Heavy Plant Leasing Pty Ltd (In Liquidation) v McConnell Dowell Constructors (Aust) Pty Ltd (No 3)

1. [1]

   I gave judgment in this matter on 21 December 2022. [1] These reasons assume familiarity with that judgment. I will use the same abbreviations.

2. [2]

   I will refer to paragraphs of my 21 December 2022 judgment thus: “[Jxxx]”.

3. [3]

   I concluded that MacDow was entitled to terminate the Contract.

4. [4]

   It was common ground that, in that event, MacDow was entitled to damages calculated in accordance with cl 26.5 of the Contract and that:

   1. (1)

      the cost to complete the works was to be determined and assessed against the unpaid balance of the Contract sum;

   2. (2)

      if the cost to complete exceeded the unpaid balance, then HPL owed MacDow the difference;

   3. (3)

      if that cost was less than the Contract sum, then MacDow owed HPL the difference;

   4. (4)

      consistent with Robinson v Harman, [2] the effect of this was to place MacDow in the same position, as far as money can, that it would have been in had the Contract been fully performed;

   5. (5)

      the assessment was to be undertaken by identifying three key amounts:

   6. (6)

      the Adjusted Contract Sum was to be deducted from the sum of the Amount Paid to HPL and the Cost to Complete to determine the amount payable to MacDow by HPL or to HPL by MacDow. [3]

5. [5]

   MacDow terminated the Contract on 18 March 2013.

6. [6]

   On 5 August 2013, MacDow made a claim on its principal, Fluor, claiming “Request for Reimbursement of Delay and Disruption Costs” totalling some $108.7 million. [4]

7. [7]

   That claim was settled on the basis of Fluor paying MacDow, amongst other amounts, $17.5 million.

8. [8]

   An issue arises in the proceedings as to how that payment is to be taken into account in assessing MacDow’s Cost to Complete.

9. [9]

   In that context, I said:

10. [10]

    And:

11. [11]

    I have now received written and oral submissions on that topic.

12. [12]

    There was no dispute as to the relevant principles:

13. [13]

    MacDow accepts that HPL has raised the potential that MacDow has received payment from Fluor relevant to an aspect of its Cost to Complete claim and that, accordingly, it has the evidentiary onus to show that the $17.5 million does not compensate it for any part of that claim.

14. [14]

    MacDow contends that no deduction should be made from its claim against HPL for the Cost to Complete on account of its receipt of the $17.5 million or, alternatively, that the amount to be deducted is $185,746.72.

15. [15]

    On the other hand, HPL contends that the whole of the $17.5 million should be deducted from MacDow’s Cost to Complete claim.

16. [16]

    Based on the other findings I have made, the effect of acceptance of HPL’s position would be that, although I have concluded that MacDow was entitled to terminate the Contract, and that “HPL has failed to establish its case”, [10] MacDow owes HPL a significant sum; some $12.7 million.

17. [17]

    That would be a surprising result.

18. [18]

    However that may be, the conclusion to which I have come is that it is not open to HPL now to contend that the entire $17.5 million should be deducted from what would otherwise be MacDow’s entitlement to recover its Cost to Complete.

How the case was run

1. [19]

   The competing position of the parties in relation to the elements comprising MacDow’s claim for damages was set out in a table prepared by the parties called “Table of Quantum”, to which I referred at [J418].

2. [20]

   The part of that Table relating to MacDow’s claim for Cost to Complete is attached to these reasons.

3. [21]

   At [J450] I said:

4. [22]

   The competing figures of $42.9 million and $39.8 million were taken from the Table of Quantum.

5. [23]

   HPL’s contention, which I recorded at [J450], that I should allow no sum to MacDow for Cost to Complete was based on what I referred to in the judgment as the “not proven” point.

6. [24]

   That point arose from a contention made at the last minute by HPL’s quantity surveying expert, Mr Bolt.

7. [25]

   Thus, at [J477] and [J478] I said:

8. [26]

   HPL embraced that opinion and submitted:

9. [27]

   At [J479] I said:

10. [28]

    The basis referred to at [J479(1)] was Mr Bolt’s point that I summarised at [J477]. I did not accept that point. [11]

11. [29]

    I also did not accept the basis set out at [J479(2)]. [12]

12. [30]

    It is the basis set out at [J479(3)] that arises for consideration here.

13. [31]

    I dealt with this question at [J497]-[J508], including in [J507] that I have set out at [10] above.

14. [32]

    Before turning to that question, it is necessary to see the context in which I made the remarks at [J507].

15. [33]

    In addition to preparing the Table of Quantum, the parties prepared, at my request, a “Redfern Schedule” setting out, in summary, their contentions in relation to each matter in dispute. I populated the Redfern Schedule with my decision in relation to each matter and attached a copy to the judgment at [J420].

16. [34]

    The Redfern Schedule was prepared so as to be read in conjunction with the Table of Quantum, and by reference to the same line items.

17. [35]

    The presently relevant line items were:

18. [36]

    A copy of the relevant part of the Redfern Schedule is attached to these reasons.

19. [37]

    It can be seen that, in both the Table of Quantum and the Redfern Schedule, Item 2 was a summary of MacDow’s overall Cost to Complete claim. Sub-items 2.1, 2.1.1, 2.1.2, 2.1.3 and 2.2 comprised the five elements making up MacDow’s total Cost to Complete claim.

20. [38]

    In the panel in the Redfern Schedule corresponding to line item 2 in the Table of Quantum, MacDow specified quantum of $43,558,849.90 (slightly more than the figure in the Table of Quantum: $42,933,781.77).

21. [39]

    On the other hand, HPL stated its “primary position” was quantum of $0.00 and, as an “alternative position”, $38,634,858.46 (slightly less than its position as stated in the Table of Quantum of $39,850,522.09).

22. [40]

    In support of its “primary position”, HPL stated:

23. [41]

    This was HPL’s “not proven” point arising from the evidence of Mr Bolt.

24. [42]

    In this part of the Redfern Schedule, HPL also said:

25. [43]

    This statement related to the payment of $17.5 million from Fluor to MacDow, being the basis referred to at [J479(2)].

26. [44]

    However, in HPL’s population of the panels in the Redfern Schedule referable to the five elements of MacDow’s Cost to Complete claim, HPL only referred to the payment from Fluor in panel 2.2.2, that dealt with Overheads and Management.

27. [45]

    At that point in the Redfern Schedule, HPL stated:

28. [46]

    Thus, it was only in respect of the Overheads and Management component of MacDow’s Cost to Complete claim that, in the Redfern Schedule, HPL contended that the payment from Fluor ought be brought to account.

29. [47]

    At Item 2.2.2 of the Redfern Schedule, HPL said that, by reason of the matters set out above, the amount recoverable by MacDow for Overheads and Management was $0.00, alternatively $1,215,663.63, the latter figure being the figure specified by it in the Table of Quantum as being its position in relation to MacDow’s Overheads and Management claim.

30. [48]

    This makes clear to me that, contrary to the position now being put by HPL, it was not at trial contending that the payment received from Fluor, the $17.5 million, should be deducted in whole from the total of MacDow’s Cost to Complete claim. Otherwise, in the panel of the Redfern Schedule dealing in summary with MacDow’s Cost to Complete claim, HPL would have posited a second “alternative position”, namely that $17.5 million should be deducted from MacDow’s Cost to Complete claim.

31. [49]

    This makes clear that HPL did not contend, during the hearing, as it now seeks to contend, that the $17.5 million received from Fluor should be deducted from the total of MacDow’s Cost to Complete claim.

32. [50]

    Consistently with this, no suggestion was made by HPL in either its written or oral submissions at trial that this should be so.

33. [51]

    In that regard, HPL pointed to this paragraph from its written quantum submissions dated 26 October 2022:

34. [52]

    That submission appears to me to fall well short of the submission that the $17.5 million should be fully deducted from MacDow’s Cost to Complete claim.

35. [53]

    In oral submissions on 31 October 2022, it was put on behalf of HPL:

36. [54]

    Again, this submission falls well short of the submission HPL now seeks to make.

37. [55]

    It is in that context that I made the statement at [J497] that I have set out at [9] above.

38. [56]

    That in turn led me to make the statement at [J507] to which I have referred.

39. [57]

    My enquiry related only to the issue that was at play in the proceedings concerning the $17.5 million; that is the extent to which it should result in deduction from that element of MacDow’s Cost to Complete claim that related to Overheads and Management: [15] that being the case that HPL ran at trial.

40. [58]

    In those circumstances, my conclusion is that it is not open for HPL now to contend that the whole of the $17.5 million should be deducted from MacDow’s claim.

41. [59]

    In any event, and looking at the matter generally, it seems improbable that, as a matter of fact, all of the $17.5 million paid by Fluor to MacDow was attributable to the work done by HPL on the Project. The original value of the Head Contract between Fluor and MacDow was anticipated to be approximately $367.8 million. Of those works, the value of the HPL subcontract was anticipated, before its scope was reduced, to be approximately $81.3 million. HPL’s original scope therefore represented about 22% of the total value of the original Head Contract Works. The value of the Head Contract between MacDow and Fluor was varied. It was ultimately some $545.4 million, compared to the value of HPL’s works which were, as varied, some $60.86 million. On that basis, the value of HPL’s scope of work represented in the order of 11% of the total value of the Head Contract Works. HPL was only one of many subcontractors engaged by MacDow on a very large project. In those circumstances, it seems improbable that all of the $17.5 million paid by Fluor to MacDow in response to MacDow’s claims in relation to the whole project related only to HPL’s scope, which ultimately represented about 11% of the value of the Project.

What, if any, part of the $17.5 million can be attributed to MacDow’s Overheads and Management claim?

1. [60]

   MacDow accepts that components of its Overheads and Management claim against HPL were contained in the claim it made on Fluor on 5 August 2013.

2. [61]

   That claim had nine elements.

3. [62]

   Only four of those nine elements related to work done by MacDow that was within HPL’s scope of works.

4. [63]

   Of those four elements, two related to variations, one of which HPL did not press, [16] and the other which I did not accept. [17]

5. [64]

   Of the remaining claims made by MacDow against Fluor, being its claim for “Contractor Site Indirects” and “Recurring Site Running Costs”, MacDow has conducted a detailed analysis that reveals that the total potential overlap between the claim made by MacDow on Fluor and MacDow’s Overheads and Management claim against HPL is $742,968.86. [18]

6. [65]

   HPL did not dispute the accuracy of that analysis, save to submit that whereas MacDow adopted, as the relevant daily rate, the rates it charged HPL for the relevant costs, the correct rates are the much higher rates that MacDow charged Fluor for the same costs. HPL contends that this is so because MacDow claimed those higher rates in its claim against Fluor and was “compensated on the basis of the higher rates in the Fluor-MacDow contract”.

7. [66]

   But the question here is whether MacDow has received payment from Fluor that duplicates the damages it seeks from HPL. That requires a comparison between the indirect costs, in the form of overheads, that it sought to recover from Fluor, with the costs that it now seeks to recover from HPL. That requires use of the rates MacDow charged HPL, notwithstanding the fact that MacDow charged higher rates in its claim against Fluor.

8. [67]

   An example illustrates the point. In its claim against HPL, MacDow claimed transportation costs (supervisor vehicles, buses and so on) at the daily rate of $954.79. MacDow charged Fluor a daily rate for the same item of $25,741.09, obviously reflecting the transportation costs incurred by MacDow over the whole of the Project. It would not be appropriate to calculate the cost of potential duplication between the payment received by MacDow from Fluor and the claim made by MacDow on HPL on this basis.

9. [68]

   It follows that the quantum of the potential overlap between the claim made by MacDow on Fluor and MacDow’s claim against HPL for Overheads and Management is correct: $742,968.86.

10. [69]

    On the face of it, that amount should be set off against MacDow’s claim against HPL.

11. [70]

    MacDow argues that this does not follow because it has discharged its evidentiary onus of showing that no part of the $17.5 million relates to the Contractor Site Indirects and Recurring Site Running Costs.

12. [71]

    On 27 November 2013, Fluor’s solicitors, Corrs Chambers Westgarth, conducted an analysis of MacDow’s claim. The parties referred to an aspect of this as the “Traffic Light Analysis”. This was because Corrs allocated a colour, red, orange or green, to each element of MacDow’s claim; indicating whether MacDow had a “probable” entitlement to the costs claimed (counterintuitively signified by red shading), a “possible” entitlement (signified by orange shading) or an “unlikely” entitlement (signified by green shading).

13. [72]

    Corrs allocated a green shading (“unlikely” entitlement) to the two relevant aspects of MacDow’s claim, Contractor Site Indirects and Recurring Site Running Costs.

14. [73]

    Thus, MacDow submitted, it was unlikely that any part of the figure of $17.5 million that Fluor ultimately agreed to pay MacDow related to these two claims.

15. [74]

    The difficulty with this submission is that Corrs also allocated green shading to all but two of the claims made by MacDow, indicated an orange shading to those two and did not allocate a red shading (“probable” entitlement) to any of MacDow’s claims.

16. [75]

    The settlement was ultimately recorded in the 5 February 2014 Settlement Deed, to which I referred at [J498].

17. [76]

    In that document, “Settled Claims” was defined to include all liabilities that Fluor might have to MacDow “including but not limited to the facts or circumstances” referred to in MacDow’s 5 August 2013 claim.

18. [77]

    Corrs’ advice to Fluor suggested that Fluor saw the $17.5 million as a compromise to cover many possibilities, not limited to the claims made by MacDow in its 5 August 2013 letter.

19. [78]

    Thus, Corrs advised:

20. [79]

    In those circumstances, I am not satisfied that any conclusion can be drawn from the “Traffic Light Analysis”.

21. [80]

    Alternatively, as it had foreshadowed at trial, and as I recorded at [J507], MacDow submitted on this application that:

22. [81]

    I agree that this proposed method is “rough and ready”. But it is worse than that. The proposed method is entirely speculative and would not provide a sound basis from which to draw any conclusion as to the proportion of the settlement sum of $17.5 million that should be attributed to MacDow’s Overheads and Management claim against HPL.

23. [82]

    MacDow pointed to the decision of Hammerschlag J (as his Honour then was) in Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd [19] in this regard. However, as HPL has pointed out, in that case Hammerschlag J did not propose any such process of apportionment or agree that such an apportionment of a global settlement sum could or should be applied. [20]

24. [83]

    My attention has not been drawn to any legal principle which would permit the adoption of the pro rata approach for which MacDow contended. [21]

Conclusion

1. [84]

   MacDow has not sustained its evidentiary onus of showing that the $17.5 million payment from Fluor was not received by it in compensation of the Overheads and Management claim it makes against HPL.

2. [85]

   Accordingly, my conclusion in relation to the question I posed at [J507] is that the manner in which the $17.5 million payment by Fluor to MacDow must be taken into account in determining MacDow’s Cost to Complete is to set it off completely against what would otherwise be MacDow’s entitlement to payment for Overheads and Management. I understand that figure is agreed to be $1,215,663.63.