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[2009] VSCA 310
Court of Appeal (Vic)
2009-12-18
REDLICH and DODDS-STREETON JJA and BEACH AJA
Original judgment source is linked above.
MCCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD (ACN 002 929 017)
A J Lucas Drilling v McConnell Dowell Constructors (Aust) Pty Ltd (No 1) [2007] VSC 500 (Byrne J)
A J Lucas Drilling v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2008] VSC 275 (Byrne J)
A J Lucas Drilling v McConnell Dowell Constructors (Aust) Pty Ltd (No 3) [2008] VSC 315 (Byrne J)
BUILDING CONTRACTS - Sub-contract determined prior to completion without fault by sub-contractor - Valuation works completed - Pro-rata assessment of contract lump sum to reflect percentage completion of original work scope - Whether trial judge's valuation was precluded by the construction of relevant clauses in the sub-contract - Variations valued on a cost plus margin basis - Changes to work scope and new methodology - Whether variations under sub-contract - Whether error in not allowing full risk component in pro-rata value - Whether sub-contractor accepted the risks associated with changed methodology and the cost of the re-engineering and its implementation - Valuation of variations to the work scope by the changed methodology - Whether the sub-contractor was entitled to compensation for delay.
PRACTICE AND PROCEDURE - Interest at penalty interest rates pursuant to s 58 Supreme Court Act 1986 - Whether the appellant's claim was for a sum certain - Whether appellant's letter constituted a demand - Whether good cause was shown to the contrary.
1 This appeal and cross-appeal arise from a dispute over the payment due under a sub-contract between the parties, McConnell Dowell Constructors (Australia) Pty Ltd ('McDow') and A J Lucas Drilling Pty Ltd ('Lucas'). McDow was party to a head contract with BHP Billiton Petroleum Pty Ltd ('BHPB') to design and construct certain facilities at the Minerva Gas Field near Port Campbell in Victoria.
2 The principal issue on appeal is whether, in circumstances where the sub-contract determined prior to completion without fault by Lucas, the trial judge erred in valuing its work done up to that date by applying the sub-contract lump sum of $5 million pro-rata to reflect the percentage completion of the original work scope and adjusting it for variations valued on a costs plus margin basis, which produced a total award of $3,672,925 plus GST. His Honour also awarded Lucas interest running from 23 September 2003 pursuant to s 58 of the Supreme Court Act 1986.
3 The appellant contended that the trial judge's valuation methodology was precluded on a proper construction of cl 24.4 of the sub-contract, which instead mandated a quantum meruit valuation of all work reasonably and properly performed, based on costs of $6,822,668 and the sub-contract margin of 40.6 per cent plus GST, resulting in a total sum of $10,551,938.
4 Alternatively, the appellant submitted that, if the valuation methodology adopted by the trial judge were correct, he applied it erroneously in a number of instances.
5 The sole issue in the cross-appeal is whether his Honour erred in holding that McDow was liable to pay interest under s 58 of the Supreme Court Act 1986 on Lucas' award from 23 September 2003 (the date of Lucas' letter to McDow in relation to its claims to payment under cl 24.4 of the sub-contract).
6 Under the sub-contract between McDow and Lucas dated 26 June 2002 (but not executed until 28 November 2002), Lucas was required to design and construct a shore crossing at the gas field. Its principal construction task required the horizontal drilling and installation of two 16 inch diameter cased bore holes about 1500 metres in length extending from the shore to a point on the sea bed. One of the bore holes ('the umbilical line') was to carry fluid injection lines and a control line from the shore. The other bore hole ('the flowline') was to carry the gas product to the shore.
3.1 The Sub-Contractor shall execute and complete the Sub-Contract Works subject to and in accordance with this Sub-Contract and in all respects to the satisfaction of MacDow.
3. Sub-Contract Works:
Design and construction of two horizontally directionally drilled ("HDD") shore zone crossings for the Minerva flowlines, chemical injection lines and umbilical control line. More duly described in Appendix "A" attached hereto.
9 Appendix A included the scope of works, which may be summarised as follows:
the casing of one borehole with 10 inch diameter steel casing;
the installation into the cased borehole of the umbilical bundle;
10 It was not disputed that the sub-contract works included authorised variations.
11 The sub-contract provided that Lucas was to receive $5 million for its works as progress payments payable on the achievement of specified milestones.
13. Sub-Contract Sum
13.1 The price of the Sub-Contract Works (the "Sub-Contract Sum") shall be the sum named in or to be determined by the provisions of the Schedule or such other sum as shall become payable under the provisions of this Sub-Contract.
13.2 The price is a fixed price not subject to measurement or recalculation should the actual quantities of work and materials differ from any estimates available at the time of contracting, except in regard to variations which may be ordered by MacDow, which shall be valued under the terms of this Sub-Contract in accordance with clause 14 (For Lump Sum contract).
13 On 16 September 2003, when the bore holes were complete but the casings were not yet inserted, BHPB terminated McDow's employment under the head contract. In consequence, Lucas' employment was also terminated, pursuant to cl 24.3 of the sub-contract. McDow did not allege that the termination was due to any breach or default by Lucas.
14 On termination of the sub-contract, the outstanding work included:
At the date of termination of the subcontract the works were incomplete. Lucas was yet to complete critical work, namely the insertion of the gas flowline into the product borehole and the insertion of the umbilical bundle into the umbilical borehole. The HDD engineering works were not yet complete. Hydrostatic testing, bottom stabilisation, gauging and integrity testing had not been performed. In addition, in January 2003 (or certainly by July 2003) Lucas had abandoned the diving and marine works. Lucas witnesses conceded that Lucas was not intending to undertake the offshore works, works which were in June 2003 valued by Lucas at about $1.5m and which would have to be completed in any event.[2]
15 As at 16 September 2003, Lucas had not received any payment for its work at the Minerva Gas Field because no milestones had been achieved.
16 Following the termination of its employment, Lucas, by a letter dated 23 September 2003, claimed to be entitled to payment pursuant to cl 24.4. Ultimately, it claimed approximately $10 million. McDow asserted that Lucas was entitled to only $2,246,643.67 plus GST, which it paid on 12 October 2007.[3]
17 Clause 24 of the sub-contract dealt with payment due on the termination of the sub-contract. It stated:
24. Determination
24.1 If the Sub-Contractor:
a) abandons this Sub-Contract;
Then in any such event, and without prejudice to any other rights and remedies including the right to treat this Sub-Contract as repudiated by the Sub-Contractor under the general law, MacDow may, by written notice to the Sub-Contractor, determine forthwith the Sub-Contractor's employment under this Sub-Contract and may expel the Sub-Contractor from the Sub-Contract Works and take over all the plant, equipment and materials provided by or on behalf of the Sub-Contractor which are on the Site of the Sub-Contract Works or are being used in connection therewith and may use the same to complete or have completed the Sub-Contract Works.
24.2 The Sub-Contractor shall pay to MacDow the amount of any and all loss, damages, costs and expense caused to MacDow by reason of such determination. Until after completion of the Sub-Contract Works MacDow shall not be bound to make further payment to the Sub-Contractor but upon such completion and within a reasonable time thereafter MacDow shall ascertain the amount of expense reasonably incurred in completing the Sub-Contract Works and the amount of loss, damages, costs and expense caused to MacDow by reason of the determination and if such amounts when added to the monies paid to the Sub-Contractor before the date of determination exceed the total amount which would have been payable on due completion in accordance with this Sub-Contract the difference shall be a debt payable to MacDow by the Sub-Contractor; and if the said amounts when added to the said monies do not exceed the said total amount then the money payable to the Sub-Contractor shall be the lesser of:
a) the difference between
(i) the said amounts when added to the said monies; and
(ii) the said total amount; or
b) the aggregate of:
(i) the value of any work actually and properly executed and not paid for at the date of such determination, such value to be calculated according to clause 14;
(ii) the value of any unfixed goods and materials which were taken over by MacDow on determination and used by MacDow and a fair payment for hire of such of the Sub-Contractor's plant as were used by MacDow, in completing or having completed the Sub-Contract Works.
Notwithstanding anything else herein, no sums shall be payable to or credited to the Sub-Contractor following determination under clause 24.1, until MacDow is in receipt from the Employer of a payment which includes such sums.
24.3 If for any reason MacDow's employment under the Head Contract is determined (whether by MacDow or the Employer and whether due to any default of MacDow or otherwise) then the employment of the Sub-Contractor under this Sub-Contract shall thereupon also de [sic] determined automatically.
24.4 Unless the determination of the Head Contract was caused or contributed to by any default or breach of contract the Sub-Contractor (in which event the Sub-Contractor shall be liable to MacDow for damages on the same basis as if the Sub-Contractor had wrongfully repudiated the Sub-Contract) or unless MacDow was entitled at time of determination of the Head Contract to exercise its right of determination under clause 24.1 (whether or not any act or default of the Sub-Contractor caused or contributed to the determination of the Head Contract, the Sub-Contractor shall be paid (after allowing for any previous payment):
24.5 MacDow may, at its sole discretion, instead of determining the Sub-Contractor's employment under clauses 24.1(b), (c), (e) or (f), suspend the obligations of the Sub-Contractor or any part thereof and MacDow may upon such suspension at the cost of the Sub-Contractor move in and undertake directly or through other contractors the management or supervision or carrying out of the whole or any part or parts of the Sub-Contract Works to the extent and for such time or times as MacDow deems necessary. Any suspension of the Sub-Contractor's obligations hereunder shall not in any way relieve or affect its obligations under this Sub-Contract.
14. Variations
14.1 For the purposes of this Sub-Contract, variation shall mean any change to the Sub-Contract Works briefly described in the Schedule and attached as Appendix "A" hereto and shall be limited to:
b) change the character or quality of any material or work;
14.2 The Sub-Contractor shall not vary the work under the Sub-Contract except as directed by MacDow or approved in writing by MacDow.
14.3 MacDow may at any time and from time to time require variations to the Sub-Contract Works. No variation required by MacDow shall vitiate this Sub-Contract.
14.4 Without prejudice to clause 11.5, any additions to the Sub-Contract Works shall be executed; and any omissions from the work omitted only after the written approval of MacDow has first been obtained and MacDow shall not be liable to the Sub-Contractor for the cost of executing such extra work if MacDow has not given prior approval to the work being undertaken.
14.5 The value of all variations made or allowed shall be valued in accordance with the schedule for pricing of the variations, or, where there is none, then, unless otherwise agreed, such value shall be determined in accordance with the following rules:-
(i) at the rates, if any, inserted by the Sub-Contractor for this purpose in the schedule of rates or the bills of quantities or in any other Sub-Contract Document; or
(ii) where no such rates have been inserted, at the actual prime cost to the Sub-Contractor of his materials, transport and labour for the work concerned, plus the percentage stated in the Schedule, which percentage shall be deemed to compensate adequately the Sub-Contractor in respect of all costs including costs of ordinary plant, tools, existing scaffolding and for supervision, overheads and profit.
Provided that as a condition precedent to payment in either case under this paragraph, vouchers specifying the time daily spent upon the work (and, if required by MacDow, the workmen's names) and any plant, equipment or materials employed shall be delivered for verification to MacDow not later than one working day following that in which work has been executed.
19 The litigation involved separate trials on liability, quantum and loss of profits and costs respectively.
20 The liability trial commenced on 9 October 2007. It ran for 16 days. The central issue was how Lucas' entitlement to payment under cl 24.4 of the sub-contract was to be calculated. His Honour delivered his decision on 7 December 2007 ('the liability judgment').[4]
22 At trial, Lucas' pleaded case was to recover pursuant to cl 24.4 by reference to items in a Scott Schedule, 25 line items which were derived from the first Fox report.[7] Items 1 to 7 comprised costs of the original scope works. Items 8 to 25 comprised costs incurred in completing claimed variations.
23 Lucas sought unsuccessfully to amend its pleadings to disallow reliance on the Fox report and to increase its costs by $500,000. Ultimately, however, its claim as presented was for all work reasonably and necessarily carried out in furtherance of the sub-contract, to be valued on a cost plus basis.
Lucas contended that on the proper construction of clause 24.4, it was entitled to be paid the "fair value" (derived from clause 14) of all the work it reasonably and necessarily performed for the project. It further contended that the proper basis of that valuation was the cost of all the work it performed and goods it supplied plus the subcontract margin of 46.1%. Lucas' costs of performing the work were not challenged by McDow.
McDow contended that Lucas' payment entitlements under clause 24.4 had to "take account of and reflect, insofar as it was appropriate to do so, the original contract price for the Subcontract Works, the provisions of the Lucas Subcontract in respect of the obligations to be undertaken by Lucas and the entitlement to claim and valuation of any variations".
McDow's position was that Lucas' entitlement to payment in respect of the original scope works was to be calculated on a pro-rata basis against the agreed $5m subcontract price by reference to the level of completion of the original scope works. To the extent that Lucas sought payment pursuant to clause 24.4(a) in respect of alleged variations, McDow contended that Lucas was only entitled to be paid in respect of those works if it could establish an entitlement to be paid for those works as a variation pursuant to the provisions of the subcontract.[8]
25 Before the trial judge, each side presented 'an extraordinarily complicated case'.[9] The evidence was voluminous, although much of it was not referred to. The pleadings were, his Honour observed, also voluminous and confusing and did not identify the issues. His Honour noted that there was little co-operative identification or refinement of the real issues. The approach adopted by one party 'focussed on the minutiae' while the approach of the other party was 'more broad-brush'.[10]
26 The parties, agreed, however, on the following questions for determination at trial:
2.1 What is the proper interpretation of clause 14.5; alternatively, which part of it is applicable, in determining the basis upon or approach to valuing the works?
2.2 If "fair valuation" is the appropriate basis for valuing the works, what is the basis upon which that value is to be calculated?
2.3 If "fair valuation" is cost plus margin, is the appropriate margin:
(a) tender margin;
(b) industry margin;
(c) the margin specified by the parties in item 10 of the Schedule to the subcontract, being 7% on materials and 5% on services?
5.1 On what basis is interest payable?
5.2 From what date does interest run?
5.3 What rate of interest?[11]
27 Lucas contended that all its work, if reasonably performed in furtherance of the sub-contract (after allowing for any defective or redone work), should be valued as it stood at the date of termination on the basis of costs plus an appropriate margin. Lucas' witnesses gave evidence that it incurred total costs of $6,312,724 (exclusive of selling, general & administrative costs and GST). The parties prepared a Scott schedule.[12] Lucas submitted that all of the items should be valued on the basis it advocated.
28 McDow contended that cl 24.4 required the valuation to be of sub-contact works (as defined in clause 3 of the Schedule) including authorised variations. Further, the valuation should take into account that, under the sub-contract, Lucas was to bear the risks entailed by the geological conditions for the design and methodology of drilling the crossings and installing the lines. McDow submitted that the amount payable to Lucas should be determined by adjusting the sub-contract price by reference to variations to the sub-contract works and to the extent of completion of the works.
29 The parties sought to have the trial judge in the liability trial determine all issues between them other than quantification of the claim. As his Honour observed, however, the trial 'proceeded in two directions'.[13] One path involved the identification of all costs incurred and the determination of the appropriate margin. The other path 'involved the conventional process of adjusting the contract price by reference to variations to the sub-contact works and to the extent of the completion of those works'.[14]
30 Despite acknowledging that Lucas' claim was not pleaded, his Honour decided to 'entertain the argument' on the basis that it essentially depended on an analysis of the contract documents.[15]
31 It would appear, therefore, that his Honour entertained the appellant's unpleaded case on the basis that it was essentially a matter of construction and would therefore occasion no prejudice to McDow. As he upheld McDow's construction, the subsequent quantum trial addressed its requirements, rather than those of Lucas' competing construction.
Appeal Court unable to quantify appellant's claim
32 While on appeal McDow did not contend that Lucas was not entitled to pursue its construction argument, it became clear that, if it succeeded, there was no material before this Court which would enable it to quantify the appellant's claim.
33 Although it was not disputed that Lucas in fact incurred costs of over $6 million, McDow disputed that they were reasonably and properly incurred. It submitted that that question never arose on the pleaded case it was required to meet below and, in any event, McDow did not bear the onus in relation to it. McDow also disputed the margin Lucas advocated.
34 Therefore, if this Court upheld Lucas' construction, it would be necessary to remit the matter to enable its claim to be determined on that basis.
On 7 December 2007, the trial judge delivered his liability decision. His Honour determined (liability judgment at [119] - [122]) that Lucas' entitlement to be paid the value of the subcontract work under clause 24.4(a) was for a pro-rata of the lump sum subcontract price, reflecting the percentage completion of the original work scope. Lucas was also held entitled to recover its extra-over costs of the drill and leave variation, which variation was to be valued on a cost-plus basis.
In arriving at those findings, the trial judge held (liability judgment at [25] - [28]) that clause 14 was not applicable to the valuation of the subcontract works, and he disregarded it. His Honour determined that the appropriate margin to be used in valuing the variation on a cost-plus basis was 7% for materials and 5% for services (liability judgment at [128] - [134]).
The trial judge's conclusions in respect of the agreed questions for determination are set out at paragraphs [116] - [146] of the liability judgment.
On the question of interest, the trial judge held (liability judgment at [144] - [146]) that the amount recovered by Lucas was a sum certain, that the letter dated 23 September 2003 constituted a demand of payment, and that accordingly Lucas was entitled pursuant to s.58 of the Supreme Court Act 1986 to recover interest from the date of the demand until judgment.[16]
36 The voluminous notice of appeal included the appellant's principal alternative allegations and associated sub-topics. At the hearing of the appeal, the following issues were addressed, as reflected in these reasons:
1. The construction of cls 24 and 14 of the sub-contract.
5. Whether the appellant was entitled to compensation for delay.
all on the basis that they formed part of Lucas' general responsibility for geological risks; and
(a) elements of the original workscope which were nonetheless achieved; and
38 The respondent principally sought to uphold the orders made below.
Issue 1: The construction of cls 24 and 14 of the sub-contract
39 In the liability judgment, the trial judge analysed the interaction of cls 24 and 14. His Honour concluded that cl 14.5 was apt only for the valuation of variations. Further, even if a provision designed for valuing variations could otherwise be transposed to a valuation of all work performed, in the present case, the absence of any pricing schedules or bills constituted an insuperable obstacle to its application. His Honour therefore held that the reference to 'according to cl 14' in cls 24.4(a) and (b) should be modified by inserting the words 'if applicable'.[17] He concluded that, given the lack of primary schedules and bills in this case, cl 14.5 was inapplicable, so the valuation prescribed in cls 24.4(a) or (b) had to be performed without any contractual guidance.
40 His Honour expressed uncertainty over whether cls 24.4(a) or (b) applied to any or all of the work performed by Lucas, as the sub-contract work was not fully completed. The bore holes were completed, but not the insertions. There was also outstanding ancillary work.
41 In the absence of any contractual guidelines, there were, his Honour observed, a variety of available bases of valuation. His Honour stated:
Sub-clauses 24.4(a) and (b) require the determination of the value of the work completed. There are many ways at looking at value in this context. It is commonly approached on the basis of actual cost to the contractor plus a margin or margins for overheads and profit, since this represents its value to the contractor. Another approach is to receive evidence of what price the work would command in the marketplace. A third might be the value to the principal and this, too, might represent the cost to which it, the principal, might expect to pay to have it performed or the contribution of the work to the increase in the value of the principal's asset. Where the work is performed under a contract which itself values the work, this may also be brought to account. The correct approach must be to have regard to these and any other factors which are appropriate in the circumstances of the particular case and then to arrive at a fair and reasonable value. The circumstances will include the arrangements under which the work was performed and also the circumstances in which the valuation comes to be made.
These various approaches to valuation have their own potential shortcomings and difficulties and the authorities make it clear that there is no single path to be preferred. The Court must weigh up the suggested approaches and their applicability to the facts of the case before it and to the circumstances which give rise to the requirement that the valuation be made. It must make such adjustments to these approaches as seem appropriate, but always bearing in mind that the objective of the exercise is to arrive at a valuation which is fair to the parties.[18]
I have included in my description of the task which the Court must address, the circumstances which give rise to the requirement that the evaluation be made. This is not a case where the contract has been found to be illusory, where the contract is void for illegality or for some other reason, or where the contract is void ab initio.[19] The work has been performed under a valid and subsisting contract and the parties have made provision for the adjustment of their rights in an event which has been foreseen.[20] They have required that the work be valued upon termination in accordance with the terms of the contract with a direction that the contractual valuation methodology be adopted, if possible. The valuation, too, is to be undertaken in circumstances where the sub-contractor has lost the contract due to no fault of its own.[21]
I conclude, therefore, that in valuing the sub-contract work in this case, the Court must start from the agreed price, making such adjustments to it as are appropriate to accommodate changes to that work which have been required or agreed to be performed. These adjustments would, in the ordinary course, be made under the contractual provisions for variations but where, as here, they are not applicable, the adjustments must aim to ensure that the sub-contractor receives a proper remuneration for these changes. This will ordinarily be based on the reasonable cost of carrying them out provided that these costs themselves were reasonably and properly incurred. To this must be added a reasonable margin for overheads and profit, bearing in mind that the profit component is applied to work which has actually been performed so that it is not appropriate to load the profit with an allowance for risk or contingencies which might properly be included upon a costing undertaken upon work yet to be performed.[22] But in undertaking this task of valuing the changes, the valuer must bear in mind that the valuation is performed within a contractual framework, so that the adjustments to the price are not out of line with that contract price. The end result is to arrive at a figure which, within the contractual framework, fairly compensates the sub-contractor for performing the work which was performed prior to termination.[23]
43 His Honour thus concluded that under cl 24.4, the sub-contractor intended to be neither disadvantaged nor given a bonus by reason of a termination for which it was not responsible.
44 Further, his Honour observed that the structure and language of the six components of cl 24.4 distinguished between 'value' and 'cost', indicting that 'value' incorporated profit and overheads.
45 His Honour considered that the correct approach to valuation under cls 24.4(a) and (b) was to value work under the contract price where possible and, if not, to value it on a costs plus basis, but with regard to the contract price in reaching a fair valuation. That is, although the contract price would impose a ceiling, the sub-contractor would receive the value of its work, including variations, even if it had not complied with all contractual procedures and stipulations.
Did the trial judge err in the construction of cl 24.4 and 14.5 of the sub-contract?
46 The appellant contended that the trial judge erred in adopting the 'conventional' valuation methodology of applying the contract price pro-rata to the work done by the appellant and adjusting for variations.
47 It contended that, when construed in context, cl 24.4 precluded that approach, and, in the circumstances of the case, required a valuation analogous to quantum meruit of all the work it had properly and reasonably performed. The appellant's construction depended principally on a comparison of the language of cls 24.2 and 24.4. It submitted that by the expressio unius est exclusio alterius rule, the omission from cl 24.4 of any reference to 'the total amount which would have been payable on due completion in accordance with this Sub-Contract' indicated that, in contrast to cl 24.2, the valuation under cl 24.4(a) and (b) was not to be limited by reference to the sub-contract sum.
48 Instead, the appellant submitted that the valuation under those sub-clauses was to be made under cl 14.5, which required, in the present case, a fair valuation under cl 14.5(b). The method selected by his Honour did not result in fair valuation because it was a method precluded by cl 24.4. His Honour had erroneously applied the approach prescribed under cl 24.2, which was deliberately eschewed in cl 24.4. The appellant further contended that the only available basis of a fair valuation in the present case was essentially that of quantum meruit.
49 The appellant contended that his Honour erred in holding that because cl 14.5 specifically applied to variations and because there were no price schedules or bills of rating, cl 14.5 was incapable of application to a valuation under cl 24.4.
50 The appellant ultimately conceded that the mechanism under cl 24.4 and cl 14.5 would not always mandate a quantum meruit valuation, because if there were schedules of rates or bills of quantities under the sub-contract, they should be applied to the work in question. The appellant contended, however, that even in such cases, the valuation would not be limited by reference to the sub-contract price and the application of schedules under cl 14.5 might result in a total value for the individual components of the completed work which exceeded the sub-contract price.
51 In the present case, the quantum meruit methodology was based on the appellant's total costs of $6,882,668 together with the sub-contract margin of 40.6 per cent equalling $2,770,003 (plus GST) which produced a total figure of $10,551,938 (more than double the sub-contract sum of $5 million).
52 The appellant contended that the different language used in cls 24.2 and 24.4 was dictated by the different objectives of the sub-clauses. In contrast to cl 24.2, cl 24.4 dealt with a termination of the sub-contract which was not due to the sub-contractor's breach or fault. It therefore directed a more liberal assessment of the sub-contractor's entitlements under cl 14.5, unlimited by the sub-contract sum.
53 We consider that, contrary to his Honour's view, cl 14.5 is not inherently incapable of application in a case such as the present, where there are no price schedules or bills of rates. We do not, however, consider the appellant's construction of cl 24.4 persuasive. Further, we do not consider that his Honour's adoption of the conventional valuation methodology was erroneous.
54 Clause 24, which is headed 'determination', deals comprehensively with the calculation of what is payable to or by the sub-contractor if the sub-contract determines prior to the satisfactory completion of the sub-contract works, in a variety of different circumstances.
55 Clause 24.1 deals with the position where the sub-contract determines because McDow was entitled to repudiate it due, broadly, to the default, breach or insolvency of Lucas.
56 In such circumstances, cl 24.2 provides that Lucas must pay McDow damages and, on completion of the outstanding sub-contract work (by McDow or on its behalf), McDow will estimate the reasonable costs of completion. The damages and completion costs are then to be added to any monies already paid to Lucas. If the resultant sum exceeds 'the total amount which would have been payable on due completion in accordance with ... [the] ... sub-contract', then the difference is a debt due to McDow.
57 If, on the other hand, the total sum is less than the sub-contract sum, then an amount will be payable to Lucas, being the lesser of the following alternatives:
(2) McDow's expenses in completing the contract plus its loss due to the determination plus what it has already paid Lucas.
(1) the value of any work actually and properly executed by Lucas, and not paid for at the date of such determination, such value to be calculated according to cl 14.
(2) the value of any of Lucas' goods and materials taken over and used by McDow and fair payment for hire for any Lucas plant used in completing the sub-contract works.
58 Clause 24.3 provides that the employment of the sub-contractor will automatically determine if the Head Contact is determined.
59 Clause 24.4 provides for the calculation of the payment due to the sub-contractor if the Head Contract determines, thereby determining its employment. First, it provides that if the sub-contractor's default caused or contributed to the determination of the Head Contact (or McDow was entitled to determine the sub-contract), then the sub-contractor is to be paid on the same basis as if it had wrongfully repudiated the sub-contact. In such circumstances, the calculation will be made under cl 24.2, discussed above.
60 If, however, as in the present case, the sub-contract terminated because the Head Contract determined without default on the part of the sub-contractor [it seems McDow dropped its allegation of default in return for Lucas limiting its claims to the cl 24.4. claims], cl 24.4 provides that the sub-contractor shall be paid (after allowing for any previous payment made to it) under six different heads:
61 The heads of payment relevant to the present case are:
24.4(a) the value of the sub-contract work completed at the date of the determination, such value to be calculated according to cl 14;
24.4(b) the value of work begun and executed but not completed at the date of such determination, such value to be calculated according to cl 14;
24.4(f) loss of profit, if any, on the remaining parts of the sub-contract works.
62 Clause 24.4 recognises that on the determination of the sub-contract, some components of the sub-contract works may be complete, while work on others has commenced but is not yet incomplete, while still other sub-contract works may not have been commenced.
63 In contrast to cl 24.2, there is no reference to the sum payable in accordance with the sub-contract. The work to be valued under cl 24.4(a) is, however, expressly described as 'sub-contract work' and, the work under cl 24.4(b), while not expressly so designated, appears to refer back to the description in cl 24.4(a).
64 The value of both completed and 'in progress' works under sub-paragraphs (a) and (b) is to be calculated 'according to clause 14'. Clause 14 is, however, headed 'variations' and expressly refers to 'extra work' and 'omissions'. Clauses 14.1 to 14.4 establish general rules defining, and applicable to, variations. Clause 14.1 defines 'variations' to include additional or omitted work or changes to the character of quality of work.
65 Clause 14.2 provides that the sub-contractor shall not vary the work under the sub-contract except as directed or with approval in writing. Clause 14.4 provides that McDow will not be liable for the cost of executing extra work without its prior (written) approval, prior to the work being undertaken.
66 Sub-contract work completed or 'in progress' at the determination of the sub-contract under cls 24.4(a) and (b) would not constitute conventional 'variations' within the definition of that term in cl 14.
67 While, as the trial judge recognised, cl 14 is in terms concerned exclusively with variations, it incorporates, in cl 14.5, a valuation mechanism which is expressly invoked by cls 24.4(a) and (b) to determine what is payable to the sub-contractor in the event of a premature determination of the sub-contract not due to the sub-contractor's breach or fault. Clause 14 constitutes the only additional source of contractual guidance for valuations under cls 24.4(a) and (b). The governing principle of construction in the context of a contract between sophisticated business people is that the court should adopt a robust approach to imperfect or difficult terms in order, if possible, to make the contract work.[24] Although cl 14.5 contemplates variations, the procedures it prescribes are equally capable of application to the entirety of work under the sub-contract completed, or commenced but not yet completed, under cls 24.4(a) and (b).
68 Further, the absence of a schedule of rates or bills of quantities does not preclude the application of cl 14.5 to value either variations or works under cls 24.4(a) and (b). Under cl 14.5, variations made or allowed will be valued in accordance with a schedule for pricing valuations, if there is one.
69 If there is no schedule for pricing variations, in the absence of agreement, cl 14.5(a) states:
(a) The schedule of rates or the bills of quantities as the case may be upon which the Sub-Contract Sum is based shall determine the valuation of extra work of similar character executed under similar conditions as work priced therein.
Clause 14.5(a) thus assumes the existence of a 'schedule of rates or bills of quantities on which the contract price was based' to guide the valuation of similar work done under similar conditions. In contrast to the schedule for pricing variations referred to in the introductory words of cl 14.5, cl 14.5(a) does not expressly address the possibility that there may be no schedule of rates or bills of quantities.
70 It is clear, however, that even where such schedules or bills exist, in some cases they will be of no utility in valuing the work in question. Schedules or bills are only to be the basis of valuing work of similar character to work which is priced therein, done under similar conditions. Further, clause 14.5(b) provides that where extra work is not of a similar character, the value shall be the said prices [which appears to refer back to the prices for work in the schedules], so far as may be reasonable.
(b) The said process where extra work is not of a similar character or executed under similar conditions as aforesaid, shall be the basis of prices for the same so far as may be reasonable, failing which a fair valuation thereof shall be made by agreement between MacDow and the Sub-Contractor.
72 Clause 14.5(b) thus assumes that where prices for work are set out in schedules, they may be applied to work of a dissimilar character so far as may be reasonable. The process of determining the extent of reasonable application must necessarily be a matter of value judgment requiring a degree of co-operation and consensus, rather than an arithmetical exercise.
73 If works are of a wholly different character (or are done under wholly different conditions) and prices in a schedule cannot reasonably be applied to them, cl 14.5(b) prescribes 'a fair valuation thereof' to be made by agreement between McDow and the sub-contractor. Because cl 14.5(b) expressly provides for cases in which schedules and bills exist, but give no guidance, in our opinion, the fair valuation by agreement prescribed in such circumstances is capable of application in cases where there are no schedules or bills at all.
74 Therefore, in our view, cl 14.5 could apply notwithstanding the absence of schedules or bills, but it would require a fair valuation, not in vacuo, but by agreement. It was not contended that the parties agreed on a fair valuation. The sub-contract does not establish any machinery for referral to a valuer and does not prescribe any principles or methodology for the 'fair valuation'. Clause 30 of the sub-contract provides for a reference to arbitration in the event of a dispute or difference, but it was not invoked in this case.
75 Although we consider that cl 14.5 was potentially applicable in the present case, his Honour's contrary holding did not affect the validity of his conclusion that it did not apply, because there were not only no schedules or bills, but no agreement on a fair valuation.
76 Further, as his Honour stated, neither party contended that cl 14.5(b) applied, although he subsequently derived guidance from that sub-paragraph in relation to the margins applicable to variations.
77 In the circumstances, no additional guidance for the valuation required under cls 24.4(a) or (b) could be derived from cl 14 of the sub-contract.
78 His Honour nevertheless aimed to assess 'the fair and reasonable value' of the work completed by the sub-contractor.
79 The appellant contended that the valuation methodology his Honour adopted in that context was not fair, because cl 24.4 implicitly required a valuation not limited by reference to the sub-contract sum and instead required a valuation analogous to quantum meruit, because (as we understood the submission), no other basis of valuation was open.
80 In our opinion, however, cls 24.4(a) and (b) neither expressly nor implicitly prohibits a valuation which is limited by reference to the sub-contract sum.
81 Similarly, a fair valuation by agreement under cl 24.4 in conjunction with cl 14.5, would not preclude a conventional valuation based on a pro-rata assessment in accordance with the sub-contract price, with adjustments for variations; or conversely, mandate (in the circumstances of this case), a valuation analogous to quantum meruit. Instead, the fair valuation 'to be agreed' under cl 14.5 indicates a fair valuation on a methodology and principles agreed by the parties, rather than dictating any single methodology.
82 The difference in the language of cls 24.2 and 24.4 does not support the appellant's construction. Clause 24.2 does not, in terms, refer to 'the Sub-Contract Sum'. It is, perhaps, unclear whether its reference to 'due according to the Sub-Contract' is wider than, or merely synonymous with, the 'Sub-Contract Sum'. Even if it is synonymous, the absence of that terminology in cl 24.4 does not mandate a valuation in which the terms of the sub-contract and the sub-contract sum are disregarded. The different phraseology in cls 24.2 and 24.4 is, in our view, readily explicable by the different situations they addressed.
83 Clause 24.2 prescribes a formula for assessing any amount due either to or from the sub-contractor. It incorporates a variety of elements relevant to a mutual 'taking of accounts' between the parties. The 'total amount due according to the Sub-Contract' delimits whether anything at all will be paid to the sub-contractor rather than by it. If its liabilities to the head contractor exceed that sum, it will receive nothing. Clause 24.4, on the other hand, is directed only at the assessment of what is due to the sub-contractor, in a case where it has no counterbalancing liability to the head contractor. Due to the very different contexts for which cls 24.2 and 24.4 provide formulae, little weight attaches to the omission from one sub-clause of a phrase used in the other. In our view, it does not have the significance for which the appellant contended.
84 Nor do we accept the appellant's contention that its construction of cl 24.4 ensures a more liberal payment for the sub-contractor than under the sub-contract. Whether the sub-contractor would receive greater or less payment under quantum meruit than on a valuation made under or in accordance with the terms of the sub-contract depends entirely on the sub-contract sum agreed on by the parties. If a 'blameless' sub-contractor were entitled to a greater payment under the sub-contract than under quantum meruit, the appellant's construction could deprive it of well-negotiated benefits anticipated under the sub-contract.
85 Although the appellant's construction would not consistently ensure a more liberal payment to the sub-contractor, its suggested rationale for greater liberality is, in any event, unsound. The appellant contended that a payment exceeding its contractual entitlement was justified, because the sub-contract had determined without fault on its part. Clause 24.4 is, however, 'fault neutral'. It calculates what is payable by the head contractor to the sub-contractor in circumstances where the sub-contract may have terminated without the fault of either or indeed any party. There is no good reason for a valuation under cl 24.4 to reward or compensate the sub-contractor at the head contractor's expense (or vice versa), by ignoring the parties' contractual bargain.
86 There are a number of other indications that cl 24.4 assumes that the contractual terms and framework will be relevant to valuations made under cls 24.4(a) and (b). Clause 24.4(f) entitles the sub-contractor to 'loss of profit, if any', on the remaining parts of the sub-contract works. Clause 24.4(a) refers to a valuation of 'the sub-contract works' and cl 24.4(b) in our view implicitly assumes works of that character. Both sub-paragraphs refer to cl 14, which is heavily dependent on contractual pricing schedules 'upon which the Sub-Contract Sum is based' and bills of ratings for approximating the work to be valued to that priced in such contractual schedules and bills.
87 In summary, in our view, while cl 14.5 is not inherently inapplicable, in the present case there was no agreement on a fair valuation. Neither party submitted that his Honour erred in proceeding to determine a methodology and to value the works in question. He had to do so without detailed contractual guidance. Moreover, as the respondent submitted, if the appellant's construction were correct, it mandated a fair valuation, the methodology of which was at large. No single basis of valuation was expressly or implicitly prescribed and the conventional methodology was not precluded. The trial judge was entitled to adopt it.
88 The balance of the appellant's grounds of appeal rest upon the alternative claim that if the trial judge's construction of cl 24.4 is correct, his Honour made a number of errors in assessing the appellant's entitlements.
Issue 2: Did his Honour err in assessing the pro rata value of the original scope works?
89 The parties agreed that the focus of this issue should be on whether the trial judge, in calculating the pro-rata lump sum, failed to allow for all of the risk component of the lump sum.
The drill and leave variation - factual findings
90 His Honour concluded that in the sub-contract executed on 28 November 2002, the parties were purporting to describe the scope of works as they were as at June, and that any changes to that scope of works would be treated as variations that may warrant extra payment beyond the agreed $5 million. The scope of work was that described in cl 3 of the Schedule to the sub-contract, including Appendix A. His Honour was satisfied that as at June 2002 the parties understood and accepted that the price offered by Lucas and which was provisionally accepted, involved the performance of the work in accordance with a stipulated methodology which included the drill and leave insertion of a 10 inch casing for the umbilical crossing.[25] His Honour stated:
That the entitlement of Lucas Drilling for the work which was within the contractual work scope in terms of the sub-contract is for such part of the $5 million contract price as reflects the percentage of that work which was completed. Lest there be any misunderstanding, the correct way to approach this part of the valuation is not to deduct from $5 million the value of the incomplete work or the cost to complete the work within the contractual workscope; Lucas Drilling is entitled to the proportion of the agreed price of $5 million as is reflected in its degree of completion of the work within that workscope.[26]
91 Lucas complains that when his Honour was calculating the pro-rata lump sum, he did not allow the full amount of the risk component of the lump sum price.
92 His Honour found that although the 15 February letter envisaged a 16 inch borehole with a 10 inch casing, to be performed by a 'drill and leave method', ultimately, by 30 July 2002, the proposal was to increase the casing to 12 inches. By that time, all parties knew that the drill and leave methodology would no longer apply to the umbilical line. By September 2002, Lucas knew that it now had to adopt the same methodology as that required for the flowline, which would create difficulty in relation to the umbilical line, because the diameter of the casing was moving close to that of the borehole itself
93 By 28 November 2002, the date of execution of the sub-contract, the parties had a common understanding that the diameter of the casing would be increased to 12 inches which would necessitate abandoning the drill and leave method. Yet the sub-contract, although executed in November, was dated 26 June 2002 and both the Schedule and Appendix A referred to the 10 inch casing.
94 His Honour analysed the 19 activities in the workscope in the sub-contract. He concluded that, under the sub-contract, Lucas had to put in only a 10 inch casing and do this by the drill and leave method.[27] The changes to a 12 inch casing and the necessity for a new method were to be treated as variations. Lucas was therefore entitled to payment for any extra cost incurred. However, his Honour did not accept that Lucas' contractual risks were based on the drill and leave methodology for $5 million and therefore 'fell away'[28] as a result of the change. His Honour found that at the time of execution of the sub-contract Lucas had accepted the changes and the obligation to design them. Lucas did not propose any adjustment to the contract price.
95 By February 2003, there were fractures in the geography of the rock formation. Lucas claimed extra costs. His Honour found that these extra costs (of more drilling time and fluid loss) were not a consequence of the changes, rather '[t]hey were part of the geological risk for which Lucas Drilling was always responsible'.[29]
96 His Honour found that Lucas was not entitled to be paid any extra amounts for re-engineering between 17 March 2003 to 1 June 2003, when work stopped in order to resolve various problems. Between March and June when Lucas remobilised, alternative methods for constructing the crossings were discussed. There was also disputation between Lucas and McDow regarding Lucas' claims for extra payments for variations. His Honour found that BHPB had taken up the position, that the problems which Lucas was addressing were within its area of risk. Lucas proposed by way of solution, and BHPB and McDow accepted, that both boreholes should be reamed to a 20 inch diameter and in each a 16 inch HDPE casing would be inserted. Within this casing would be inserted the umbilical bundle in borehole 1 and the flowline in borehole 2. The drilling of the enlarged flowline recommenced in mid-June and was completed in early July, but as difficulties were encountered in inserting the HDPE liner the borehole was again reamed, this time to 24 inches. That task was completed by early August. In the meantime the umbilical borehole was also reamed to 24 inches and by the end of July its HDPE liner was installed.
97 The term re-engineering was treated at the trial and in his Honour's various judgments as encompassing the abandonment of the methodology which had been pursued up until mid-March 2003 and the insertion into both boreholes, which were reamed to a 24 inch diameter, of a 16 inch HDPE casing. Re-engineering included the interruption to the pre-existing methodology and the development and pursuit of the new methodology.
98 His Honour found that the changed dimension of the casing of the umbilical borehole was a change to the contractual workscope so that any cost incurred by Lucas which was extra to the proper cost of the pre-change work was to be valued. The re-engineering costs were found by his Honour not to be extra costs as the re-engineering fell within the contractual workscope, for which Lucas had agreed to be paid $5 million.[30] The geological risk Lucas had assumed remained unchanged after the enlargement of the casing diameter.
99 Lucas had also argued at trial that the sub-contract required it to undertake diving and offshore work under the applicable Victorian regime.[31] Lucas contended that BHPB's requirement that it comply with the Commonwealth regime[32] was thus a variation by which it incurred additional costs. The trial judge concluded that any fair pro-rata assessment of the degree to which Lucas had completed its original contractual obligations should reflect the fact that insofar as the diving and offshore work was not carried out by Lucas, it should not receive payment for it as part of its pro-rata claim.[33]
100 Returning then to the present issue, Lucas contended that the trial judge was in error in not allowing the full amount of the risk component of the lump sum price of the initial contract. It submitted that the trial judge was bound to give effect to the uncontradicted evidence of Colin Fox, the quantity surveyor called on its behalf, who gave evidence that all of the risk component of the lump sum should have been included as all of that sum and more had been expended by Lucas in achieving the extent and quality of the works that had been performed by the date of termination. In our view, the contention advanced by Lucas that it had expended the risk component of its price in performing the work and was thereby entitled to be paid the risk component of the value of the works performed cannot be sustained.
101 While the trial judge was prepared to adopt the methodology of Mr Fox, his Honour did say it was subject to expressed qualifications. First, insofar as Mr Fox's evaluation rested upon a basis which had not been established by evidence, his Honour was required to adjust the figures to reflect what had been established.[34] Further where there is a valid criticism of the methodology his Honour did not intend to follow it.[35] Finally insofar as his Honour was persuaded that the methodology would not produce a result that was fair to the parties he would depart from it.[36] These qualifications were not the subject of complaint on appeal. We see no error in the approach adopted by his Honour. The qualifications became necessary as Mr Fox's opinion that the pro-rata assessment should include the entire risk component from the tender price rested upon his unqualified acceptance of the evidence of Michael Robertson, Lucas' Project Manager, that as at termination 'Lucas had minimised if not eliminated, almost all of the risks associated with the project'. His Honour rejected that evidence as he was satisfied that there was considerable risk remaining in the works still to be completed.
102 Lucas was entitled only to that proportion of the agreed price as was reflected in the degree of completion of the work and of the initial contract. To have assessed the matter as Lucas suggests would have required a departure from the pro-rata calculation of the work completed. If part of the work performed involved a variation, Lucas would be entitled to an extra payment for that work beyond such part of the $5 million contract price as reflected the percentage of the work within the contractual workscope that was completed.[37]
Issue 3: Did the trial judge err in his calculation of Lucas' entitlement under the 'drill and leave' variation, which he allowed?
103 The parties agreed that the focus of this issue should be on whether the trial judge erred in limiting Lucas' entitlements, even on a cost plus basis, by an erroneous and inconsistent finding that, by its silence, Lucas had accepted the risks of the variations, cost of re-engineering and its implementation without additional payment.
104 As already stated, the trial judge found that the change to a 12 inch casing and to the drilling methodology which was already being implemented at the date of execution of the contract were to be treated as variations entitling Lucas to payment for any extra cost incurred in the re-engineering. Extra payment would include any costs thrown away by the change in methodology. But his Honour rejected Lucas' contention that the contractual risks which it had assumed under the sub-contract 'fell away' as a consequence of these changes. As Lucas had agreed to design the crossings as well as to construct them his Honour concluded that it had accepted the changes in dimension which were required and the consequential changes in the methodology so that for an appropriately adjusted price Lucas was bound to implement those changes. His Honour found that Lucas did not qualify its acceptance of the change or decline to undertake the work.[38] He concluded that Lucas had accepted the risk associated with the offshore works as well as the geological risks when it executed the sub-contract in November 2002.
105 His Honour did not accept that the re-engineering was a consequence of the drill and leave variation.[39] The drill and leave variation had occurred, a number of months prior to the execution of the sub-contract.[40] The acceptance of the geological risk as at November 2002 was unqualified.[41] The planning of the re-engineering did not commence until March 2003. The re-engineering works did not commence until June 2003.[42] His Honour concluded as follows:
I am mindful of the evidence of Mr Lukas and other Lucas Drilling witnesses that risks of delays and extra cost due to geological problems in the umbilical borehole were much greater without the support of the drill casing. This may be so; it is not a matter which I have to resolve. The fact remains that, by accepting the change in methodology, the design obligation of Lucas Drilling extended to the new work. Any risk extra to that inherent in the drill and leave methodology would have been valued. Lucas Drilling did not do so at the time; it was prepared to accept the change without proposing any adjustment of the contract price. I do not, however, infer from this that it agreed to vary the work without a price adjustment to cater for any extra expense and risk. The special feature of this case is, of course, that the geological factors are no longer mere risks. The drilling was completed and difficulties encountered were overcome. Moreover, the change in casing size did not lead to a change in the dimension of the borehole. In these circumstances, the task of the valuer is to determine whether any extra costs were incurred in the drilling due to geological or other causes for which Lucas Drilling had a general responsibility and to identify what part of those costs was extra to those which might have been incurred had the drilling been undertaken by the contractual drill and leave methodology. It is these extra costs which are to be assessed.[43]
106 Lucas contended at trial that it was entitled to extra payment of its extra cost for the re-engineering. His Honour rejected that submission in these terms:
The response which I give is an unhesitating negative. The difficulties which the re-engineering sought to, and did in fact overcome, were all within the risk of Lucas Drilling. The escalation of cost of the offshore work was a consequence of either Lucas Drilling's obligation to comply with the Commonwealth regime, as it says, or as a consequence of its under-costing of this part of its contract work, which is more probable. The drilling difficulties caused by the bad rock which led to the loss of fluid are part of the geological risk which it assumed in its sub-contract. This risk remained with it, as I have found, even after the enlargement of the umbilical casing and the effect of this on the drilling methodology. The apprehended difficulties of pulling the casing in each instance through the 16 inch borehole were matters which its design should have addressed.[44]
107 Lucas maintained the submission on appeal that the extra over-costs to which it was entitled as a consequence of a variation included costs incurred in overcoming geological problems and the re-engineering. It submitted that it had accepted the geological risk under the lump sum sub-contract based upon the drill and leave methodology. Once that methodology was abandoned, without the support of the drill casing (ie without drill and leave) there was an increased risk of extra costs and delay due to geological problems in the umbilical borehole. It was submitted that the trial judge had wrongly concluded that Lucas, 'by its silence', had agreed to accept those additional risks without an adjustment to the contract price so that those increased risks and costs became part of its general responsibility under the lump sum. He found that Lucas accepted responsibility for those risks, it was said, because Lucas had not proposed an adjustment to the contract price at the time of accepting the variation. Reliant upon that finding the trial judge had rejected the majority of the extra items of cost which Lucas claimed were associated with the increased geological risk due to abandonment of the drill and leave methodology. Lucas also contended that the trial judge had in effect found that its alleged failure to raise these cost issues constituted a binding agreement that it would not charge McDow for them. The judge's approach it was said was illogical because he had then allowed Lucas some part of the extra costs of the variation.
108 These submissions involve a fundamental misconception about the conclusions reached by the trial judge in his liability judgment. As we have already said, his Honour regarded the consequential changes in methodology of the drilling as variations to the contractual workscope so that any extra costs incurred were chargeable to McDow as part of the work to be valued.
109 His Honour recognised that his task was to determine whether any extra costs were incurred in the drilling due to geological or other causes for which Lucas was responsible under the sub-contract. His Honour made clear in the passages to which we have referred that if any of those extra costs were over and above what might have been incurred had the drilling been undertaken using the drill and leave methodology, Lucas was entitled to recover those costs. His Honour also found that Lucas was entitled to recover such diving costs as were incurred as a consequence of the drill and leave variation to the extent that those costs were reasonably incurred over and above those that would have been properly incurred in the performance of the contractual workscope.[45]
110 Contrary to the Lucas submission, his Honour did not find that Lucas was precluded from claiming costs which it could prove had been thrown away by the changed methodology or that it would not be entitled to any extra costs that it could prove were incurred as a consequence of the variation. His Honour accepted that there may be extra expense and risk as a consequence of the variation and it would be necessary to determine whether extra cost had been incurred over and above that which might have been incurred had the drilling been undertaken by the original methodology.
111 Before leaving this issue we should refer to the contention raised in Lucas' outline of submissions that the trial judge wrongly found that the managing engineer for McDow, Mr Stephen Chai, testified, contrary to the evidence of Mr Stephen Loneragan, a witness called by Lucas, that there had been no discussion about any increased cost or risk at the time that it was agreed that the drill and leave methodology was to be varied. During oral argument on appeal, counsel for Lucas accepted that this factual question was 'something of a red herring' as it was not in issue that Lucas and McDow had not agreed that a different price should be fixed as a consequence of the variation in methodology.
In his fax of 30 July in which he told Mr Loneragan of the possible increase in the diameter of the umbilical casing, Mr Chai enquired whether the casing could be pushed through the 16 borehole and what would be the effect of this on work method and cost. Mr Loneragan made no written response. He said, however, in his second witness statement, that he replied by telephone advising Mr Chai that the change would create considerable construction risks and therefore costs implications. Mr Chai said that he was aware that the enlargement of the casing increased the risk of it becoming stuck in the borehole, but he did not recall the conversation of which Mr Loneragan spoke. Mr Chai was not challenged on this. I accept the evidence of Mr Chai that he discussed the engineering implications of the dimensional change with Mr Loneragan in August, but that there was no discussion of the cost consequences.[46]
113 Insofar as this was an issue at trial, it is to be observed that Lucas had twice been requested in writing to advise McDow as to the effect of the anticipated changes in the drilling methodology. No response had been received. It was open to the trial judge to make the finding of fact which he did. Significantly, it did not, contrary to the Lucas submission, lead his Honour to conclude that Lucas was disentitled to any additional cost flowing from the variation of the methodology.
Quantification of the extra costs of the variation
114 Lucas claimed $1,886,380 for the drill and leave variation. The claim comprised seven items. Only two of those items were allowed totalling $82,625. His Honour stated that he would approach with some caution Lucas' claims about the consequences of the variation and their quantification. The reasons for this caution were set out in these terms in the liability judgment:
Before I turn to the detail, I make mention of a credit issue raised on behalf of MacDow. The facts underlying this are not controversial. When the changes to the diameter of the umbilical casing and to the drilling methodology were made prior to 28 November, Lucas Drilling made no protest about the cost or engineering implications. Indeed, it was only when the drilling was encountering difficulties that questions were raised internally at Lucas Drilling. There were in evidence a series of emails passing in March 2003 between the various Lucas Drilling personnel in effect exploring the possibility of bringing a substantial claim for extra cost and time extension arising out of the changes to the drilling and the marine activities. The tone of these emails was suggestive of a creative attempt to retrieve the parlous commercial position in which Lucas Drilling then found itself. And, later on 18 June 2003 Lucas Drilling presented to MacDow a document setting out 10 substantial claims. It was put, with some force, that these claims were a spurious attempt to extract money from BHPB through MacDow in an effort to recover losses incurred on what had turned out to be an ill-advised contract. It was then said that the Lucas Drilling claim before the Court should be treated as yet another attempt to pursue this objective.
I must acknowledge that these documents do not reflect well on the bone fides of the Lucas Drilling claims. Nevertheless, the fact that a litigant puts forward a spurious claim does not lead to the conclusion that all of its claims are spurious. Accepting as I do that, in important respects the June 2003 claims have been shown to be misconceived and that the March emails show a readiness in Lucas Drilling to drum up claims in which they have little confidence, I will look at the present claims with more than usual caution. This particularly applies to assertions made on its behalf that a particular change has had an engineering or financial consequence which was not foreseen at the time by persons in its employ who were very experienced in the industry or was not appreciated by them soon after the event.[47]
115 Lucas contended that the trial judge was in error in rejecting the other items as extra costs caused by the variation. His Honour had concluded that those items of work were all necessitated by the geological risks for which he had found Lucas was responsible. Lucas acknowledged that the only evidence before the trial judge which provided a causal link between the items claimed and the variation of the drilling methodology was that of Mr Robertson, Lucas' project manager. It submitted that Mr Robertson's evidence was wholly unchallenged and uncontradicted and that the trial judge in rejecting his evidence had done so on irrelevant and extraneous grounds. This submission was a reference to the reasons which his Honour had advanced for approaching Lucas' claims with some caution. It was submitted that those reasons were irrelevant for a claim in which the costs were not disputed and in any event would not provide a sufficient basis for rejecting Robertson's detailed and technical evidence about the causes of the additional and different works which arose from the abandonment of the drill and leave methodology.
116 It is convenient to consider these submissions in conjunction with a brief examination of each item which was rejected.
117 It was Robertson's evidence that had the drill and leave methodology been adopted, grouting of the hole upon encountering loss of returns would not have been attempted as a clean hole was unnecessary, there being no second stage operation for the installation of the casing. This claim was contradicted by Robertson's earlier statement that he advised McDow that the loss of returns had been caused by 'unforseen ground conditions' which meant that there was a potential variation of cost and time delay. In response, Mc Dow advised Robertson that 'unforseen ground conditions' were not considered to be an acceptable claim for an extension of time nor cost variation and, as such, grouting of the borehole was not considered to be a variation. Robertson had also acknowledged in his earlier statement that he was told that Lucas 'should have anticipated a possible fault' and was shown a geological report which he had not previously been seen which would have enabled Lucas to adjust its revised methodology to avoid or minimise the impact of those geological conditions.
118 Lucas relied upon Robertson's statement that had the drill and leave methodology been employed, the larger 10 inch drill casing would have been stiffer and thus the drill assembly would not have deflected off the hard rock layer. In an earlier statement Mr Robertson had explained that as the first borehole was approaching the exit, the drill head deflected downwards and it was eventually determined that it had struck a hard layer of rock. As a consequence, a different assembly was acquired to enable penetration of the hard layer of rock. His Honour found that Lucas did not seek to attribute those losses to the dimensional variation and the consequential change in drilling methodology until very long after the event, at which time he regarded Mr Robertson's account as 'little more than mere assertion'.[48] Based upon the history of the drilling claims, his Honour was not prepared to accept Mr Robertson's evidence that the costs involved in overcoming those difficulties were other than those involved in coping with the geological uncertainties at the site.
119 His Honour rejected items [i] and [ii] as they were not extra costs caused by the dimensional variation.
120 It was Mr Robertson's evidence that had Lucas used the drill and leave methodology which has been originally approved, the period of waiting for instructions or approval for the revised methodology would not have occurred. There was other evidence before the Court [from Hamish Pryor, Chief Operations Officer of Lucas] that a number of unresolved issues impacted upon Lucas' ability to progress the works. They included uncertainty by Lucas as to how to proceed with the works in light of issues such as the geological conditions, loss of returns, insufficient water supply and no approved procedure for the casing installation. The claim relates to the period between 18 and 26 March 2003, when drilling on the second borehole had stopped. His Honour found that the cessation of work during that period was the consequence of the geological problems for which Lucas was responsible. His Honour also found that because of the generality of the detail provided he did not feel able to act upon it.[49]
121 Mr Robertson claimed that following the abandonment of the drill and leave and consequently the one pass leave in situ methodology, the second operation was necessary to install a casing in the borehole. Therefore the installation of the HDPE casing was an additional activity which would not have otherwise been required. In an earlier statement Robertson had said that BHPB approved the commencement of drilling of the product borehole on 8 March 2003 on the condition was that there was a 'hold point' at 850 meters. The hold point was imposed by BHPB due to concerns that loss of returns would occur in the product borehole at that distance and the cuttings from those returns would then migrate to the umbilical borehole and contaminate it. Robertson stated that the hold point could only be overcome by installing the casing and grouting the annulus of the umbilical borehole. As the trial judge observed, a good deal of evidence was led as to the reason for the new procedure and the circumstances which gave rise to its adoption. His Honour rejected Mr Robertson's argument that it was a consequence of the abandonment of the drill and leave method. The trial judge thought it clear that it was the consequence of the poor geological conditions which had been encountered, especially in the second borehole when drilling was ordered to be stopped.
122 Robertson's evidence was to the effect that had the drill and leave method been adopted there would have been no need to mobilise the vessel and undertake offshore works until completion of the second borehole. He stated that the immobilisation of the dive crew and vessel for the umbilical borehole could have occurred immediately after the product borehole was completed, rather than following completion of the umbilical hole. Lucas could have eliminated demobilisation and a second mobilisation of dive side crew and vessel for the product borehole and thereby eliminated standby costs. Robertson claimed that all subsequent offshore works undertaken were required as a result of the abandonment of drill and leave. In an earlier statement Robertson said that the loss of returns on the umbilical borehole was causing delay and to mitigate the costs of having the vessels on standby, he resolved to demobilise the dive vessels and crews. His Honour found that the standby in the first period claimed by Lucas was due to the problems encountered in the first borehole and which were referred to in items (i) and (ii). His Honour concluded that the claim for standby during that period must fail for the same reasons as those claims failed.[50] His Honour was not clear as to Mr Robertson's reason for the standby claimed during the second period. If this period of standby was during the period awaiting instruction as to when to commence the insertion of the umbilical bundle, then the claim was associated with item (iii) and would fail for the same reason. No submission was made on the appeal which further clarified the basis for that particular claim.
123 In respect to each of these items, we see no error in the trial judge's conclusion that Lucas had failed to establish that the costs incurred were a consequence of the changed methodology. His Honour was entitled to approach Lucas' claims with caution. There were aspects of Robertson's evidence which were inconsistent with other statements that he had made and with evidence given by other Lucas witnesses. The burden was upon Lucas to satisfy the trial judge that there was a causal link between the drill and leave variation and the costs incurred in relation to each of the disputed items. The appellant has failed to establish that these claims were for costs which were extra to those that would have been incurred had it performed the works using the drill and leave methodology.
Issue 4: Did the trial judge err in his assessment of the margin on the drill and leave variation?
124 His Honour accepted that the change from the drill and leave methodology (itself due to the changed dimension of the casing) was a variation. He nevertheless concluded that the change from the drill and leave methodology did not change the contractual risks (including the geological risks) assumed by the appellant.
125 His Honour held that it was necessary 'to identify what, if any, extra or different work'[51] was due to the change in casing dimension and the resulting change in methodology. He stated that the value of variation work outside the original workscope was to be determined 'by assessing the actual cost to Lucas Drilling of performing that work less any actual saving by reason of its not having to do the work in the contractual workscope which it replaced. The value, then, represents this actual cost and actual saving in each case with a margin'.[52]
126 His Honour held that the margin to be applied was that specified by the parties in item 10 of the Schedule to the sub-contract, viz, seven per cent for materials and five per cent on services.
127 The specified margins in the Schedule were referred to in cl 14.5(d)(ii).[53]
Valuation of Variations under clause 14.5(d)(ii) of Conditions of Sub-Contract: 7% for materials/5% for services.
129 As discussed above, in the liability judgment, his Honour accepted only two of the seven items claimed at a stated cost, inclusive of a five per cent margin attributable to the dimensional variation (exclusive of geological risks). They were:
Remove string from umbilical borehole $26,095
Clean umbilical borehole $56,530
Totalling $82,625[54]
130 Before his Honour, the appellant submitted that its tender sub-contract margin of 40.6 per cent, or alternatively, the general industry margin of 17.5 per cent, should apply.
131 His Honour rejected both margins. He considered that, because the work to be valued had been completed, the profit component should not be loaded with an allowance for risk. The suggested tender margin of 40.6 per cent incorporated a risk component and was therefore inappropriate. Mr Fox's report, tendered at the liability trial, stated that 17.5 per cent was the industry margin (said to include SG & A indirect costs), but, as his Honour observed, the Fox Report left unclear in what industry contexts (eg tendering or some other purpose) that margin was used, and Mr Fox was not called to give evidence in support of his report.
132 Margins of 28.8 per cent, 36.1 per cent and 10 per cent were also suggested in the course of the evidence. Mr Anthony Summergreene, Chief Financial Officer of Lucas gave evidence that 28.8 per cent was the actual profit margin for the project, which was apparent in the tender budget. The margin of 10 per cent was used by Mr Loneragan of Lucas in his negotiations. That margin did not, it would seem, include a risk component, but neither party advocated its adoption. The margin of 36.1 per cent was the 'typical' margin. Both the actual and typical margins included a risk component.
133 Given his conclusion that a component for risk was inappropriate for the completed work and given the uncertainties associated with the other suggested margins which did not incorporate a risk element, his Honour adopted the margins of seven per cent and five per cent (derived from cl 14.5(d)(ii) in combination with item 10 of the Schedule). While recognising that cl 14 was inapplicable, his Honour regarded cl 14.5(d)(ii) as an important guide. He stated:
The adoption by the parties in the contract of margins for the valuation of variations is, to my mind, a very powerful consideration. Indeed, putting to one side the contractual instruction to value the work according to cl 14, it is apparent that these margins are directed to the same items of overheads and profits which are apposite to the task of evaluation under cl 24.4.[55]
134 Before us, the appellant submitted that the application of the five per cent profit margin derived from item 10 of the Schedule incorporated by reference in cl 14.5(d)(ii) was inconsistent with his Honour's holding that:
no part of cl 14.5 is applicable. All parts of the provision other than part d(ii) are inapplicable because the rates and prices upon which they depend are absent from the sub-contract. The parties were agreed that part (d)(ii) was inapplicable.[56]
135 In the appellant's submission, cl 24.4 provided a contractual remedy upon termination without fault on the part of the sub-contractor, so the margin should satisfy its expectation of the return to be generated from the job if everything had gone to plan. The appellant submitted that his Honour erred in distinguishing between a prospective margin (which included risk) and a retrospective margin (which was assumed to be risk free because all proper and reasonable costs were paid). The work in question was, it said, highly technical and highly risky. Risk was 'in truth part of the profit', rather than a separate element of the margin. The full return of 40.6 per cent on properly incurred costs was therefore justified.
136 The appellant also submitted that the seven per cent and five per cent margins derived from cl 14.5(d)(ii) were inappropriate, because the sub-clause did not apply in this case, as its preconditions had not been satisfied. McDow had not invoked it by giving notice that it considered the extra work could not properly be measured and valued. The use of the margins in cl 14.5(d)(ii) was, in any event, inconsistent with his Honour's finding that it had general responsibility for the risks associated with the varied work.
137 His Honour, in our view, did not err as alleged. He held, as he was entitled to do, that completed work within the workscope and work begun but not completed could properly be valued pro-rata according to the sub-contract sum. Clause 24.4(f) also entitles a sub-contractor to loss of profit on work within the workscope which has not yet been commenced. In that context, the appellant's claim to all the costs of variations (which had already been completed and therefore entailed no outstanding risk) together with a sub-contract margin of 40.6 per cent to secure it 'a profit commensurate with its contractual expectation in the event of successful completion' was unpersuasive.
138 The appellant advanced no compelling reason why a fair and reasonable valuation must include a component for a risk which no longer existed. Its submission that the profit component of the sub-contract was inseparable from an allowance for risk (which therefore could not be set aside if the risk was eliminated by completion of the work with all the proper costs thereof paid) remained obscure.
139 Counsel for the appellant ultimately conceded that there were serious difficulties with its proposition that it was entitled to all its known costs (including the costs associated with having to perform tasks differently or correcting things going wrong) and seeking, on top of that, a risks margin.
140 Given that all the extra costs incurred in the drill and leave variation were to be paid, his Honour was entitled to hold that the inclusion of a risk margin was inappropriate. The costs were actually incurred and known and no risk was involved. The margins provided for in cl 14.5(d)(ii) were predicated on those assumptions.
141 The appellant's submission that the margin on variations should fulfil all its contractual expectations was in apparent tension with both its primary submission that the sub-contract sum should not limit its entitlements and with its alternative claim that the margins in cl 14.5(d)(ii) must be disregarded.
142 As his Honour observed, although cl 14.5 could not be, or was not, invoked, it provided guidance on the appropriate margins to be applied to a variation in the circumstances of this case. There was no logical necessity to disregard cl 14.5(d)(ii) for all purposes. The sub-paragraph contemplated a case where costs were known, actually incurred and involved no risk. It was a useful touchstone to which his Honour was entitled to have regard, in the absence of any more specific contractual guidelines.
143 It follows, in our opinion, that the ground of appeal relating to this issue is not made out.
Issue 5: Was Lucas entitled to compensation for delay?
144 In its notice of appeal, Lucas complains that the trial judge wrongly rejected its claims for delay in respect of three periods, namely:
145 Under the heading of 'Delay', Lucas, in its outline of submissions, complains that '[t]he trial judge failed and/or refused to determine Lucas' costs of having to be on site, unable to do any work, due to matters beyond its control (delay costs claims)'.[57] It makes further complaint:
Prior to and on the first day of the quantum hearing, the trial judge refused to deal with Lucas' delay costs claims in the quantum phase, notwithstanding that they had effectively been "left out" of the liability decision. [58]
146 McDow's primary response to Lucas' delay claims was that each of them had been effectively abandoned by the time the Third Amended Statement of Claim ('3ASOC') was filed on 27 September 2007.[59] Neither party's assertion is correct. Both parties overstated the true position.
147 McDow took us at length to all of the places in the statement of claim, the amended statement of claim, 2nd Amended Statement of Claim ('2ASOC') and 3ASOC where delay was referred to or claimed by Lucas. This analysis culminated in an examination of 3ASOC showing the various parts of 3ASOC where references to, or claims in respect of, delay had been deleted. However, as has been said above, the liability trial (and the subsequent quantum and loss of profits trials) proceeded on the basis of a claim for payment pursuant to clause 24.4 of the sub-contract - such claim being made by reference to a Scott Schedule containing 27 items. Item 25 of the Scott Schedule was described as:
Costs incurred during Site Shutdown August 2003.
148 At the liability trial, the trial judge was required to determine whether item 25 was included in the 'Sub-Contract Works' for which Lucas was entitled to be paid.[60] To this extent it was not correct to say that all of Lucas' delay claims had been abandoned prior to the commencement of the liability trial.
149 It is clear from the Scott Schedule that the claim for delay between 12 August 2003 and 29 August 2003 was not abandoned. That claim was maintained in item 25 of the Scott Schedule. However, there was no reference to the claim for delay on 7 September 2003, nor any reference to the claim for delay between 8 and 10 September 2003 in the Scott Schedule. Having regard to the way in which the liability trial was conducted (and having regard to the pleadings), those claims must be taken to have been abandoned.
150 We consider in detail below how the trial judge dealt with the item 25 delay claim. At present, it is sufficient to say that it was not 'effectively left out of the liability decision'.[61] It is first necessary to say something of what occurred on the first day of the quantum trial. On that day, Lucas sought to re-agitate the claim for delay in respect of 7 September 2003 and the claim for delay in respect of the period between 8 and 10 September 2003. The trial judge did not permit this to occur. His Honour ruled that those claims for delay had been abandoned. An analysis of the pleadings and an examination of the Scott Schedule demonstrates that this was undoubtedly so. The only matter of delay that was alive at trial was item 25 of the Scott Schedule, which contrary to the submissions of McDow, was not abandoned as at the time of trial.
151 As we have said above, the trial judge did not ignore or fail to deal with item 25. Item 25 was dealt with in the liability judgment. The liability trial was conducted on the basis that each item in the Scott Schedule had to be examined to determine whether it was included in the 'Sub-Contract Works' for which Lucas was entitled to be paid. McDow's response to item 25 (as set out in the Scott Schedule) was:
Denied. Even if Lucas was delayed as alleged, its sole remedy was an extension of time for the completion of the works, and it is not entitled to any associated costs in respect of any such delay - 3AD paragraph 90.3. Any costs that may have been incurred do not form part of the subcontract works to be valued pursuant to clause 24.4. Alternatively, if Lucas is entitled to payment pursuant to clause 24.4 in respect of this period of alleged delay, the works are to be valued at cost plus a margin of 7% on materials and 5% on services as per item 10 of the Schedule to the Lucas sub-contract - 3AD paragraph 106.9.
152 While there may be some force in McDow's contention concerning clause 7 of the sub-contract, it is not necessary for us finally to determine that matter. The trial judge noted that by late July, there were serious difficulties between BHPB and McDow and work was suspended by direction of BHPB between 12 and 29 August.[62] Clause 24.4 of the sub-contract required the sub-contract works completed at the date of determination to be valued and the work begun and executed but not completed at that date to be valued. A delay caused by a shutdown at the direction of a third party would not ordinarily constitute works completed or work begun and executed but not completed. Having regard to the conclusions we have reached concerning the scope of works and variations, the trial judge was correct to conclude, as he did,[63] that item 25 was not to be valued except in so far as it might include work resulting from a change to the scope of works. Lucas did not establish that any part of item 25 was consequential upon a change in the scope of works. Accordingly, his Honour correctly disallowed item 25 and rejected it as an item for which Lucas was entitled to be paid under clause 24.4. It follows that Lucas' grounds of appeal concerning its delay claims must be dismissed.
Issue 6: Did the trial judge err in the valuation of loss of profit on work not yet performed?
153 Clause 24.4(f) of the sub-contract requires McDow to pay Lucas loss of profit, if any, on the remaining parts of the sub-contract works. The trial judge assessed Lucas' loss of profit on the remaining parts of the sub-contract works in the sum of $25,000.[64] Lucas complains that this determination was 'inconsistent with ... other findings', 'arbitrary' and 'unsupported by [the] evidence'.[65] Lucas' case on this issue is conveniently summarised in paragraphs 7.1 to 7.4 of its outline as follows:
7.1 The last of Lucas' entitlements under clause 24.4 was for loss of profit on the remaining works. Lucas based its claim here on the Subcontract margin of 46.1% on the balance of the $5 million lump sum after subtracting the pro rata lump sum determined by the trial Judge for the value of the completed works. That produced a figure of $452,661. It was a simple, mathematical approach.
7.2 The trial Judge's approach was to deduct from the Subcontract value of the remaining works, the value of the remaining off-shore diving and marine works. Earlier at the commencement of the quantum trial, McDow applied to do just that, and the trial Judge refused that application. Despite that ruling, he then went on himself to adjust the Subcontract sum downward (a negative variation).
7.3 Further, the trial Judge did so by reference to Lucas' original tender allowances for those works, again which did not reflect the true nature and extent, cost and risks of the remaining off-shore diving and marine works all of which had been reduced or eliminated through Lucas' re-engineering. The trial Judge added to those cost elements derived form the original tender breakdown the full Subcontract margin to arrive at a value for the remaining off-shore diving and marine works of $976,554. He then subtracted that from the balance of $5 million after deducting his assessment of the pro rata lump sum for the completed works, and thereby arrived at a value of the unperformed work of $467,150 (sic $460,150).
7.4 In determining the appropriate profit margin to be awarded within that value of unperformed work, the trial Judge canvassed a number of possibilities. He considered a bare profit of 1.5% (from the Subcontract margin), which produced a figure of only $4,724. He then speculated as to whether some of the risks covered by that component of the margin may or may not have come to pass. Ultimately, he concluded on a round figure of $25,000 for loss of profit on the remaining works without any relevant reasons or evidence in support.[66]
154 The first complaint made by Lucas concerns the trial judge's deduction from the sub-contract sum[67] of the value of what it describes as 'the remaining off-shore diving and marine works'. There is no dispute that in February 2003 Lucas said that it would not perform the remaining off-shore diving and marine works. The trial judge records that this was accepted by McDow by May or June of that year. However, the contractual procedures to alter the sub-contract sum were never put in train. Lucas' complaint reduces to one of a contention that it was entitled to loss of profit on work that it was not going to perform. That is, Lucas contends that even though it was not going to perform the remaining off-shore diving and marine works, those works still fell within the description of 'the remaining parts of the Sub-Contract Works' referred to in clause 24.4(f) of the sub-contract. That submission must be rejected. It is contrary to both the language and intention of the parties as objectively ascertained from the sub-contract to permit Lucas to recover, upon the determination of the sub-contract, a loss of profit on work which it had no intention of performing and which was not to be performed.
155 In support of this complaint, Lucas relies upon what it says is an inconsistency in paragraph [8] of the quantum judgment. There the trial judge correctly determined that Lucas should not receive payment for the diving and off-shore work which was not to be carried out by it. However, in the same paragraph, his Honour refused to permit McDow to argue that the pro-rata value of the workscope performed should be assessed as a proportion of a sum somewhat less than the original sub-contract sum ($5 million) because it was accepted that Lucas would not be performing the diving and off-shore work. His Honour said:
In this document McDow sought to have the contract sum adjusted downward consequent upon the fact that most of the diving and offshore work was in fact deleted from the Lucas Drilling sub-contract. Accordingly, it was said, the pro-rata value of the workscope performed should be assessed as a proportion of a sum somewhat less than the $5 million which was the original contract sum. I refused to permit this allegation to go forward. The underlying facts with respect to the diving work were not in dispute. In February 2003 Lucas Drilling stated that it would not perform this work and by May or June of that year this was accepted by McDow to be the case. The contractual procedures to adjust the contract sum, however, were never put in train. Lucas Drilling incurred establishment and standby costs for this part of the work but it did not carry out much of the work for which divers and vessels were required. This matter might have been raised at the first trial. It is not open to the parties to raise it now. To this there is one important qualification. In so far as the diving and offshore work was not carried out by Lucas Drilling, it should not receive payment for it as part of its pro-rata claim.[68]
156 There is no substance in this argument. His Honour's refusal to reduce the sub-contract sum from which a proportion might be calculated was irrelevant to the proposition that Lucas was not entitled to be paid in respect of work which it determined it would not perform, and which in fact it was not required to perform.
157 The failure to permit McDow to adjust the sub-contract sum down was, in the circumstances of this litigation, inconsequential. At best, it could only have given rise to a complaint by McDow. McDow makes no such complaint doubtless because the failure to reduce the sub-contract sum as advocated for by McDow in the quantum trial had no bearing on the outcome. If the trial judge had reduced the sub-contract sum, it would have necessitated a corresponding increase in his Honour's finding as to the proportion of work completed under the sub-contract as at the date of determination. A reduction of the kind claimed by McDow, with the attendant consequential increase in the proportion, would ultimately have led to the same value as was assessed by the trial judge.
158 The second complaint made by Lucas in respect of the trial judge's calculation of loss of profit on remaining work concerns the deduction from the sub-contract sum of an amount of $976,554 in respect of the remaining off-shore diving and marine works. Specifically, Lucas complains that the trial judge added to the cost elements in respect of this work (which he derived from the original tender breakdown) the full sub-contract margin. As we have said, Lucas asserts that the cost and risks of the remaining off-shore diving and marine works had been reduced (if not eliminated) through 'Lucas' re-engineering'.[69] It followed, according to Lucas, that any deduction from the sub-contract sum that fell to be made by reason of the value of the remaining off-shore diving and marine works should not have included that part of the margin in respect of that item that was the risk component.
159 The trial judge deducted the amount of $976,554 from the sub-contract sum ($5 million) by reference to Lucas' own tender breakdown.[70] In fact, the amount set out in the tender breakdown was $1,005,168. That amount was inclusive of a margin of 46.1% which included an allowance for risk.[71] The trial judge deducted from this amount the sum of $28,614, which he found to be the value of the work performed under this heading. No complaint was made in Lucas' notice of appeal or submissions concerning the sum of $28,614.[72] Lucas contended that the trial judge failed to accept the proposition that the substantial risk component of this sum has been reduced (if not eliminated) on two grounds. First, as a result of the re-engineering and secondly, that there should not have been any allowance for risk in any deduction from the sub-contract sum in respect of work yet to be performed. Lucas contended that all of the amount allowed for risk had been spent in performing the sub-contract works by the time the sub-contract was determined. We have already rejected both of Lucas' contentions. In our opinion, if Lucas had expended (as at the date of determination) the amount allowed for risk in the original sub-contract sum, that did not mean that there was not an element of risk which had to be allowed for in respect of the works that had not been performed at the time the sub-contract came to an end.
160 The real issue in respect of this aspect of Lucas' complaints is whether or not the trial judge was bound to accept the evidence called on behalf of Lucas that the re-engineering works had reduced (if not eliminated) any further risk in the remaining off-shore diving and marine works. As we have said, Lucas relied on the evidence given by Mr Fox, which was, in part, based upon an acceptance of statements made by Mr Robertson.
161 Mr Fox expressed the opinion that Lucas was entitled to recover the sum of $1,204,521 (which he identified as the risk contingency) under clause 24.4(a) of the sub-contract.[73] The corollary of this was that whatever amount was left as the margin of the works yet to be performed was pure profit - there being no residual risk component. Mr Fox reached his conclusion for two reasons:
(a) first, he contended that Lucas had already expended in the order of $2,576,009 in relation to costs incurred as a consequence of geological conditions and re-engineering (thus the whole of the sum of $1,204,521 had been spent by the time the sub-contract was determined); and
(b) secondly, relying upon Mr Robertson's statements, by reason of the changes to the methodology achieved during the re-engineering period, Lucas had minimised, if not eliminated, almost all of the risks associated with the project.[74]
162 We have already explained why the first basis for Mr Fox's opinion is without substance. So far as the second basis for Mr Fox's opinion is concerned, Mr Fox was cross-examined during the quantum trial and was asked and answered the following questions:
Because Mr Robertson has told you that by his re-engineering he's eliminated all risk, you have allocated that back as the pro rata valuation of the original contract sum completed? --- I have accepted that Lucas have incurred considerable risk costs which I've demonstrated in my report. I've accepted Robertson's statement that Lucas had eliminated risk and as a consequence I believe that they are entitled to recover that element of their original price, yes.
If the fact is, and I want you to listen carefully to the general proposition, that the riskier elements of the work by agreement were, from some time in June 2003, not to be undertaken by Lucas but were to be undertaken by some other party, so that the risk was not eliminated, it was just handed over, your figures would not be correct, would they, without reflecting what the value was of the work that was handed over? --- There's an element of reasonableness in that argument, yes.
163 A close examination of all of Mr Robertson's evidence does not bear out the conclusion that there was no risk associated with the works that remained to be performed. At the very least, there was the weather risk identified by Mr Robertson.[75] Mr Robertson gave evidence that for each scheduled day of dive or tug activity, there would have been (on average) seven days of standby waiting for suitable weather conditions. Further, other witnesses gave evidence establishing the existence of significant risk remaining in the works to be completed.[76] Having regard to the evidence, in our view the trial judge was correct when he concluded that the proper approach was to apply the tender margins to each of the activities (complete and incomplete) as was done in Lucas' tender breakdown. Mr Robertson's evidence was not, as the appellant alleged, 'unchallenged'. We do not accept that it ought to have been (uncritically) accepted by the trial judge. While his Honour's conclusions on this issue were not said to depend on credit it is unlikely that his Honour was favourably impressed, by all of Mr Robertson's evidence. For example, when his Honour received the following answer to one of his Honour's questions:
That statement that you set out there and which apparently you told Mr Bumpstead, did you honestly believe that to be correct or was this a bit of a try on in the hope you might screw some money out of them?---It doesn't matter.
164 It follows that Lucas has failed to establish any error in the trial judge's conclusion that the tender price referable to the remaining contract work, the work which Lucas Drilling would have had to perform had the sub-contract not been terminated, was properly calculated at $460,150.[77] The value of $460,150 represents a cost of $314,956 plus a margin of 46.1% on that figure.[78] Lucas complains that the trial judge then adopted a profit component of 1.5% of the 46.1% margin. That is, his Honour broke down the margin of 46.1% by assigning 3.5% to overheads/indirect costs, 1.5% to profit and the balance of the 46.1% to risk.[79] In arriving at those conclusions, his Honour adopted Lucas' own expert's analysis (Mr Fox). Lucas has not identified any error in Mr Fox's approach. Lucas' complaint is that his Honour 'considered a bare profit of 1.5% ... which produced a figure of only $4,724'. It is then contended that his Honour 'speculated' as to whether the sum of the risks covered by the margin might or might not have come to pass. Finally, Lucas complains that his Honour 'concluded on a round figure of $25,000 ... without any relevant reasons or evidence in support'.[80]
165 Measuring a loss of profit is frequently attended with factual difficulty.[81] In such cases, a Court has to do the best it can in the circumstances, having regard to all of the evidence. A broad approach is often called for. In this case, the trial judge allowed $25,000, after noting evidence justifying a conclusion that the profit margin was 1.5% - which would have produced the sum of $4,724. $25,000 is a little over 7.9% of the cost of the remaining work ($314,956). In our opinion, that is a reasonable assessment of an appropriate profit margin. It follows that Lucas has failed to demonstrate any error in the trial judge's calculation of loss of profits.
Issue 7: The cross-appeal (did his Honour err in holding that Lucas was entitled to interest from 23 September 2003?)
166 The issue on the cross-appeal concerns the awarding of interest in favour of Lucas at penalty interest rates from 23 September 2003 pursuant to s 58 of the Supreme Court Act 1986.
167 Section 58 of the Supreme Court Act provides:
Interest to be allowed when debts or sums certain recovered
(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
(2) Subsection (1) does not authorise the computation of interest on any bill of exchange or promissory note at a higher rate than the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 if there has been no defence pleaded.
(3) A debt or sum payable or a date or time is to be taken to be certain if it has become certain.
168 In awarding interest at penalty interest rates from 23 September 2003, the trial judge concluded that Lucas recovered a sum certain within the meaning of s 58, having made a demand by letter dated 23 September 2003, and good cause was not shown to the contrary. McDow contends that Lucas' claim was not for a sum certain; nor was there any relevant demand (specifically, the letter of 23 September 2003 was not a demand) and, in any event, good cause was shown to the contrary. Lucas seeks to support the trial judge's conclusions in its favour by a notice of contention in which it contends that the claim was also for a debt within the meaning of s 58. McDow disputes that contention.
169 The principal ground argued on the cross-appeal was whether Lucas' letter of 23 September 2003 ('the 23 September letter') constituted a demand. The letter was addressed to McDow. The letter provided:
Attention: Ian Clark
Dear Ian/Mark,
Project: Minerva Field Development - HDD Shore Crossing
Sub-Contract: 1727-SC01
Subject: Termination of Head Contract (Our Ref: 1.2.1.475)
We refer to your letter dated 16th September 2003 Ref KM/1727/L/112.1/MA/00189.
We have prior to the breakdown of the relationship between MacDow and BHPB requested copies of the default and suspension notices served on MacDow by BHPB. We also request a copy of the Termination Notice served on MacDow by BHPB.
AJ Lucas [sic] rights and obligations are affected by those notices and as such AJ Lucas AJ Lucas [sic] are entitled to have copies of the Notices.
MacDows failure to respond to this request is conduct which lacks transparency and is prejudicial to AJ Lucas. Please comply with our request. If MacDow adopts the view that it refuses to provide this documentation please advise us accordingly.
In relation to the termination requirements AJ Lucas replies as follows:
a) To the extent legally possible AJ Lucas will comply.
b) AJ Lucas has previously submitted to MacDow both electronic and hard copies of drawings, specifications and other documents in connection with the HDD works. Please advise which documentation etc detailed in items (i), (ii), (iii) has not been passed onto BHPB and is required to be submitted by AJ Lucas.
c) AJ Lucas completed demobilisation from the HDD site on Friday 19th September 2003
Under clause 24.4 MacDow are obliged to make payment to AJ Lucas MacDow are required to provide indicative values under Clause 24.4 (a) & (b) for discussion. AJ Lucas will provide claims for discussion under 24.4 (c) to (f) including claims for the cost of variations to date. These claims will be provided by Friday 26th September 2003.
The termination by BHPB raises a number of complex issues. We note that MacDow adopt the view that BHPB have repudiated the contract. We again record that AJ Lucas has not been privy to the exchanges between BHPB and MacDow.
AJ Lucas considers it to be in both parties' interests to have a frank discussion about the termination process and the procedures to follow.
Yours faithfully.
AJ LUCAS DRILLING PTY LTD
170 In Victorian WorkCover Authority v Esso Australia Limited,[82] the High Court had to consider whether the amount of an indemnity recovered pursuant to s 138 of the Accident Compensation Act 1985 constituted a 'debt or damages' within the meaning of s 60 of the Supreme Court Act 1986. Section 60 is the provision that provides that interest must be paid in respect of the recovery of debt or damages, unless good cause is shown to the contrary, from the commencement of a proceeding to the date of judgment. In analysing the meaning of the phrase 'the recovery of debt or damages', Kirby J said:
In considering whether a narrow construction should be given to that phrase, it would be relevant to take into account at least three considerations. First is the obligatory language (must) in which the entitlement to interest is expressed. Secondly, the beneficial purpose of providing, with particularity (ss 58 and 59) and then more generally (s 60), for the award of interest to compensate parties who have been obliged to take "proceedings" to recover a money sum and who in the meantime have been kept out of moneys which they could otherwise have used or upon which they could otherwise have earned interest. Thirdly, on its face, s 60 is one to be given a broad construction because it appears as a general part of the applicable legislation enacted for the award of interest in Supreme Court proceedings. Of their nature, such proceedings will cover an extremely wide variety of types and subject matters. Especially by juxtaposition with the particularity of ss 58 and 59 of the Supreme Court Act, the general provisions of s 60 are obviously intended to have a broad application. All of these are reasons why, applying orthodox canons of statutory construction, the phrase "proceeding for the recovery of debt or damages" would not be given a narrow meaning.[83]
171 According to Kirby J's reasoning, s 58 of the Supreme Court Act should not be given a narrow meaning. Section 58 has the same beneficial purpose as s 60 and should be given a similarly broad application.
172 As to what constitutes a demand, the judgment of Walker J in In the matter of The Colonial Finance, Mortgage, Investment and Guarantee Corporation Limited ('Colonial Finance')[84] is most often cited in relation to what constitutes a demand. Colonial Finance concerned a guarantee of a customer's overdraft at a bank. Three letters were written. The question was whether any of them constituted a demand. The first letter provided:
I shall be glad if you will use every exertion to have this balance reduced as early as possible.[85]
I have again to call attention to the unsatisfactory state of your 'No 2' account, and to request that the overdraft may be either liquidated or very considerably reduced before the end of the year. It was part of the agreement between your corporation and this bank that the full proceeds of the call made in July last would be placed to the credit of this account. I am aware that a sum of 2,000_l_. has not been so applied, but has been used in meeting your company's engagements. Be good enough to arrange for the transfer of this sum before the end of the year.[86]
Stat[ed] an amount as due on the account and conclude[ed]:-
Kindly provide for this before close of business if possible.[87]
175 Walker J referred to the first letter in the following terms:
That letter is not a demand within the meaning of the guarantee; there must be a clear intimation that payment is required to constitute a demand; nothing more is necessary, and the word "demand" need not be used; neither is the validity of a demand lessened by its being clothed in the language of politeness; it must be of a preemptory character and unconditional, but the nature of the language is immaterial provided it has this effect. [88]
176 So far as the second letter was concerned, his Honour said:
Applying the principles I have just laid down as to what constitutes a demand, I am of opinion that this letter is a demand. It is a plain intimation from the bank that they require their customer to pay off his overdraft in whole or in part; and further it contains a specific request that 2,000_l_. shall be paid into the account, which would of course have the effect of liquidating the overdraft to that extent; so that it is a distinct and preemptory demand by the bank on the customer to pay off the whole or part of the overdrawn account by a date mentioned. I do not think the bank were bound to couch their request in rude terms; this letter ... is therefore, in my opinion, a sufficient demand under the guarantee.[89]
177 His Honour then found it unnecessary to consider the remaining letter - although he was inclined to think that it was also a sufficient demand, the words 'if possible' being a qualification of the time only.[90]
178 Section 58 of the Supreme Court Act is derived from the Civil Procedure Act 1833 (UK) (3 & 4 Will IV c 42)[91] ('the 1833 Act').[92] Section 28 of the 1833 Act provided:
And be it further enacted, That upon all Debts or Sums certain, payable at a certain Time or otherwise, the Jury, on the Trial of any Issue or on any Inquisition of Damages, may, if they shall think fit, allow interest to the Creditor, at a Rate not exceeding the current Rate of Interest, from the Time when such Debts or Sums certain were payable, if such Debts or Sums be payable by virtue of some written instrument at a certain Time, or if payable otherwise, then from the Time when Demand of Payment shall have been made in Writing, so as such Demand shall give Notice to the Debtor that Interest will be claimed from the Date of such Demand until the Time of Payment; provided that Interest shall be payable in all Cases in which it is now payable by Law.
179 A series of English decisions considered whether particular demands which did not follow the words of the 1833 Act were sufficient to enable interest to be recovered (see, for example, Mowatt v Lord Londesborough,[93] Geake v Ross,[94] Ward v Eyre[95] and the London Chatham and Dover Railway Company v The SouthEastern Railway Company[96]). That line of authority establishes that a demand need not be in any particular form, or specify the exact sum due, so long as it contains a distinct demand of payment.
180 We accept that constitution of a demand may vary according to the circumstances of the particular case.[97] For example, words which would not suffice to constitute a demand for the purposes of a guarantee, might be sufficient for the purposes of s 58 of the Supreme Court Act. We turn now to analyse the 23 September letter.
181 The only words in the 23 September letter which are arguably capable of constituting a demand of payment within the meaning of s 58 are those contained in the third-last paragraph (beginning 'Under clause 24.4 ...') ('the relevant paragraph'). In our view, nothing outside the relevant paragraph is capable of constituting a demand for the purposes of s 58. In the relevant paragraph, it is apparent that a full stop is missing after the words 'obliged to make payment to AJ Lucas'. No party sought to make anything of this omission. Indeed, we were invited to construe the letter on the basis that there was a full stop in its proper place.
182 The subject of the letter undoubtedly concerns the various issues surrounding the termination of the head contract and the sub-contract. Copies of documents are sought, information is imparted, Lucas responds to matters raised by McDow, Lucas undertakes to provide 'claims for discussion' and (finally) Lucas states its view that it is in both parties' interests 'to have a frank discussion about the termination process and the procedures to follow'.
183 While Lucas characterises the letter as a demand of payment, McDow contends that, at best, the letter 'amounts to an invitation to negotiate as to the financial (and other) consequences of termination'.[98] Lucas correctly submits that to satisfy s 58 the demand does not have to be for some specific dollar amount or for (in the words of the statute) 'a debt or sum certain'. It is sufficient if the plaintiff recovers a debt or sum certain and there has been a demand of payment. The trial judge dealt with the issue as follows:
184 In our view, the letter of 23 September 2003 was not a demand within the meaning of s 58. Giving s 58 the requisite broad application, in our view, on its proper construction, the letter was not a demand: rather it noted a number of matters concerning the termination, promised to provide information and sought to open a discussion between the parties. While it is possible that the words 'you are obliged to make payment to me' could in some circumstances constitute a demand for the purposes of s 58, the context in which Lucas stated that McDow was obliged to make payment to it shows that (objectively construed) Lucas was simply referring to the existence and operation of cl 24.4 to explain the foreshadowed provision of claims for discussion and the seeking of a 'frank discussion'.
185 It follows that s 58 has no application in this case. There being no relevant demand, it is not necessary for us to consider the parties' arguments concerning the trial judge's reasons in relation to the meaning and application of the expression 'sum certain'.[100] Similarly, it is not necessary for us to consider further Lucas' notice of contention.
186 For the sake of completeness, we note the trial judge's finding that under the sub-contract, the time for payment was not certain.[101] Lucas did not seek to contend otherwise on this appeal. Indeed, counsel for Lucas submitted before us:
The words 'shall be paid' in 24.4 strengthen[s] the proposition that upon termination, and there might be a debate about whether the payment was required within a reasonable time or not, but McDow was indebted to Lucas in respect of the amounts that follow from (a) to (f).
Specifically, Lucas did not contend that the amount owed to it was payable under cl 24.4 at a date which had become certain (being the date of termination).[102]
187 In its notice of appeal and submissions, McDow contended that the trial judge should have ordered interest pursuant to s 60 of the Supreme Court Act. Section 58 having no application, this contention is correct.[103] Under s 60, the Court must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate from the time being fixed under s 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of judgment.
188 The proceeding was issued on 5 February 2007. While McDow submitted that there was good cause to the contrary within the meaning of s 58 in relation to the period between 23 September 2003 and the commencement of the proceeding, no such submission was made in respect of the period after the proceeding commenced. In the circumstances, we see no reason to alter the trial judge's award of interest other than by deleting from it all amounts allowed prior to 5 February 2007. We will hear the parties on the precise calculation and appropriate form of order.
189 For the foregoing reasons, the appeal is dismissed and the cross appeal is allowed as referred to above.
[1] Agreed summary, dated 4 March 2009, [7].
[2] Respondent's Outline of Submissions, filed 5 December 2008, [25] (citations omitted).
[3] The liability trial commenced on 9 October 2007.
[7] Mr Colin Fox prepared an expert report entitled 'Expert Report on Quantum on Behalf of the Plaintiff' (volume 1 and 2) ('Fox 1') and a supplementary report (referred to as 'Fox II'). Both reports were admitted into evidence in the liability trial, see [2007] VSC 315, [16].
[8] Agreed summary, dated 4 March 2009, [57]-[59] (citation omitted).
[9] [2007] VSC 500, [14].
[12] See appendix to the liability judgment.
[13] [2007] VSC 500, [13].
[16] Agreed summary, dated 4 March 2009, [60]-[63] (citation omitted).
[17] [2007] VSC 500, [28].
[18] Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 at 263-4, per Deane J.
[19] As for example, following the acceptance by a party of the other's repudiation. See GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1 at 157 [660] ff, per Finn J.
[20] See, too, special conditions (a) and (b) in item 13 of the schedule to the sub-contract.
[21] [2007] VSC 500, [30] -[32] (citations in original).
[22] MW Abrahamson, Engineering Law and the I.C.E Contracts 4th ed (1979) p. 186.
[23] [2007] VSC 500, [38] (citation in original).
[24] See, for example, MLW Technology Pty Ltd v May [2005] VSCA 29 [76]-[81] (Gillard AJA, Winneke P and Buchanan JA agreeing); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-2 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 35; Toll (FGCT) Pty Limited v Alphapharm Pty Ltd & Ors [2004] HCA 52; (2004) 219 CLR 165, 179 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 52.
[25] [2007] VSC 500, [67].
[28] A term used by Lucas' counsel at trial.
[29] [2007] VSC 500, [80] and [114].
[32] Petroleum (Submerged Lands) Act 1967 (Cth); Petroleum (Submerged Lands) (Diving Safety) Regulations 2002 (Cth).
[33] [2008] VSC 275, [8] and [35].
[38] [2007] VSC 500, [75]-[76].
[48] [2008] VSC 275, [51].
[50] [2008] VSC 275, [58].
[51] [2007] VSC 500, [108].
[54] [2008] VSC 275, [63].
[55] [2007] VSC 500, [133].
[57] Appellant's outline of submissions, filed 14 November 2008, [6].
[59] Remembering that the liability trial did not commence until 9 November 2007.
[60] [2007] VSC 500, [7].
[61] Cf Appellant's outline of submissions, filed 14 November 2008, [6.3].
[62] [2007] VSC 500, [112].
[64] [2008] VSC 315, [12].
[65] Appellant's outline of submissions, filed 14 November 2008, [7].
[67] See clause 13 of the sub-contract.
[68] [2008] VSC 274, [8].
[69] See Appellant's outline of submissions, filed 14 November 2009, [7.3].
[70] [2008] VSC 275, [14].
[71] We should say for the sake of completeness that it was not correct for Lucas to submit to us that the trial judge 'added' to the cost elements and allowance for risk. His Honour included the margin provided for in Lucas' own tender summary.
[72] [2008] VSC 275, [29].
[74] 2nd Report of Colin Fox, dated 22 April 2008, [90]-[120].
[75] Statement of Michael Robertson, dated 22 April 2008, [49].
[76] See for example, Witness Statement of Stephen Chai, dated 3 June 2008, [15]-[51] and Witness Statement of Peter Kempster, dated 3 June 2008, [15]-[53].
[77] [2008] VSC 315, [11].
[78] While the first line of paragraph 12 of the loss of profits judgment contains the figure $460,550, this is a mere typographical error. When one redoes the arithmetic, one can see that the figure of $314,956 arrived at by his Honour was derived from the correct figure of $460,150.
[79] [2008] VSC 275, [39] and [40] and [2008] VSC 315, [12].
[80] Appellant's outline of submissions, filed 14 November 2008, [7.4].
[81] See generally State of New South Wales v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536, 554 (Heydon JA).
[82] (2001) 207 CLR 520; [2001] HCA 53.
[91] The preamble of the 1833 Act read 'An Act for the further Amendment of the Law, and the better Advancement of Justice'. See Martinus v Kidd [1982] VicRp 81; [1982] VR 807, 816 (Anderson J).
[92] The sequence of development of section 58 of the Supreme Court Act 1986 after s 28 of the 1833 Act was s 422 Supreme Court (Common Law Procedure) Act 1865 ; s 224 Supreme Court Act 1890; s 75 Supreme Court Act 1915; s 78 Supreme Court Act 1928; and s 78 Supreme Court Act 1958.
[97] Cf, Sir Edward Coke, Francis Hargrave and Charles Butler, The first part of the Institutes of the Laws of England; or, a commentary upon Littleton. (19th ed, 1832) wherein the authors (Hargrave and Butler) state at 291b:
Demand,' Demandum, is a word of art, and in the understanding of the common law is of so large an extent, as no other one word in the law is, unless it be clameum, whereof Littleton maketh mention, Sect. 445.
[98] McDow's outline of submissions (on the cross-appeal), filed 14 November 2008, [9].
[99] [2007] VSC 500, [146].
[100] But cf Alexander v Ajax Insurance Co Limited [1956] VicLawRp 70; [1956] VLR 436; City Mutual Life Assurance Society Limited v Giannarelli [1977] VicRp 53; [1977] VR 463; Oddy v Fry (Unreported, Supreme Court of Victoria, McDonald J, 16 June 1997) (an appeal from which was dismissed at [1998] VSCA 26; [1999] 1 VR 557)); and Aqua-Max Pty Ltd v MT Associates Pty Ltd [2001] VSCA 104; (2001) 3 VR 473.
[101] [2007] VSC 500, [144].
[102] Cf the facts in Aqua-Max Pty Ltd v MT Associates Pty Ltd [2001] VSCA 104; (2001) 3 VR 473. In that case, the relevant contract provided for the payment 'in the event of the termination of this agreement prior to the appointed date, otherwise than pursuant to [specified clauses] ... [of] a bonus calculated by multiplying $3,000 by the number of whole months from the date of this agreement to the date of its termination" (see Aqua-Max v MT Associates (Unreported, Supreme Court of Victoria, Gillard J, 19 June 1998). In that case, the Court of Appeal upheld Gillard J's conclusion that the amount owed was payable at a date certain - and thus s 58 applied (see [2001] VSCA 104; (2001) 3 VR 473, 497).
[103] See the Kirby J's discussion of the composition phrase 'debt or damages' used in s 60 in Victorian WorkCover Authority v Esso Australia Limited (2001) 207 CLR 520, 559.
A J Lucas Drilling Pty Ltd
McConnell Dowell Constructors
(1987) 162 CLR 221
(2003) 128 FCR 1
(2004) 218 CLR 451
(2004) 219 CLR 165
(2000) 54 NSWLR 536
(2001) 207 CLR 520
(2001) 3 VR 473