 27 FCR 108
Rollond & Anor v Bank of Western Australia Ltd (Unreported; WASCA; Library No 980498; 3 September 1998)
Silverstone Holdings Pty Ltd v American Home Assurance Co (1997) 18 WAR 516

JUDGMENT OF THE COURT: This appeal and an accompanying application for leave to appeal concerned the judgment of Templeman J whereby he dismissed the appellant's (TPI's) application to set aside default judgment which had been entered against TPI by the respondent (BGC) in default of appearance.

Summary

BGC carried out work for TPI and claimed a large sum of money under the contract between them. TPI disputed the claim. BGC issued a writ. TPI's solicitors told BGC's solicitors, on the last day for entering an appearance, that TPI would enter an appearance. TPI's solicitors sent by facsimile a copy of the memorandum of appearance they intended filing the next morning. BGC's solicitors said they would enter judgment in default of appearance if they could get to the court first. TPI's solicitor reached the court first the next morning and filed the memorandum of appearance which the court stamped with its certificate, indicating that an appearance had been entered. The memorandum of appearance was in the correct form but by mistake, TPI's solicitors had put the wrong action number on the top right‑hand corner; '1395' instead of '1783'. An hour later, BGC's solicitors went to the court and filed judgment in default of appearance which was sealed as a judgment of the court. TPI immediately applied to set aside the default judgment. The learned judge refused to do so. TPI appealed.
On 7 November 2007, at the conclusion of the hearing, this court upheld the appeal and inter alia set aside the learned judge's orders and the default judgment and made an order pursuant to O 2 r 1(2), curing the irregularity in the memorandum of appearance. The court said that reasons would follow. These are the reasons for making the orders.

Contractual arrangements between the parties

BGC entered into an agreement with TPI in July 2006 (TPI Agreement). Under the TPI Agreement, BGC was obliged to construct, supply and install rail earthworks for a railway line from a mine site in the Pilbara to Port Hedland. Pursuant to the TPI Agreement, BGC was entitled to be paid by TPI for the 'Direct Costs' incurred by BGC as provided for under the agreement and in sch 4 in particular. In addition, BGC was entitled to a fee which could range from 4% to 14% of direct costs as provided for in sch 5 and sch 6. The fee would vary depending upon whether or not there was a cost overrun or a cost saving. There was a subsequent Deed of Security, whereby TPI was to pay the estimated amount of future progress payments into a solicitor's trust account.
Four clauses in sch 5 read as follows:
Amount of Fee
S5.2Subject to S5.3, the Fee will be fourteen per cent (14.0%) of the Direct Costs (excluding TPI direct costs) as reported by BGC's J D Edwards cost reporting system, and will be paid progressively to BGC pending calculation of the final Fee in accordance with Schedule 6, as more fully explained in S5.4.
S5.3BGC will place at risk a proportion of its Fee up to a limit of 10.0% of Direct Costs, such that the Fee will at no time be less than 4.0%, as detailed in Schedule 6. To avoid doubt, there is no limit on BGC's entitlement to Gainshare.
Interim Fee Payments
S5.4BGC will record the Direct Costs using BGC's J D Edwards cost reporting system. Each month BGC will invoice TPI the Direct Costs so recorded plus 14.0% for BGC's corporate overhead and profit. TPI shall pay to BGC the amount so invoiced within seven (7) days after receipt of each invoice.
Determination of Fee
S5.5At the times determined by the ALT, TPI and BGC shall determine the Fee in accordance with this Schedule 5 and Schedule 6, and the ALT may resolve that a reconciliation be made between the parties to settle the final amount of the Fee to the date of such reconciliation by means of a payment by one party to the other, as the case may be. In the absence of such resolution and reconciliation, the final amount of the Fee will be determined upon completion of the Works or upon the termination of this Alliance Agreement, whichever is the earlier.
Schedule 6 concerned 'Gainshare' and 'Painshare'. 'Gainshare' was an expression describing a result where the direct costs were below the target direct costs, and 'Painshare' referred to circumstances where Direct Costs exceeded the target direct costs.
Disputes arose during the course of performance of the TPI Agreement and the parties entered into a Deed of Termination on 30 May 2007. This provided for the termination of the TPI Agreement. It provided for the release of claims and expressly provided that sch 6 of the TPI Agreement was not to apply. New obligations were created. The parties entered into another contract regarding the balance of the work which still had to be carried out. It does not have to be considered in this appeal.
The Deed of Termination contained cl 4 which read as follows:
4.1A final accounting of payments properly due to BGC pursuant to the TPI Agreement and/or the Security is to be calculated as soon as is reasonably practicable and based on the rights of BGC up to and including the day of termination, 31 May 2007, and either remitted to BGC out of the trust account of Hotchkin Hanly solicitors in the case of a further payment required to be made by TPI, or remitted to TPI out of the trust account of Hotchkin Hanly solicitors in the case where reimbursement is required from BGC. For the avoidance of doubt, Schedule 6 to the TPI Agreement does not apply.
4.2To facilitate the final accounting the Parties shall take the following steps:
(a)within 7 days of the date of this Deed, BGC will submit to TPI a final claim ('Final Claim') for all amounts which BGC allege are due to BGC for work performed under the Agreement;
(b)within 14 days of receipt of the Final Claim, TPI will pay to BGC the amount which TPI considers to be due to BGC in respect of the Final Claim. If the amount paid by TPI is less than the amount of the Final Claim, TPI will provide reasons for the difference;
(c)if BGC disputes the amount of the difference, TPI and BGC will use reasonable endeavours acting in good faith to resolve any dispute between them ('Dispute') by joint discussions;
(d)failing resolution of the Dispute within 10 days of commencement of the negotiations referred to in paragraph (c), or such other period agreed between the parties, either party may refer the dispute to arbitration in accordance with the Commercial Arbitration Act 1985 (WA) …
(e)To the extent that TPI accept that more is due to BGC, but not all as claimed, BGC shall be entitled until final resolution to be paid such of the Security as is accepted by TPI.

Communications between the parties after the execution of the Deed of Termination

BGC submitted its final claim in an invoice dated 7 June 2007. The invoice claimed $26 million. TPI then requested supporting documentation and this was supplied by BGC in a letter dated 12 June 2007. This showed that BGC claimed that the total 'Direct Costs' in relation to work carried out under the TPI Agreement was $94 million in round terms.
By letter dated 21 June 2007 TPI wrote to BGC in the following terms:
Pursuant to Clause 4.2b of the Deed of Termination, we advise the following assessment of total cost due to BGC for work performed under the Agreement, on account of the Corvu summary and transaction records provided by BGC on 12 June 2007. This analysis includes all costs to 31 May 2007 which totals the final claim of $118,708,021.08 (incl GST).
The Pilbara Infrastructure Pty Ltd (TPI) believes the total of the final claim to be $74,087,485.98 (incl GST).
Our assessment of the final claim examined invoices and labour related costs within the transactional records. An assessment of 4% profit has been included in the final claim.
Previously through claims 1 ‑ 10, TPI had paid BGC $92,450,334.59 including overhead plus profit and GST. As the final total cost assessment by TPI is $18,362,848.61 less than the amount previously paid [sic]. We request this difference and the release of remaining funds currently withheld under the Trust Account in the next 5 working days.
By letter dated 22 June 2007, BGC wrote referring to TPI's letter of 21 June 2007, complained that TPI had failed to provide reasons for the difference as required by cl 4.2(b), asserted that TPI could not reduce BGC's 'entitlement of 14%', requested a meeting pursuant to cl 4.2(c) of the Termination Deed and confirmed a previous commitment by BGC to cooperate in order that any disputed cost items could be verified.
There was then an exchange of emails between 29 June 2007 and 10 July 2007. On 29 June 2007 BGC sent copies of various subcontractor invoices; an officer of TPI responded, thanking BGC for the invoices and said that he was 'looking forward to reviewing them'; BGC sent further invoices to TPI (on 2 July 2007); reference was made to a discussion on 2 July about the fact that BGC was in the process of finalising the claim with a subcontractor called Brierty, BGC sent further information on 3 July; BGC asked, on 4 July 2007, if there was any further information needed to 'validate our claim'. On 4 July 2007, Quentin Hooper, who was the senior Project Accountant at Fortescue Metals Group Ltd, the ultimate holding company of TPI, said that he was currently continuing to validate BGC's claim through the invoices. He said that he would need to receive further invoices as there were a lot that had not been received. On Thursday 5 July 2007, BGC sent by email a further invoice. Another email on that day referred to the fact that there were two invoices still to be supplied. On Monday 9 July 2007, Mr Dunkley for BGC, emailed Mr Thomas at TPI, referring to an interim payment 'as discussed on Friday' and this was followed by another email on Tuesday 10 July 2007 from Mr Dunkley to Mr Thomas, saying that his request for an interim payment 'was serious'. On Tuesday 10 July 2007, Mr Thomas emailed Mr Dunkley saying that he would send a letter with payment details 'tomorrow'.

The letters of 11 July 2007

On 11 July 2007, Mr Andrew Forrest, the CEO of Fortescue Metals Group Ltd, the ultimate holding company of TPI, wrote to Mr Len Buckeridge, the Chief Executive of BGC. The letter was marked 'without prejudice'. In the letter Mr Forrest said that he was willing to settle amicably but without admitting all of BGC's claim for costs. The letter said that there were several costs 'we could question but won't in the interests of continuing our relationship'. He then proposed a settlement figure for direct costs above the figure proposed in the 21 June letter and which included no profit allowance. Mr Forrest ended the letter by saying that before writing the cheque he wished to 'clear this with you'. This letter was not before the learned judge but was submitted as further evidence at the hearing of the appeal without any objection by BGC.
Also on 11 July 2007, Mr Thomas, the Chief Financial Officer of TPI, wrote to BGC referring again to BGC's claim of $118 million. This letter of that date was before the learned judge.
It became clear from the further documents admitted on the hearing of this appeal, that the letter signed by Mr Forrest and the letter signed by Mr Thomas were all sent by TPI to BGC on 11 July 2007 by facsimile under a coversheet containing Fortescue Metals Group letterhead. The coversheet was addressed to Mr Buckeridge. The facsimile coversheet referred to five pages which consisted of the facsimile coversheet, the 11 July letter signed by Mr Forrest, the 11 July letter signed by Mr Thomas (two pages), and a schedule referred to in the Thomas letter, providing details of how the amount offered by Mr Forrest were calculated. The letter signed by Mr Thomas read:
Dear Sirs,
RE: DEED OF TERMINATION FINAL CLAIM
We advise that TPI has assessed the total cost due to BGC for work performed under the Alliance Agreement ('Alliance'), based on the Corvu summary, invoice copies and transactional records provided by BGC since 12 June 2007 and having regard to the Deed of Termination. This analysis includes all costs to 31 May 2007 which BGC claims to be $118,708,021.08 (inc GST).
Our assessment of the final claim, examined invoices and labour related costs within the transactional records. Payments that were for services after 31 May 2007 were excluded from our assessment. We have given BGC the benefit of BGC's own estimate of accruals to 31 May 2007.
Without prejudice to its legal entitlements. [sic] The Pilbara Infrastructure Pty Ltd (TPI) is prepared to pay an amount of [the amount offered by Mr Forrest]. This is TPI's assessment of BGC's direct costs associated with the earthworks Alliance. TPI and Fortescue have suffered significant financial damage as a result of the failed performance in the rail earthworks under the BGC Alliance. As a result, TPI considers that BGC should only be reimbursed its direct costs with no profit. This is in accordance with the key principles of the Alliance, ie that it is a win‑win or lose‑lose, ie that one party should not benefit at the others expense.
Details of how this amount is calculated are attached.
TPI considers that this amount is substantially in excess of what BGC would be legally entitled to receive under the Alliance. Such an entitlement would be based on whether costs have been incurred reasonably and in accordance with the Alliance. In this respect, we note the following:
(a)in incurring costs, BGC has breached its common law obligation to incur costs reasonably. Under the Alliance, the rail earthworks was heading toward a significant over spend in its original $167 million budget. Had TPI continued with the Alliance, the total earthworks cost for rail would have been well in excess of $350 million. In terms of the Alliance, BGC has breached Alliance Principles by failing to 'spend dollars wisely' (clause 1.3(d) and to do what was 'best for business' (clause 1.3(i)). This includes failing to provide performance which was value for money for TPI and failing to facilitate outstanding performance in our Alliance objectives, such as to deliver at lowest possible cost (clause 1.4(a)) and achieve or better cost and production targets (clause 1.4(f));
(b)the breaches of the Alliance by BGC were wilful defaults under the Alliance in that BGC ought reasonably to have known they were a breach of Alliance Principles;
(c)TPI has suffered losses arising from BGC's wilful defaults (being excessive costs and expenses) and is required to indemnify TPI under clause 17.6(a) of the Alliance;
(d)TPI is entitled to payment from BGC of any amount for which BGC is to indemnify TPI (clause 8.2(b)); and
(e)in making any payment to BGC under the Alliance, TPI may set‑off any amount owing to it by BGC (clause 8.11).
Previously through claims 1 ‑ 10, TPI has paid to BGC $92,450,334.59. In completing the final claim for BGC, TPI authorises the release of [sum deleted] from the trust account. We request the remaining funds held in Trust to be released within the next 5 working days.
Yours sincerely
(signed)
(pp) Peter Thomas
Chief Financial Officer - TPI
Fortescue Metals Group Ltd
There was attached to this a schedule headed 'BGC Final Claim - TPI Alliance' showing two columns, one headed 'BGC claim' and the other headed 'FMG Assessment Letter dated 12/7/07' showing how the offered amount was calculated. Included in the FMG column were figures totalling a figure higher than TPI's figure for direct costs referred to in its 21 June 2007 letter but less than BGC's total of $94,663,494. No profit fee was shown as payable. The BGC claim column, reflecting BGC's claim, showed a fee of 14% to bring the total amount claimed by BGC under the TPI Agreement before GST to $107,916,383.
Another copy of Mr Thomas' letter of 11 July 2007 was faxed separately at about the same time.

Whether the two 11 July 2007 letters contained privileged information

The amount which Mr Forrest offered in the letter he signed, the figure referred to in the third paragraph in the letter signed by Mr Thomas, and as shown in the FMG column in the schedule, has not been revealed in these reasons because TPI argues that both the letters of 11 July 2007 and the schedule were without prejudice privileged communications. BGC's counsel submitted that they were not privileged because, despite Mr Forrest's letter being marked 'without prejudice' and despite Mr Thomas' letter referring to the figure which TPI was prepared to pay as being 'without prejudice to its legal entitlements', the figure amounted to an unprivileged admission by TPI of what was due to BGC pursuant to cl 4.2(e) of the Deed of Termination; that is that, by the letters and in the context of the emails passing between the parties between 29 June 2007 and 10 July 2007, the figure was an amount accepted by TPI pursuant to cl 4(2)(e). In the opinion of the court, for the reasons given below, there is a genuine dispute that the two 11 July 2007 letters or the figures referred to in them, were privileged. On the information before this court there was a reasonably arguable defence that the letters were privileged. The learned judge should not have concluded summarily that the 11 July letter from Mr Thomas was not written 'entirely without prejudice' or that BGC was entitled to rely on it as TPI's assessment of BGC's direct costs.

Communications after 11 July 2007

BGC responded by letter dated 13 July 2007, noting that the amount referred to in Mr Thomas' letter would be paid from the trust account to BGC and that BGC was receiving the payment on a without prejudice basis. The letter said that pursuant to cl 4.2(c) of the Deed of Termination, BGC advised TPI that it disputed TPI's assessment of BGC's final claim and sought urgent discussion to resolve the dispute.
There was then a further exchange of letters and emails, including letters between Mr Buckeridge and Mr Forrest. On 9 August 2007 TPI wrote saying that it would like to continue to work with BGC to resolve issues in relation to BGC's entitlement under the Deed of Termination and reminded BGC that TPI had made three offers to settle and had released further funds to BGC and that TPI had not received an updated assessment of BGC's final accounting of payment since early June. By letter dated 13 August 2007, BGC referred the dispute to arbitration.

BGC commences an action in the Supreme Court

Meanwhile, on 3 August 2007, BGC had issued a writ in the Supreme Court, naming TPI as defendant. Indorsed on the writ was a statement of claim which pleaded out the TPI Rail Alliance Agreement, the Deed of Termination, the submission of the final claim on 7 June 2007 and pleaded in par 8 that:
On 11 July 2007 the Defendant notified the Plaintiff in writing that it had assessed the direct costs owing to the Plaintiff as [the figure referred to in Mr Forrest's letter of 11 July 2007 and Mr Thomas' letter of the same date].
Particulars
The notification was made by letter from the Defendant to the Plaintiff dated 11 July 2007 a copy of which may be inspected at the offices of the Plaintiff's solicitors.
Paragraph 9 pleaded that the fee payable was a dollar amount being 14% of the figure which had been stated by TPI in the two letters of 11 July 2007.
Paragraph 10 of the statement of claim read:
The Defendant has wrongfully refused to pay the Fee due and owing on its own assessment of the direct costs under the TPI Rail Alliance Agreement.
Particulars of Referral [sic Refusal]
(a)In its notification dated 11 July 2007 referred to at paragraph 8 above, the Defendant expressly refused to add 14% as required under the Termination Deed and the TPI Rail Alliance Agreement.
(b)By letter dated 11 July 2007 Mr Andrew Forrest, Chief Executive Officer of Fortescue Metals Group Ltd, wrote to Mr Len Buckeridge, of the Plaintiff, informing him that the Defendant would not be paying the Fee to the Plaintiff.
(c)The Defendant, having assessed the direct cost at [figure deleted] has failed to give reasons for not paying the Fee as required by clause 4.2(b) of the Deed of Termination.
BGC in its prayer for relief claimed judgment for that sum plus GST and interest. The writ was indorsed as usual with a command that within 10 days after service of the writ, an appearance be entered and that in default of doing so the plaintiff may proceed and judgment may be given in the defendant's absence.

The events of 13 and 14 August 2007

An affidavit of a Mr Gavin Maxwell Witcombe, a solicitor employed by Clayton Utz, the solicitors for TPI, sworn 16 August 2007, deposes that the writ was served on TPI on 3 August 2007. Shortly after 3.30 pm on 13 August 2007, Mr Witcombe received instructions from TPI to file a memorandum of appearance. Immediately on receipt of those instructions, he caused preparation of a memorandum of appearance. The memorandum correctly identified the parties to the proceedings, but in error contained an incorrect court file number; namely, CIV 1395 of 2007, rather than CIV 1783 of 2007. The latter was the number on the writ. The memorandum was otherwise in the form prescribed by the rules of court. As the Supreme Court Registry closed at 4 pm, Mr Witcombe was unable to file the memorandum of appearance on 13 August 2007. The earliest time he could do so was 9 am on 14 August 2007.
In an attempt to avoid the possibility of BGC entering default judgment the next morning, he telephoned Mr Michael Hotchkin of Hotchkin Hanly, BGC's solicitors, at 3.50 pm. After introducing himself, he had a conversation with Mr Hotchkin in words as follows, or to the following effect:
I have just been instructed to act for the Defendant in relation to the proceedings commenced by your client, BGC Contracting Pty Ltd and to file an Appearance with the Court. It would appear that my client's Appearance was due to be filed by no later than today. Would your client undertake not to take steps to apply for default judgment on the basis that my client's Appearance will be filed tomorrow morning?
Approximately 10 minutes later, Mr Hotchkin telephoned Mr Witcombe and said words to the following effect:
My client is not agreeable to providing the undertaking you have sought. My instructions are to take all available steps to obtain a default judgment. It looks like it will be a battle as to who gets in line first at the Registry tomorrow morning.
At 5.59 pm on 13 August 2007, Mr Witcombe sent a letter by facsimile to the Supreme Court enclosing a copy of the memorandum of appearance. At 6.05 pm on 13 August 2007, Mr Witcombe sent a letter by facsimile to Hotchkin Hanly which read:
Dear Sirs
The Pilbara Infrastructure Pty Ltd at BGC Contracting Pty Ltd: Supreme Court Proceedings 1783 of 2007
We refer to our telephone discussion of today's date and confirm that we act for the The Pilbara Infrastructure Pty Ltd.
We confirm that we were instructed by our client today on this matter and were instructed to file an appearance with the Supreme Court tomorrow. Please find enclosed an unfiled copy of the appearance by way of service. A copy of the appearance has been sent to the Supreme Court by facsimile.
We confirm that we sought your client's undertaking on whether it was prepared to withhold filing for default judgment pending filing of our client's appearance. We note that your client refused to provide any such undertaking and in fact indicated that it would be seeking to file for default judgment prior to the lodgement of our client's appearance tomorrow.
Please note that we propose to produce this letter in any application that may be necessary to set aside any judgment obtained by your client and to seek costs against your client on an indemnity basis.
Yours faithfully
(signed)
Stephen Boyle, Partner
…
Contact: Gavin Witcombe, Special Counsel
It may be noted that the heading of the letter sent by Mr Witcombe contained a reference to the parties to the litigation and the correct number of the action. However, the copy memorandum of appearance enclosed was a copy of the one with the wrong number in the top right‑hand corner.
Mr Witcombe then arranged for an articled clerk to attend to the filing of the memorandum of appearance at 9 am on 14 August 2007. The articled clerk attended at the Registry upon its opening at 9 am on 14 August 2007. He was the only customer in the Registry. When the lodging officer was entering details of the appearance, the fact that the memorandum had the wrong number on it was not noticed by the articled clerk or mentioned by the officer in the Registry. Copies of the memorandum of appearance were stamped by the court with a stamped certificate reading 'Appearance Entered. 14 August 2007. Central Office Supreme Court' and handed to the articled clerk who then left the Registry.
At 9.58 am on the same morning, the solicitors for the plaintiff attended at the Supreme Court Registry with the default judgment which was entered by Registry staff at 9.58 am. At 11.14 am, a letter was sent by Hotchkin Hanly to Clayton Utz by facsimile. That letter advised that BGC had obtained a default judgment and that BGC had instructed Hotchkin Hanly to satisfy the judgment out of funds which TPI had placed in a trust account held by Hotchkin Hanly. At 1.49 pm Mr Witcombe responded, expressing the view that BGC had no entitlement to maintain a default judgment or to access funds in the trust account. At 2.17 pm on 14 August 2007, Hotchkin Hanly confirmed their instructions to proceed to remit funds to their client from the trust account.
Later on 14 August 2007, Justice Templeman heard an application for an interim injunction to restrain BGC from disbursing any part of the judgment sum. The injunction was granted and his Honour gave directions which included the filing of affidavits by TPI so that issues could be properly explored.

The application to set aside the default judgment

On 16 August 2007, in compliance with those directions, TPI filed a chamber summons to have judgment set aside and an extension of time within which to enter an appearance. After a hearing on 22 August 2007, his Honour reserved his decision and on 30 August 2007 dismissed TPI's application. As a result the judgment remained and BGC then satisfied the judgment out of the funds held in Hotchkin Hanley's trust account.

The learned judge's reasons for decision

The learned judge in his reasons under the heading 'Did the defendant enter an appearance?', concluded that TPI did not. We need not repeat his Honour's reasons in full because they appear between [9] and [24] in BGC Contracting Pty Ltd v The Pilbara Infrastructure Pty Ltd [2007] WASC 200. His Honour concluded that the appearance was a 'nullity'.
Under the heading 'Can the memorandum of appearance be saved by Order 2 r 1?', the learned judge referred to O 2 r 1(1) and (2) which are set out below. The learned judge said (at [27]) that O 2 r 1(1) did 'not take effect automatically'. His Honour said that this was made clear by O 2 r 1(2). The learned judge (at [28]) said that Metroinvest Ansalt v Commercial Union Assurance Co Ltd [1985] 1 WLR 513 illustrates the application of these rules and that therefore the default judgment was obtained regularly.
His Honour then considered whether the memorandum of appearance was saved by O 21 r 10 but concluded that it was not. That point does not arise in this appeal.
His Honour, having concluded that judgment was obtained regularly by BGC in default of appearance, then considered whether it should be set aside. His Honour stated that the general rule was that when a judgment in default has been regularly entered it is not to be set aside unless the court is satisfied there is a defence on the merits and that instances of departure from the general rule are rare. His Honour then considered whether TPI had a defence which had a real prospect of success. His Honour concluded that there was no dispute as to the relevant facts. His Honour then recited relevant terms of the TPI Alliance Agreement and the Deed of Termination. Under the heading 'The plaintiff's final payment claim', his Honour then said that it was common ground that BGC submitted its final claim pursuant to cl 4.2(a) of the Deed of Termination by the letter dated 7 June 2007. His Honour's reasons refer to par 8 of the statement of claim which is set out above.
His Honour noted that in a minute of defence which TPI had provided to the court, TPI denied par 8 of the statement of claim and contended that the letter of 11 July 2007 (the Thomas letter) was written 'without prejudice' and should not have been referred to in the pleadings. His Honour noted that BGC accepted that its claim stood or fell on Mr Thomas' letter of 11 July 2007. His Honour set out the letter in full and then under the heading 'The effect of the letter of 11 July 2007' noted that 'it is not marked "without prejudice"'. His Honour correctly instructed himself that correspondence properly conducted on a without prejudice basis is inadmissible without the consent of both parties, but that if an issue arises about whether the document was properly marked 'without prejudice', it is necessary for the court to examine the true nature of the communication contained in the document.
His Honour then concluded:
In the present case, I consider the letter of 11 July is to the following effect:
(1)The plaintiff has claimed $118,708,021.08 (including GST).
(2)On the basis of the information provided to the defendant by the plaintiff, the defendant has assessed the claim at [the figure referred to in the 11 July 2007 letter].
(3)'Without prejudice to its legal entitlements' the defendant is prepared to pay that amount.
(4)The defendant contends that because it has 'suffered significant financial damage as a result of the failed performance' of the plaintiff, the plaintiff should be reimbursed only its direct costs but should not be entitled to any profit.
(5)The defendant relies on alleged breaches of the TPI Rail Alliance Agreement summarised under par (a) to (e).
(6)The defendant authorised the release of $... from the trust account. This is the amount which, when added to the $92,450,334.59 already paid by the defendant, totals the amount of $... which the defendant is prepared to pay 'without prejudice to its legal entitlements'.
The defendant must therefore be taken as agreeing to pay the amount of $... without prejudice to its entitlement to claim that in fact, by reason of breaches of the TPI Rail Alliance Agreement, the plaintiff is entitled to a lesser amount. In particular, the defendant contends that the plaintiff would not be entitled to any fee. [78] ‑ [79].
(Once again the amount TPI mentioned in the 11 July 2007 (Thomas) letter has been omitted because of TPI's claim that the letters were privileged.)
His Honour noted that in a minute of defence which TPI had filed, that TPI alleged that TPI on a without prejudice basis made an offer of payment of an amount inclusive of GST in full and final satisfaction of the plaintiff's entitlements under the TPI Rail Alliance Agreement. His Honour noted that the offer was said to have been contained in the Thomas letter of 11 July 2007. His Honour then said:
However, for the reasons set out above, it is clear that payment was not authorised on the basis that it was in full and final satisfaction of the plaintiff's claim. Indeed, Mr Thomas does not suggest in his affidavit that he wrote the letter of 11 July on that basis.
It follows, that the letter of 11 July was not written entirely without prejudice. The plaintiff was entitled to rely on it as the defendant's assessment of the plaintiff's direct costs, but without prejudice to the defendant's right to rely on breaches of the TPI Rail Alliance Agreement. [85] ‑ [86].
His Honour concluded that there was therefore no merit in the proposed defence.
Under the heading 'The plaintiff's claim for its fee' his Honour noted that TPI contended that it admitted only that on the information provided by BGC, its direct costs amounted to the amount referred to in the 11 July 2007 letter. His Honour said:
But, as noted above, that admission has been made without prejudice to the defendant's right to claim otherwise. The defendant contends that the plaintiff breached the TPI Rail Alliance Agreement by failing to comply with certain provisions identified in par 8 of the minute of defence, which is in the following terms [89].
His Honour then set out the terms pleaded in par 8 of the minute of proposed defence, noted that the minute of defence did not contain any allegation that BGC breached those terms, but under the heading 'Does the defendant have a defence?' said that he was prepared to accept for present purposes that it would be possible for TPI to particularise breaches of the provision of the TPI Rail Alliance Agreement on which it relies. His Honour said that he did not think that that would advance TPI's position. He said he took that view because of the provisions in cl 4.3 and cl 5.1 of the Deed of Termination which read:
4.3Nothing in this Deed operates to release or discharge either Party from the obligation to make a payment as is agreed, or is as determined by arbitration, by way of a final accounting, in respect of which no party shall be entitled to have regard to any breach or alleged breach of the TPI Agreement or the Security by the other (except in so far as any part of any payment claims are not permitted under the TPI Agreement). For the avoidance of doubt TPI shall not seek to deduct or set-off against final payment to BGC any damages howsoever arising.
…
5.1Each of BGC and TPI release and forever discharge the other from all Claims howsoever arising (whether directly or indirectly) from:
5.1.1the TPI Agreement and the performance of the terms of TPI Agreement;
5.1.2the Security and the performance of the Security; and
5.1.3the Project and the provision of any services in relation to the Project.
His Honour then concluded that claims of the kind foreshadowed by Mr Thomas of 11 July 2007 fell precisely within cl 5.1.1 and cl 5.1.3 and that cl 4.3 prohibited TPI from following the course it now seeks to pursue of deducting or setting off against BGC's final claim, damages said to have arisen in the course of performance by BGC of its obligations under the TPI Agreement. His Honour noted that the TPI Agreement contained complex provisions relating to the determination of BGC's direct costs but that viewed objectively he could see potential for dispute about whether the expenditure should properly be included under that head, but found 'there has been no dispute of that kind'. His Honour continued:
The defendant's assessment of the direct costs was considerably less than that advanced by the plaintiff, but the plaintiff has accepted the defendant's assessment. And that assessment was made without prejudice only to a legal entitlement which, in my view, does not exist. The defendant is therefore bound by its admission as to the amount of the plaintiff's direct costs.
Since the Gainshare provisions of sch 6 of the TPI Rail Alliance Agreement have been excluded from the calculation of the plaintiff's fee, I can see no defence to the plaintiff's contention that it is entitled to be paid 14 per cent of the amount of direct costs identified by the defendant.
The defendant relies also on cl S5.5 of sch 5 to the TPI Rail Alliance Agreement, which is set out above: minute of defence, par 5. This clause provides for the payment of a fee upon completion of the works or termination of the Agreement, whichever is the earlier. The works were not completed. And the Agreement has been terminated on terms which preclude the defendant from relying on prior breaches of that Agreement. [94] ‑ [96].
His Honour then concluded that because there was no merit in any of the defences raised, the application to set aside the default judgment should be dismissed and the injunction discharged.

Appellant's grounds of appeal

There are seven grounds of appeal with sub‑grounds, but it is only necessary to consider the following points which emerge from those grounds:
(a)whether the learned judge erred in finding that the stamp placed on the memorandum of appearance, being a certificate issued by an officer of the Supreme Court in accordance with O 12 r 3, was a nullity;
(b)whether the judge erred in failing to correct the irregularity in the memorandum of appearance by retrospectively ordering, pursuant to O 2 r 1(2), that the memorandum of appearance should be amended to show the correct number;
(c)whether if he had done so, the learned judge should then have set aside the default judgment as being irregularly entered.
There was a notice of contention but it was not pursued by BGC.
The appellant made an application to put some additional evidence before the court which was not opposed by the respondent. The additional evidence was of some further written communications between the parties. The application was granted.

Order 2 rule 1

Order 2 r 1 of the Rules of the Supreme Court 1971 (WA) reads:
1.Non‑compliance with Rules
(1)Where in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of anything done or left undone, been a failure to comply with the requirements of these Rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.
(2)Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings, or any document, judgment or order therein or exercise its powers under these Rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit.
(3)The Court shall not wholly set aside any proceedings or the writ or other originating process by which they were begun on the ground that the proceedings were required by any of these Rules to be begun by an originating process other than the one employed.

This order was in the rules when they came into existence in 1971. The order is in the same terms as the English O 2 r 1, which was introduced into the English rules in 1964. According to Lord Denning in Harkness v Bell's Asbestos and Engineering Ltd [1967] 2 QB 729 at 735 ‑ 736:
This new rule does away with the old distinction between nullities and irregularities. Every omission or mistake in practice or procedure is henceforward to be regarded as an irregularity which the court can and should rectify so long as it can do so without injustice.
Lord Denning said at page 734 that the new rule was enacted so as to 'get over the decision in Re Pritchard (Deceased) [1963] Ch 502'. In Metroinvest Ansalt v Commercial Union Cumming‑Bruce LJ said at 518:
It is quite clear from Harkness v Bell's Asbestos and Engineering Ltd … that the mischief at which the revision of the rules was aimed was to remove the distinction between irregular purported proceedings which were ab initio a nullity from irregular proceedings which were not void ab initio. The content of Order 2 is designed to enable the court, whenever faced with anything done or left undone in proceedings which constitutes a failure to comply with the requirements of the rules, to exercise the powers conferred by the rules without having first to decide whether the jurisdiction conferred by the rules applies at all.
See also the discussion by Spender J in Re Zagoridis; Ex parte Q'Plas Group Pty Ltd (1990) 27 FCR 108 about the history of the rule.

The learned judge erred in concluding that the certificate pursuant to O 12 r 3 and the memorandum of appearance were nullities

The learned judge therefore erred in concluding that the step taken in the proceedings; namely, the certificate of the court officer stamped on the memorandum of appearance with the wrong action number, was a 'nullity' [21]. His Honour by implication therefore held that the irregularity in the memorandum of appearance made the memorandum a nullity. Neither the memorandum of appearance entered, nor the certificate, were, with respect, nullities. They contained irregularities or one step taken was irregular. The authorities referred to above reveal this and the rule itself says so.
There is Australian authority suggesting that O 2 r 1(1) has the effect that a first reading might suggest. That is, that by operation of the rule and without any order of the court, the irregularity shall not nullify the proceedings or any step taken in the proceedings, or any document therein. See Perez v Transfield (Qld) Pty Ltd [1979] Qd R 444 which was applied in Kanyilmaz v Nominal Defendant (Qld) [2000] QSC 180 and Bates v Queensland Newspapers Pty Ltd [2001] QSC 083. See also Bill Discount Services Pty Ltd (In liq) v Dill‑Macky (Unreported; WASC; Library No 6700; 7 May 1987) per Brinsden J at 6. See also the discussion in Chernov J's reasons in ANZ Banking Group Ltd v Kostovski (Unreported; SCt of Vic; 5511/97; 2 July 1997). However, in England in the Metroinvest case, Cumming‑Bruce LJ said at 520:
As I construe Order 2 rule 1, from the moment a step in proceedings is tainted by irregularity through failure to comply with the rules, the irregular step or document remains irregular inter partes until the matter has been brought before the court and the court has decided in which way to exercise the jurisdiction conferred by Order 2 rule 1(2).
In Monteleone v The Owners of the Old Soap Factory [2007] WASCA 79 at [25] ‑ [34], McLure JA discussed the effect of O 2 and said in particular at [27] that:
On one reading of O 2 it might be thought that because an irregularity does not nullify the proceedings or any step in the proceedings, an irregular step is valid unless and until the 'innocent' party obtains an order under O 2 r 2.
McLure JA however noticed the existence of the decision in Metroinvest but did not consider the point further because the parties in that case had not challenged the correctness of Metroinvest. Her Honour also noticed the case of Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79 where the Full Court proceeded on the assumption that Cumming‑Bruce LJ's view about O 2 r 1 was correct (but without any discussion about the correctness of the decision on that point).
In an appropriate case, it may be necessary to decide whether Metroinvest is correct. It is not necessary or desirable to consider whether the assumption made by the Full Court in Brealey was a correct assumption, or whether the reasoning in the Australian authorities referred to above should be accepted in preference to the reasoning of their Lordships in Metroinvest. It is not necessary or desirable to resolve the point because there may be other more extreme instances of irregularities which require close consideration of all these authorities, and because, even if Metroinvest is correct, this is such a plain case for the exercise of the court's powers (including the power of amendment) referred to in O 2 r 1(2), for the following reasons.
The court may exercise the discretionary powers conferred by O 2 r 1(2) of its own motion. See Slade LJ in Metroinvest at 522. Like all judicial discretions unconfined by any express conditions, the discretion should be exercised judicially and, adopting the language of Lord Denning in Harkness, any irregularity should be rectified so long as it can be done without injustice.
In this case the justice of the case appears clear. TPI's solicitors rang BGC's solicitors and told them they were entering an appearance the next morning. They sent to BGC's solicitors a copy of the memorandum of appearance which they proposed filing and referred in the covering letter to the names of the parties and the correct action number. BGC's solicitors entered default judgment. Although having been told immediately that a memorandum of appearance had been filed before the default judgment had been filed, BGC then resisted the application to set aside the default judgment. Lord Denning said in Harkness at 736, that as a result of O 2 r 1 'It can at last be asserted that "it is not possible for an honest litigant in Her Majesty's Supreme Court to be defeated by any mere technicality, any slip, any mistaken step in his litigation"', quoting from Pontin v Wood [1962] 1 QB 594 per Holroyd Pearce LJ at 609. An honest litigant is a litigant who has a claim or defence which it wants to have determined by the court, which claim or defence is not patently absurd, frivolous or vexatious. In short, that there is a genuine dispute between the parties.
For the reasons appearing below, the conclusion of the court is that there was a genuine dispute between the parties. Also, for the reasons appearing below, TPI has a reasonably arguable defence in relation to the 11 July letters. The learned judge should not have concluded summarily that the 11 July letter from Mr Thomas was not written 'entirely without prejudice' or that BGC was entitled to rely on it as TPI's assessment of BGC's direct costs. As a result, his Honour erred in concluding that there was no defence to BGC's claim for a fee of 14% on the amount appearing in the letter of 11 July 2007 from Mr Thomas.

Was there a genuine dispute between the parties?

During the course of the hearing of the appeal, it was submitted by BGC that it was necessary for TPI to show that it had an arguable case, and that on the application to set aside the default judgment, TPI 'must present a credible defence demonstrating that, if the default judgment were set aside and the matter was argued on its merits, the defendant would have a real prospect of success'. See Parker v Transfield Pty Ltd [2000] WASCA 382 and Rollond & Anor v Bank of Western Australia Ltd (Unreported; WASCA; Library No 980498; 3 September 1998). (Note however, Newnes J's observation in Hall v Hall [2007] WASC 198 and see ACN 076 676 438 Pty Ltd (In Liq) v A‑Comms Teledata Pty Ltd [2000] WASC 214.)
Debate about the considerations relevant to the exercise of the discretion to set aside a default judgment does not have to be entertained here, because this court has concluded that the irregularity in the memorandum of appearance and subsequent certificate should be regularised by an order under O 2 r 1(2). The result then is that the entry of the default judgment was not regularly entered and in those circumstances, the judgment should be set aside without terms.
In the court's opinion, there was and is a genuine dispute between the parties about four issues. However the court has concluded in addition that TPI had, and has, a reasonably arguable defence in relation to the third issue dealt with below concerning the 11 July letters. The first issue is about the percentage to be applied to the total of the direct costs for the purpose of determining the profit payable to BGC, the second is about the amount of direct costs payable under the deed of termination, the third is about whether the two 11 July 2007 letters constitute or contained privileged 'without prejudice' communications and the fourth, (an aspect of the third) is a dispute about whether or not TPI made an open admission as to the amount of direct costs it considered payable pursuant to cl 4(e) of the Deed of Termination.

The fee dispute

Counsel for BGC contended that there could be no dispute that BGC was entitled to 14% of direct costs. It mounted this argument by reference to cl S5.4 in sch 5 to the TPI Agreement. It refers to a 14% fee. TPI on the other hand refers to cl S5.3 which indicates that BGC will place at risk a proportion of its fee up to 10% of direct costs in accordance with sch 6. How this operates if sch 6 is not to apply will have to be resolved.
It was quite apparent from the communications which passed between the parties before the litigation commenced, that a dispute existed and that TPI contended that BGC's fee was to be 4% of the direct costs. This is evident from TPI's letter of 21 June 2007 which was before the learned judge. As already stated, it is not appropriate for this court to express any opinion about the likely outcome of the debate. All that is necessary to say is that there is a genuine dispute to be resolved.
In the circumstances, the learned judge should not have determined that TPI's submissions in relation to the proper construction of the Deed of Termination were without merit and that there was, in consequence, no merit in TPI's proposed defence. Difficult issues of construction arise, and they should not have been resolved summarily.

The Direct Costs dispute

Clearly there was a dispute between the parties about the total of direct costs if regard is had only to BGC's claim and the formal response from TPI in its letter of 21 June 2007. The contention of BGC is that the parties then negotiated in good faith as cl 4 of the Deed of Termination contemplates and that in terms of cl 4.1(e), TPI 'accepted' the claimed amount of direct costs 'until final resolution'. This is disputed by TPI and that dispute depends upon whether there was in fact an open admission made in the letters of 11 July 2007 and whether what was said in those letters was privileged on the basis that they were 'without prejudice' communications.

The dispute about whether 11 July letters were 'without prejudice' communications and whether an open admission was made pursuant to cl 4.1(e) by TPI

In the court's opinion there is a genuine dispute between the parties about whether the letters were privileged. The letter before his Honour which was the longer letter written by Mr Thomas on 11 July 2007, contains the qualifying words 'without prejudice' in the paragraph which refers to the amount of 'Direct Costs' which TPI proposed and which exceeded the amount referred to in their letter of 21 June 2007. BGC contends that there is sufficient in that letter to indicate that an admission was being made for the purposes of cl 4.1(e) of the Deed of Termination. They are the part sentences of the letter which read 'TPI has assessed the total cost due to BGC' and 'This is TPI's assessment of BGC's Direct Costs' and 'TPI authorises the release' of money.
The learned judge only had before him the 11 July 2007 letter from Mr Thomas, but the existence of the words 'without prejudice' is sufficient in this court's opinion, to reveal the existence of a genuine dispute and a reasonably arguable defence about whether the letter should be read as making a 'without prejudice' offer of settlement. The letter from Mr Forrest dated 11 July 2007 and marked 'without prejudice', when read in conjunction with Mr Thomas' letter, confirms that there was a reasonably arguable defence and a genuine dispute between the parties about whether the letters were privileged. If the communications were privileged, then there is clearly a genuine dispute about whether the letters contain any open admissions.

The learned judge erred in concluding that there was no defence

The learned judge concluded that there was no defence by examining the contents of Mr Thomas' 11 July 2007 letter and concluding that TPI's proposed defence and counterclaim for damages based on BGC's alleged breaches of the TPI Agreement was untenable in that the Deed of Termination contained releases from such claims. However, with respect, his Honour appears to have overlooked par (a) in Mr Thomas' letter of 11 July 2007 which is an indication that there was a genuine dispute about the calculation of direct costs.
For those reasons, the court concluded that there was a genuine dispute between the parties and that his Honour erred in concluding that there was no defence to BGC's claim. As already indicated, this court is also of the opinion that there is a reasonably arguable defence that the 11 July letters were the subject of privilege.

The orders made at the conclusion of the appeal

As well as granting leave to appeal and allowing the appeal and setting aside the judgment of the learned judge and ordering that the default judgment be set aside, the court also made an order retrospectively amending the memorandum of appearance to substitute the correct action number for the incorrect action number. It ordered that this then stand as an appearance from and including 14 August 2007, on the basis that pursuant to O 2 r 1(2) the court may make such order 'as it thinks fit'. In the opinion of the court, this order can be given retrospective effect. See the observations in Silverstone Holdings Pty Ltd v American Home Assurance Co (1997) 18 WAR 516 at 527 per White J and 536 per Parker J, Kennedy J agreeing.
The retrospective order having been made, the irregularity in the memorandum of appearance was corrected. The appearance was therefore validly and effectively entered on 14 August 2007 before the default judgment was filed. As a result, the default judgment must necessarily be set aside because judgment can be entered under O 13 r 2(1) only if the 'defendant fails to enter an appearance to the writ'.
For all of those reasons, the court granted leave to appeal and allowed the appeal.