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[2012] WASC 202
Supreme Court of WA
2012-06-22
Martin J
Original judgment source is linked above.
1 In 2007, Mount Gibson Iron Ltd (MGI) was seeking to extend its Western Australian iron ore processing and export business by a new mining operation in the locality of Mount Gibson (the company taking its name from the area, which is in the central west of Western Australia and roughly between the towns of Wubin and Perenjori). The new project was to be known as Extension Hill.
2 MGI already had iron ore export operations established in Western Australia, at Tallering Peak and Koolan Island. Extension Hill would be a greenfields project. MGI's expanded iron ore processing operations at Extension Hill would involve the railing of iron ore from a siding near Perenjori in wagons for shipping out of the Port of Geraldton. It was anticipated most of the ore would be exported to China.
3 At root a 'Masters v Cameron' contractual formation dispute arises between the plaintiff, Austman Pty Ltd (Austman), and the defendant, Mount Gibson Mining Ltd (MGM). MGM is a wholly owned subsidiary of MGI. MGM asserts and Austman disputes that in March 2008 a binding contract for the design and construction of a crushing and screening plant to be built at Extension Hill was formed between the parties (the D&C Contract).
4 Austman accepts that in the period between November 2007 and February 2008, it submitted five tenders to MGM, seeking an award to it of a design and construction contract for MGM's new crushing and screening plant at Extension Hill. But Austman says that, in the end, no binding contract was ever perfected.
5 On any view, there was extensive communication back and forth between MGM and Austman over a four month period, culminating in Austman's fifth tender of 27 February 2008 at a lump sum price of $10.914 million (exhibit 1, page 412) being accepted by MGM.
6 Austman was advised that MGM would accept Austman's fifth tender, under a notice of award document (the NOA) sent to Mr Hartmut Kuhn (Mr H Kuhn), the Managing Director of Austman, of 3 March 2008 (exhibit 1, page 679).
7 Further discussions followed between Mr Malcolm Watson of Merit Engineers on behalf of MGM and Mr H Kuhn over certain of the General Conditions sought to be incorporated by reference into the contract arrangements. That dialogue culminated in Mr H Kuhn signing the NOA sent to him by Mr Watson. Mr H Kuhn returned the signed NOA to MGM on 4 March 2008 (exhibit 1, pages 653 654).
8 On 6 March 2008, Mr David Quinlivan, the Chief Operating Officer of both MGI and MGM, signed the same NOA document for MGM.
9 Mr H Kuhn left for China on 5 March 2008. There he caused Austman to enter contracts with two Chinese steel fabricating subcontractors to carry out design and steel fabrication works for the Extension Hill crushing and screening plant components (with Wuxi Sinoman Heavy Machinery Co Ltd on 12 March 2008, exhibit 1, page 719, and with Shanghai Sinoman Industrial Co Ltd on 10 March 2008, exhibit 1, pages 716 717).
10 Between May and November 2008, Austman submitted seven progress claims to MGM seeking payments for work done. Some aspects of the claims were allowed and paid, to the extent of $842,283. But the D&C Contract's appointed Superintendent, Mr Peter Panek, disallowed the bulk of the progress claims as premature or not sufficiently substantiated. A frequent basis for disallowance was that no fabricated materials had yet been delivered or assembled at Extension Hill. A principal has no obligation to make a progress payment to a contractor for materials until those materials are affixed at site (General Condition 37.3).
11 Austman gave notices of dispute, on 7 and 18 July 2008 (exhibit 3, pages 1617 1618 and 1908).
12 Apart from denying the existence of any binding contract with MGM, Austman advances a related, but legally distinct, contractual uncertainty argument. It submits, in the end, there was no valid or enforceable D&C Contract with MGM. This is on the basis of what it says were many essential details that still needed to be settled between the parties. Their ultimate nonresolution, says Austman, cannot sustain an objective conclusion as to the existence of an effectual design and construct contract for a crushing and screening plant at Extension Hill, even allowing for the potential remedial impact of implied terms, or resort to considerations of reasonableness: see ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548EF (Gleeson CJ).
13 Contractual uncertainty arguments advanced by Austman involve engineering concepts of some technical complexity. Austman pleads that the uncertainty was particularly manifested in the areas of:
(iv) payment terms, including for unfixed plant and equipment.
14 On Austman's case, the ultimate uncertainty renders void any otherwise ascertained D&C Contract: see Uranium Equities Ltd v Fewster [2008] WASCA 33 [127]; [2008] WASCA 33; (2008) 36 WAR 97, 132.
15 On the other hand, MGM contends that there was a binding and fully enforceable D&C Contract, consummated as a result of Austman's communicated acceptance and return of MGM's last written NOA communication to Austman on 4 March 2008, or alternatively by a subsequent finalisation of some limited technical issues between the engineering representatives of Austman and MGM on 18 March or 3 April 2008.
16 From a founding premise of a binding and enforceable D&C Contract, MGM contends that on 12 November 2008 Austman - having by then submitted seven progress claims, plus notices of dispute and delay (see exhibit 4, pages 2096 2097) - repudiated the D&C Contract, first by steadfastly denying that any contract existed and second, by renouncing future obligations of performance under a D&C Contract.
17 MGM says that it was, as it advised Austman on 7 November 2008 (exhibit 4, page 2305), itself ready, willing and able to perform all its obligations as principal under the D&C Contract, subject to the Superintendent's then subsisting notice of suspension of part of Austman's works (exhibit 4, page 2224).
18 MGM says that until 28 November 2008 it had been seeking to hold Austman to performing the D&C Contract's obligations. It had not before then elected to act upon Austman's repudiatory breaches of the D&C Contract. But that changed for MGM on 28 November 2008.
19 MGM says the 12 November 2008 communication sent on behalf of Austman by its solicitors was wrongful and was not resiled from. It was a blunt renunciation of Austman's obligations of future performance under the D&C Contract, not to mention communicating yet another refutation as to the existence of any binding agreement with MGM.
20 The 12 November 2008 stance by Austman was continued. It provided MGM with the lawful basis to elect on 28 November 2008, as the innocent party, to give Austman notice, thereby putting an end to all parties' future performance obligations under the D&C Contract: see McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, 476 477 (Dixon J). MGM says that on 28 November 2008 it had elected, as then was its right, to accept Austman's wrongful repudiation of the D&C Contract.
21 So, in effect, both MGM and Austman assert that if a D&C Contract had come into existence, any obligations of future performance were at an end. This occurred either on 12 November 2008 (on Austman's alternative case, which assumes a binding D&C Contract had been formed), or on 28 November 2008 (on MGM's case).
22 It is an accepted fact that no component parts for a crushing and screening plant were ever delivered, let alone assembled or affixed at the Extension Hill site.
23 Before plant assembly work could begin, MGM needed to perform about a month of preparatory earthworks. Earthworks were necessary to provide a base for a crushing and screening plant. MGM had not started any earthworks as of 28 November 2008.
24 Two environmental approvals (from the Department of Mines and Petroleum (DMP), formerly the Department of Industry and Resources (DOIR)) were needed before the soil at Extension Hill could be turned over. It would have been unlawful to perform earthworks without the approvals. It had been MGM's responsibility to obtain the approvals. An absence of the two approvals had occasioned, so Austman was informed, the Superintendent's suspension of part of Austman's works at the Extension Hill site on 23 October 2008.
25 Some unassembled fabricated steel components for the crushing and screening plant which Austman had caused to be manufactured in China arrived at Fremantle. They were stored by Austman - and this is where they remain - at Kwinana, at Austman's cost. Further fabricated steel components from the crushing and screening plant remain stored in China.
26 Roughly half of the fabricated steel components needed for the Extension Hill crushing and screening plant were fabricated by Austman's offshore subcontractors. However, as I observed, none of these have ever reached site at Extension Hill, let alone been assembled and affixed there, to create the envisaged crushing and screening plant.
27 That fact is relevant to an assessment of one of Austman's claims put in the alternative. Austman says that if a D&C Contract is found to exist and to be enforceable, then MGM has breached its obligations under the contract. Austman says further that, as the innocent party, it can elect to receive either damages for breach of contract, or a quantum meruit as its remedy at any time before judgment is delivered. Austman asks me therefore to assess its claim for damages as well as its alternative claim on a quantum meruit, so it can make an election as between the two, before pronouncing judgment in Austman's favour.
28 If there was a binding D&C Contract, Austman claims $6,896,544.80 from MGM as its common law damages for breach of contract. Alternatively, Austman seeks a 'just sum' on the basis of the quantum meruit.
29 MGM refutes any liability to Austman for damages, or on a quantum meruit claim. MGM says it received, in the end, absolutely nothing from Austman from which it obtained any benefit so as to sustain restitutionary relief. Nothing, let alone a functional crushing and screening plant, was ever assembled or affixed by Austman at Extension Hill.
30 Therefore, MGM says it could hardly have been enriched, let alone been unjustly enriched, at Austman's expense. Accordingly, MGM says that Austman's claim for relief by way of a quantum meruit, founded on principles of unjust enrichment, is wholly misconceived, on the facts of this case.
31 MGM says that by reason of Austman's breaches, culminating in the events of November 2008 which ended the parties' relationship, it was ultimately forced to engage a new contractor to design and construct from scratch its crushing and screening plant at Extension Hill. MGM will have to pay the new contractor full price for a completed crushing and screening plant, without any offsets or advantages arising out of its terminated D&C Contract with Austman.
32 By a counterclaim in the proceedings, MGM contends that Austman, as the true party in breach, is actually liable to it for $842,283, essentially as its waste damages. MGM says that progress claim monies it had paid over to Austman during 2008 on an interim basis were wholly wasted and of no eventual benefit to MGM. On this point MGM invokes Dixon J's observations in McRae v Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377, 412.
33 Austman's case, as opened by counsel, was explained to be that even if the court ultimately held that there was, contrary to Austman's primary case, a binding and fully enforceable D&C Contract, such a conclusion would be of small moment.
34 Austman's written opening submissions, handed up at the commencement of trial, under the heading 'Contract or No Contract', explain:
35 That stance was amplified by Austman's counsel during his opening (ts 7):
[I]t will not matter whether your Honour finds the existence of a contract or not. As a matter of proper legal analysis, at the end of the day Austman is entitled to be paid for the work it has performed.
36 That tactical stance by Austman struck me, at the time, as curious. It still does. More than half the trial documents and at least half the duration of the trial, as my rough assessment, were concerned with issues advanced by Austman in support of its denial of the D&C Contract's existence, or its validity. If those issues really did not matter, then why were they pressed, at expense to all concerned, for so long?
37 If I were ultimately to conclude that a binding and certain D&C Contract subsisted and then lawfully terminated by MGM in late November 2008 (based on the objectively assessed repudiatory conduct of Austman, as MGM contends), that outcome nevertheless would not, says Austman, undermine its entitlement to be paid for work performed, or work which it caused to be carried out. This submission was explained in Austman's written opening submissions:
38 Austman's assertion of 'accrued rights' at the date of termination of a D&C Contract being preserved, even if Austman were ultimately found to have wrongfully repudiated a binding D&C Contract, is an attempted invocation of the reasons of Dixon J (as he then was) in McDonald v Dennys Lascelles as to unconditionally acquired rights. There his Honour famously explained the principles governing rights unconditionally acquired prior to a contractual termination (476 477):
When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired.
(my emphasis in bold)
39 In FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2005] NSWCA 340, Basten JA (with whom Beazley JA agreed), rejected arguments as to accrued rights grounded upon a contractor's progress claims submitted before termination, but subsequently certified by the superintendent, after termination of the construction contract: see [192] and [193]. In FPM, the superintendent had authorised the progress claims only after the termination. It was held that the contractor did not hold unconditionally acquired rights. Post termination it was too late for the superintendent to validly certify the progress claims.
40 Here, progress claim amounts that were allowed by the Superintendent to Austman have been paid over in full by MGM. Nothing else was approved by the Superintendent, before or after November 2008. MGM therefore says, following FPM, that Austman post termination does not hold any unconditional rights as regards its uncertified progress claims.
41 From that brief overview, five essential questions can be seen to arise:
42 There is another core issue that should be mentioned at the outset. On the assumption that an efficacious D&C Contract was operative as between these parties, Austman directs some very serious assertions of misconduct against MGM and the Contract Superintendent, Mr Peter Panek. Austman's case is that MGM's senior personnel and Mr Panek effectively conspired to manufacture a pretext to suspend the contract works of Austman as contractor at Extension Hill, in October and November 2008.
43 Austman alleges the 'true' reason underlying the Superintendent's suspension of part of the works was the unexpected financial difficulties MGM and its parent MGI then faced. Difficulties had arisen, it is put, because MGI's overseas iron ore customers had reneged on supply contracts (entered before October 2008) during the 2008 global financial crisis that struck at the heart of MGI's international iron ore sales business.
44 The assertions of serious misconduct against MGM and Mr Panek were pressed by Austman. That was so notwithstanding that MGM by senior counsel objected during the opening of the trial to a conspiracy and misconduct case as being outside Austman's pleadings (see ts 27).
45 Austman's pleadings were (just) wide enough (as I will explain) to permit the misconduct case to be put.
46 Austman is a family business. Its Managing Director is Mr H Kuhn, a civil engineer. Mr H Kuhn is 67 years of age and longstanding patriarch of the family business. Other participants in the Austman business are Mr Kuhn's two sons, Martin (Mr M Kuhn) and Stevan (Mr S Kuhn). Mr M Kuhn is a project engineer. Mr S Kuhn is a manager. He was the intended construction manager for the Extension Hill project. Mr Kuhn's daughter Katrina also assists in the family business. She is referred to in some of the email correspondence passing between the parties.
47 In its second further amended statement of claim (statement of claim), Austman describes itself as a corporation 'carrying on business in the design and construction of bulk materials handling and equipment, processes and facilities'. That selfdescription is accepted by MGM.
48 The trial proceeded by the extensive use of witness statements. Exhibits 8, 9, 10 and 11 were Mr H Kuhn's four witness statements, all tendered in Austman's case.
49 It is trite that an objective approach is now used in Australian courts in their daily task of interpreting contracts. The objective approach, applying a standard of reasonableness, is also used in ascertaining the existence or otherwise of a binding agreement between negotiating parties. What the parties themselves subjectively think about such legal issues is immaterial.
50 There were a large number of written communications (usually emails) passing between Austman and MGM personnel in the period between 31 October 2007 and March 2008. The communications are all uncontroversially in evidence. Accordingly, there is, particularly in this case, no basis for individual witnesses to express subjective views about the existence or otherwise of a binding agreement between themselves. A court looks at admissible materials and makes an objective assessment based on how reasonable persons, similarly placed to the parties, would have viewed the contractual position.
51 Numerous comments found within the witness statements crossed the line of admissibility, by expressing subjective beliefs, or conclusions upon the parties' respective legal positions. I have ignored all such comments. The contemporaneous documentation passing between the parties is a more reliable repository of evidence, particularly on the issue of contract formation.
52 Before trial a number of disputes arose over objections to the witness statements. The parties eventually resolved these disputes on the agreed basis that:
(a) passages in witness statements tendered for MGM going to the existence of a contract or its terms or to 'contractual documentation' would not be accepted as evidence as to the existence of a contract. Rather, they would be treated essentially as submissions towards an alleged contract; and
(b) passages in witness statements tendered on behalf of Austman (particularly the three members of the Kuhn family who gave evidence at trial) as to a legal conclusion that there was no contract, similarly, would be treated only as submission, not evidence in support of such a legal conclusion.
53 The parties also agreed, following what proved to be an extensive pretrial exchange of witness statements on each side, including the filing of reply witness statements, that no party would press against the other a 'Browne v Dunn' submission. Accordingly, no complaint would be raised over an asserted failure at trial to crossexamine, or to expressly join issue by questions challenging an assertion buried somewhere in the long and frequently technical witness statements exchanged before trial.
54 I should mention at an early point MGM's internal electronic communication system, which is akin to a private email exchange, known as Aconex. Austman personnel were given access to Aconex and used this mode of electronic communication at an early stage in the tender process it engaged in with MGM.
55 The Aconex system is explained in Mr Panek's witness statement (exhibit 18) in these uncontroversial terms (pars 166 176):
56 I turn to summarise some of the more important nondocumentary evidence adduced at the trial, commencing with the evidence adduced by Austman.
57 For Austman, Mr H Kuhn, across four witness statements, canvassed many areas, including the extensive, ongoing discussions and negotiations with MGM's representatives from October 2007 onwards.
58 Mr H Kuhn refers to the multiple versions of proposed contracts that passed back and forth with MGM, particularly some asserted inconsistencies as between descriptions of the scope of work (in section 3, as compared to section 4 of MGM's March 2008 NOA to Austman). He relates his attendances at various dispute meetings between the parties during July and August 2008. In most of these areas it seemed to me overall that the contemporaneous documentation passing between Austman and MGM by email through Aconex is a more reliable source of evidence as to what occurred between Austman and MGM. I generally prefer the documentary evidence to recollections and reconstructions, particularly by Mr H Kuhn. He, through Austman, clearly holds a vested interest in the outcome of these proceedings. Perhaps understandably, he presented to me as holding very partisan views, on my assessment, towards the many asserted issues of contractual uncertainty said to surround the D&C Contract. Unfortunately, Mr H Kuhn's argumentative disposition (see ts 304) undermined his objectivity, and hence, for me, his general reliability as to facts, in contentious areas.
59 One key issue of disputed fact arises concerning what Mr H Kuhn contended to be an oral agreement later reached between himself and Mr Quinlivan (MGI and MGM's Chief Operating Officer) after the parties' representatives had aired their grievances at a dispute meeting held on 31 July 2008. It is asserted, as one of Austman's arguments in the alternative, that a binding variation to the D&C Contract was made at this meeting, conferring upon Austman an entitlement to receive progress payments. This, it is put, was so, notwithstanding the D&C Contract's incorporated modified AS49022000 General Conditions, which stipulate that affixation of materials at site was a prerequisite to the contractor's entitlement to receiving progress payments from MGM.
60 Mr H Kuhn says that at his meeting with Mr Quinlivan it was agreed Austman would be paid, upon it showing MGM bills of lading to prove that Austman's subcontractors in China had consigned by sea the steel components fabricated for the Extension Hill plant.
61 MGM disputes that any 'bill of lading agreement' was ever made. It accepts that there were negotiations that raised the prospect of such an arrangement as a possibility. But MGM says the option was never ultimately pursued further by Austman and so, never perfected as a variation of the D&C Contract. In this discrete area, divergent evidence from Mr H Kuhn and Mr Quinlivan needs to be evaluated and resolved.
62 At an earlier dispute resolution meeting, on 16 July 2008, Mr H Kuhn showed Mr Quinlivan (and thereby waived Austman's privilege in) a letter of legal advice Austman had received that day from its legal advisers, Pilley McKellar Pty Ltd (Pilley McKellar). The letter told Austman there was no valid contract between MGM and Austman. Even so, the letter advised Austman it had an entitlement to payment from MGM for work carried out, on a 'quantum meruit' (exhibit 3, pages 1877_01 to 1877_02).
63 According to MGM, from about this point, in midJuly 2008, Austman now repeatedly told MGM in passing communications that there was no binding agreement between them, notwithstanding the extent of the tender communications.
64 Negotiations continued as part of a sustained effort by Austman to secure a higher lump sum price than the $10.914 million set by MGM's 4 March 2008 NOA to Austman.
65 Mr H Kuhn related circumstances leading to Austman's 12 November 2008 declaration through its solicitors as to a cessation of work and termination (in the alternative) of any contract that may have been in existence with MGM. This was on the basis of MGM's alleged breach and repudiation of the D&C Contract by a failure to give Austman access to site, failure to obtain the necessary environmental approvals to facilitate site access, and the October 2008 Superintendent's suspension of part of Austman's works at site.
66 Mr H Kuhn deals with Austman's costs incurred for the Extension Hill project, including its present unmet liabilities to its Chinese steel fabricators.
67 Mr H Kuhn's witness statement (exhibit 8, pages 58 and following) seeks to explain Austman's delay claims against MGM. Early objection was pressed by MGM against this part of Mr H Kuhn's witness statement. Ultimately the objection was resolved on the basis that this part of Mr H Kuhn's statement would also be treated as being in the nature of submission, rather than as factual or expert opinion evidence (see ts 109 113).
68 As a witness Mr H Kuhn, in crossexamination, was frequently an advocate for Austman's case, rather than an objective witness as to facts. This was understandable, albeit unhelpful, given his obviously deeply felt grievances against MGM, which underlies the litigation. Unfortunately, Mr H Kuhn's heavily slanted perspective towards events weighs against me accepting his unsupported evidence in areas of controversy. At times in crossexamination it was obvious Mr H Kuhn paused for unduly longish periods before answering questions put to him. At other times he was argumentative and nonresponsive (for instance, see ts 305 306, regarding the possibly inflated costs claim by Austman for a rigger, Stephen Webster).
69 At times I observed Mr H Kuhn reading ahead in his witness statements before answering the questions posed to him. It seemed to me he was trying to anticipate the line of questioning, or trying to remind himself what he had previously written across four longish statements, so he would not be caught out. This exacerbated the unfavourable impression overall I reached as to the reliability of his evidence in disputed areas.
70 Mr M Kuhn, also an engineer, gave evidence for Austman. His witness statement became exhibit 13. Mr M Kuhn had assisted his father in the Extension Hill project liaison with MGM during the tender stages, in negotiations and meetings with MGM and when design work began in earnest after the NOA of 4 March 2008.
71 Sometimes accompanying his father, Mr M Kuhn also attended the 'kickoff meetings' with MGM's representatives. Much of Mr M Kuhn's evidence covers territory canvassed by contemporaneously exchanged emails which are uncontroversial and found within the trial bundle.
72 The course of his crossexamination displayed, when he was not taken to specific documents, that Mr M Kuhn's knowledge concerning most issues he was questioned about had faded (see, for instance, ts 314). This is somewhat understandable, given the effluxion of time that has ensued. But again it points to the contemporaneous passing documents as being a more reliable source of evidence.
73 Mr S Kuhn also gave evidence, providing a short witness statement which became exhibit 14. He was minimally crossexamined, mainly over one issue relating to an aspect of Austman's first delay claim in respect of the same rigger, Mr Stephen Webster, being idle at a cost of $90 per hour (exhibit 4, page 2116). Documents (exhibit 6, pages 107 109) established Mr Webster had been engaged by Austman at the rate of only $30 per hour (see ts 328). Bearing in mind the conclusions I ultimately reach, little turns on this. Mr S Kuhn also attended some dispute meetings between Austman and MGM's representatives throughout 2008.
74 Otherwise I assessed most of Mr S Kuhn's evidence to be uncontentious. It appears he made a trip to the Extension Hill site at some point in 2008. At that time he made the observation that MGM's earthworks, which needed to be completed to provide a level site so Austman could assemble and erect the crushing and screening plant, had not even begun. So much is uncontroversial fact. That remained the case throughout November 2008, in the absence of two required environmental approvals.
75 The Extension Hill project as a whole came to be suspended by MGI, as it explained in an announcement to the Australian Stock Exchange (ASX) on 3 November 2008. That was in the wake of the global financial crisis of October 2008. But, conceptually, MGI's suspension of the project is in law a different matter to MGM suspending works under contracts made with parties involved in the Extension Hill project. Mr Quinlivan of MGM and MGI drew attention to the significance of this conceptual distinction in his evidence, to which I will refer.
76 The Extension Hill project was revived by MGI in 2010. Unfortunately the revival by then was without Austman's participation as designer or constructor of the crushing and screening plant. A new contractor, Metso, had now been engaged by MGM for a crushing and screening plant that is still to be built at Extension Hill.
77 Austman adduced evidence through two expert engineering witnesses, Mr John Hallion, whose report became exhibit 28, and Mr John Stone, whose report became exhibit 29.
78 Austman also called an expert quantity surveyor, Mr Jonathon Brown of Aquenta Consulting. His report, bearing upon damages and quantum meruit issues, became exhibit 31.
79 Messrs Stone and Hallion gave their evidence at trial concurrently, together with MGM's expert engineering witness, Mr William Kendall. Mr Kendall is a consultant engineer with the engineering design and consulting firm Mintrex. His report became exhibit 25.
80 For the purpose of trial Messrs Kendall and Hallion each signed off on a joint memorandum of 21 September 2011, prepared and submitted after their conferral before trial. It became exhibit 30. The joint memorandum, setting out the experts' respective positions as to each specific paragraph of their opposing expert's report, was, for me, a very useful document. It narrowed the areas of true controversy as between the experts very considerably. In the end, the core area of disagreement could be distilled down to one issue, over plant design. That distilled controversy concerned the amount of power needed to rectify a situation where a conveyor, loaded with iron ore, stopped or stalled. Messrs Kendall and Hallion differ over the amount of power required as a matter of design to restart a 'flooded conveyor', with Mr Kendall specifying a higher level of power.
81 As to this core issue, see the experts' joint memorandum at pars 44, 46 and 49. The same core issue was manifested in Mr Kendall's comments about Mr Hallion's report, dealt with as items 13, 14 and 15 in the joint memorandum.
82 I assessed there to be a legitimate clash of expert perspectives as between Mr Hallion and Mr Kendall on the issue. Mr Kendall was of the view that a greater power allowance was demanded by occupational health and safety considerations. Mr Hallion thought a manual restart of a fullyloaded, stalled conveyor, if necessary, was not outside industry practice. In the end, I prefer Mr Kendall's more conservative approach upon that one disputed core issue of design, if it matters.
83 An issue of wider legal significance in the trial, as has now been mentioned, concerns Austman's layered assertions as to contractual uncertainty (assuming a contract was reached). I will deal with this issue at more length separately, in due course. But, whilst mentioning the expert engineering evidence at this point, I will observe that Mr Kendall's report assessed very comprehensively, from an engineering perspective, the question of whether or not there was enough basic information exchanged as between Austman and MGM, in the period leading up to the NOA of 4 March 2008, to enable Austman to design and construct a crushing and screening plant at Extension Hill.
84 Mr Kendall's assessment was undertaken by reference to information in MGM's NOA to Austman, including documents, drawings and details incorporated in the NOA. Bearing in mind the extensive, and at times very technical, engineering arguments pressed upon me as to uncertainty during this trial by Austman, concerning an asserted lack of basic essential engineering detail provided by MGM, this engineering opinion evidence from Mr Kendall was admissible. It provides some assistance in my task towards assessing Austman's contractual uncertainty arguments. In ABC v XIVth Commonwealth Games, Gleeson CJ said, as to the admissibility of such expert opinion evidence (548):
In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence. In many cases, however, of which the present is a good example, there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties.
(my emphasis in bold)
85 Mr Kendall expressed his view that MGM's invitation to tender (ITT) and the subsequent March 2008 NOA were both clear and complete as to essential subject areas. There was enough information, in Mr Kendall's view, to enable a competent engineering contractor, with experience in constructing plants, to design and construct MGM's crushing and screening plant at Extension Hill (see Mr Kendall's responses to questions 1 13, 15 18 in exhibit 25 and as summarised in exhibit 30). In this area of his report Mr Kendall stood uncontradicted by Austman's independent engineering experts, Mr Hallion and Mr Stone. Their reports did not seek to enter this area of controversy. Austman, of course, particularly by Mr H Kuhn, strongly advocates an opposite position.
86 But Mr H Kuhn has a vested interest. Mr Kendall's opinions upon the issue of contractual certainty stand essentially uncontradicted by any unbiased engineering expert.
87 For MGM, its first nonexpert trial witness was Mr Quinlivan, whose witness statement became exhibit 17. As I mentioned, Mr Quinlivan was the Chief Operating Officer at relevant times in 2007 and 2008 of both MGI and MGM.
88 Within the MGI/MGM hierarchy, Mr Quinlivan was immediately superior to Mr Panek, who was the Extension Hill Project Manager. Mr Panek was an outside engineer contracted from Merit Engineering Pty Ltd (Merit) and part of MGM's overall management structure for the Extension Hill project.
89 Mr Panek, whilst he was MGM's Project Manager for the Extension Hill project, was also the Contract Superintendent, appointed under the General Conditions of the D&C Contract (again, making an assumption that such a contract was in existence). Mr Panek was MGM's second witness at the trial. He is a civil engineer with over 30 years' engineering experience.
90 In his capacity as Superintendent, Mr Panek had responsibility for evaluating and certifying Austman's progress and variation claims as well as its extension of time and delay allowance claims.
91 Mr Lucas Cree was MGM's fourth witness. His statement became exhibit 22. Mr Cree holds a Bachelor of Engineering from the University of South Australia, graduating with Honours in 1993. Mr Cree was employed as a senior mechanical engineer by MGM between 2007 and 2010. Between January 2008 and December 2008, he worked on the Extension Hill project as a project engineer, and under Mr Panek, as Project Manager and Superintendent's Representative. Mr Cree's first role was to manage technical aspects of the project to ensure that Austman was complying with its scope of work. As Superintendent's Representative he also had an independent role to perform, in assisting the Superintendent.
92 Messrs Quinlivan, Panek and Cree were all crossexamined. Each gave an unequivocal refutation to Austman's misconduct and conspiracy allegations raised against MGM and Mr Panek. Austman says that MGM, particularly around September and October 2008, effectively 'went slow' in obtaining two State environmental approvals. The approvals were needed in order to lawfully commence earthworks at Extension Hill to provide a base for the crushing and screening plant. It was put, in effect, that MGM used the absence of the environmental approvals from the DMP as a pretext, to alleviate its (or rather, its listed corporate parent, MGI's) unexpectedly strained financial position at that time. It was suggested by Austman that MGI unexpectedly sustained severe financial setbacks as a result of the October 2008 global financial crisis. Some of MGI's Chinese iron ore customers at the time had defaulted in taking up the iron ore shipments they were contracted to receive. Others demanded softer financial terms, including lower ore prices from MGI. It is said that these events adversely impacted against MGI's 'bottom line'. The unwelcome events are said to have caused MGI to request a halt in the trading of its shares from the ASX on 23 October 2008.
93 Austman argues this sudden and unfavourable turn in world events, particularly by MGI's overseas iron ore purchasers defaulting on their ore supply contracts, was the true reason why, in October and November 2008, MGI and MGM no longer wished to pursue the expansion in their existing iron ore export operations, let alone outlay funds on a new iron ore processing project at Extension Hill.
94 And so, Austman alleges that MGM 'went slow' in pursuing the two environmental approvals. Then, as a pretext, MGM or Mr Panek used the convenient absence of the two approvals to interrupt the performance of its D&C Contract (assuming, again, that there was a contract) with Austman.
95 The magnitude of such serious assertions by Austman, raising what must be viewed as charges of conspiracy or deliberate misconduct, is selfevident. Yet, Messrs Quinlivan, Panek and Cree were all steadfast in refuting whilst under crossexamination all assertions of misconduct. I find it both noteworthy and concerning (see Western Australian Barristers' Rules r 60 and Legal Profession Conduct Rules 2010 (WA) r 36(3)) that ultimately, no tangible, admissible evidence supporting the serious allegations was put to these three witnesses during crossexamination, so as to undermine or conflict with their firm denials. I will return to these matters in more detail later in the reasons. But I flag an early concern now over what transpired as regards serious allegations supported ultimately, it seems, only by asserted inferences.
96 Mr Quinlivan, under crossexamination, revealed that MGM had reached satisfactory arrangements concerning the Extension Hill project's deferment with its contractors, save only for Austman (see ts 348, 360, 362 and 369).
97 For MGM, nonexpert evidence was also adduced from Mr Malcolm Watson, a structural engineer. Mr Watson holds a degree in civil engineering obtained in 1976 from the Teesside University in the UK. He has over 30 years of engineering experience in the UK and Australia. Mr Watson's witness statement became exhibit 21. His services were engaged by MGM, once again via Merit.
98 Mr Watson worked on a consultancy basis. He had responsibility for managing the 2007 tender process for the Extension Hill project, out of which MGM contends it ultimately engaged Austman under the D&C Contract in March 2008.
99 It was Mr Watson who issued, on behalf of MGM, the first ITT to Austman on 31 October 2007. Subsequently, he oversaw the tender communications with Austman for a design and construct contract for MGM's crushing and screening plant at Extension Hill. These tender communications, chiefly between Mr Watson for MGM and Mr H Kuhn for Austman, ran until MGM signed off on the last NOA document exchanged with Austman on 6 March 2008.
100 Evidence was also received for MGM from another engineer, Mr Peter Erlynne. His statement became exhibit 24. Mr Erlynne is a crushing and screening plant consultant. He holds over 25 years of experience in design, application and optimisation of crushing equipment in mining and aggregate industries internationally, including experience with plants in Singapore, South Africa and Australia. Mr Erlynne was also engaged as a consultant for MGM for the Extension Hill project in 2007, as well as in various periods thereafter.
101 Last for MGM was Mr Kendall's expert report, to which I have referred.
102 At commencement of trial, the court received from the parties five lever arch files of agreed documents, admitted into evidence as exhibits 1 through 5 respectively. In all, these volumes comprise 2,805 pages of documentary materials which the parties submitted as relevant. Significant amounts of the materials were not referred to during trial, other than perhaps by an incorporated reference via a witness statement or in closing written submissions. Much of the documentary material is of a technical nature.
103 As the trial unfolded, two further lever arch volumes of agreed documents were tendered. These became exhibits 6 and 7. Exhibit 6 comprises 526 pages of material. Those documents had at a point been objected to by MGM. Following clarifications at the commencement of trial, they were accepted. Likewise, exhibit 7, a level arch file of more documents emanating from MGM, comprising another 532 pages, had at one point been opposed by Austman. With the benefit of clarifications at trial, these documents also became uncontentious and were admitted.
104 Accordingly, there ultimately emerged seven lever arch files of documents which comprise a core trial bundle, spanning exhibits 1 through 7, amounting in total to 3,863 pages of documentation. To that is to be added the witness statements of eight nonexpert witnesses and the four expert reports I have identified. Apart from that, there were additional documents tendered on an ad hoc basis as the trial progressed.
105 Exhibits 15 and 16 comprise lever arch files of selected documents extracted by Austman from numerous subpoenaed documents that were produced in answer at trial by Dr Phillip Gorey, Executive Director of the DMP (ts 334).
106 Subsequently, MGM extracted out of the same subpoenaed materials four extra documents. These were admitted to constitute what became exhibit 27.
107 Tendering of this documentary material from the DMP files, by consent, ultimately proceeded without a need for any substantive questioning at trial of Dr Gorey (ts 336). Nor, in the end, did Austman call on its witness subpoena for the attendance at trial of a DMP officer, Ms Rosemary De Bari (see ts 309, 321 and 336 338). She is mentioned in some of the DMP's documents concerning liaison over the two environmental approvals that were required for the Extension Hill project in the last quarter of 2008.
108 That comprised the main evidentiary and documentary evidence adduced at the trial. With the underlying trial materials identified, I can turn back to the main issues.
109 It is convenient to begin with documents contended by MGM to constitute a binding D&C Contract with Austman, pursuant to MGM's 3 March 2008 NOA sent to Mr H Kuhn, in response to Austman's fifth and final tender of 27 February 2008.
110 First, I propose to catalogue the constituent NOA documents. I will then look back to a period of roughly four months which preceded the NOA of 3 March 2008. It is necessary to adopt that approach since assembling all relevant, disparate documents which emerged over time is no straightforward task.
MGM's notice of award of the design and construct contract to Austman
111 On 3 March 2008, MGM, by Mr Watson, sent Mr H Kuhn a four page communication headed:
Extension Hill Hematite Project
Crushing and Screening Plant
Contract No MGM-EHH-C5007
Notice of Award
112 This communication, referred to as the NOA, was sent to Austman either electronically or by facsimile (possibly both). It commenced:
This letter constitutes the Notice of Award of Contract by Mount Gibson Mining Limited (the Principal) to Austman Pty Ltd (the Contractor) for the Design and Construction of the Crushing and Screening Plant (the Works) at the Extension Hill minesite (Location).
A Formal Contract document evidencing the whole of the Agreement between the parties will be issued in due course to be signed by both parties.
The Agreement shall be based on the following ...
113 Sections follow in the NOA communication, individually numbered 1 through 10. I set out only extracts from each, although the whole of the NOA document is obviously important, particularly as regards Austman's contract formation and uncertainty contentions.
Invitation to Tender issued to the Contractor by email on 31 October 2007.
Correspondence that will form part of the Agreement is the agreed and applicable correspondence or parts of correspondence detailed below.
114 There follows, in section 3 of the NOA, a list of 15 communications passing between MGM and Austman, ranging across a period 31 October 2007 to 27 February 2008. The 15 documents are arranged in the NOA underneath two columns, divided by whether they issued from Merit (for MGM) to Austman, or vice versa. All these communications may be found within exhibit 1 at various places. However, they were conveniently extracted, copied and arranged together in chronological order in a lever arch file handed up by senior counsel for MGM during closing. That file contains all these documents, including the NOA, the ITT and the incorporated Special and General Conditions.
115 The convenience of having otherwise widely scattered key documentary materials assembled at one place is such that I resolved, after the trial, with the parties' consent, to admit the whole file into evidence as exhibit 33.
116 I return to MGM's NOA communication of 3 March 2008 to Austman:
The work included in the Contractor's Scope of Work shall be generally as described in this clause, as detailed in the drawings and other information provided to the Contractor to develop its proposal, and in accordance with all other requirements of the Contract, and shall include for the provision of all things necessary for the completeness of the Works, whether specifically mentioned or not.
The Contractor shall design, construct and commission a crushing and screening plant generally in accordance with the design brief (ref document Mine Process and Infrastructure Design Services, Extension Hill crushing and Screening Plant, Rev 1.2 Issued for Tender).
The Contractor shall include for the design of all supporting structures and connecting services to all free issue equipment supplied by the Principal.
The Contractor shall design the ROM retaining wall utilising earthfilled sea containers with restraining tiebacks. Construction of the ROM wall will be by OTHERS.
The Principal shall provide a compacted level site for the Contractor with minimum bearing capacity of 200KPA. The Contractor shall design and construct all foundations for the plant including detailed excavation.
The design and construction of all Infrastructure and Facilities as detailed in Part B of the design brief shall be by OTHERS.
The supply of power and water to within 50m of the plant shall be by the Principal. Design and construction of the distribution of power and water in the plant will be by the Contractor.
The Contractor shall use the client's document management system (Aconex) for all correspondence, transmittal of drawings and any other document transmittal.
117 Section 4 refers to some drawings. These are found in the ITT document of 31 October 2007. One of them is what is called a 'flow sheet'. Its implications form a part of the wider controversy over whether the D&C Contract, if it exists, is nevertheless void in law for uncertainty.
118 Ensuing provisions of the NOA deal with the price, date of the award of contract, documents which the contract would comprise and the manner in which Austman was to acknowledge receipt of the NOA:
The Contractor shall perform the Works for the FIXED LUMP SUM price of $10,914,000 (Ten Million nine hundred and fourteen thousand dollars).
Contract award: 4 March 2008 or the date of acceptance of this letter of award by the Contractor.
This Notice of Award will be incorporated into the relevant sections of the Contract document, and will not appear in the Contract document as a stand alone section.
All matters relating to the Contract shall be directed to Mr Peter Panek of Mount Gibson Mining Ltd at peter.panek@mtgibsoniron.com.au
The Contractor shall acknowledge receipt of this Notice of Award of Contract by signing where indicated and returning a copy to Mount Gibson Iron Ltd either by facsimile 9423 0801 marked for the attention of Peter Panek or by scanned attachment via Aconex to peter.panek@mountgibson.com.au.
Notice of Award issued by: Notice accepted by:
Signature Signature
Print name Print name
On behalf of Mount Gibson Mining Ltd On behalf of Austman Pty Ltd
Yours sincerely
MOUNT GIBSON MINING LTD
119 The NOA is found within exhibit 1 at pages 679 682. It can also be found in exhibit 33 at tab 1.
120 When the NOA of 3 March 2008 was sent out to Austman by Mr Watson for MGM, it had not been signed by anyone on behalf of MGM. But there is no suggestion that the NOA was sent without proper authorisation. The NOA had been preceded by more than four months of tender negotiations. There was, in that period, a total of five tenders submitted by Austman to MGM for a design and construct contract.
121 The NOA communication of 3 March 2008 was received by Mr H Kuhn for Austman. He signed it at the section headed 'Notice accepted by'. Underneath his signature, Mr H Kuhn printed his name. Underneath the NOA's endorsed words 'On behalf of Austman Pty Ltd', he wrote the date '4/3/08'. That is all uncontroversial fact. However, Mr Kuhn says that by his signature and his return of the signed NOA back to MGM, he was merely acknowledging receipt of the document, rather than signifying Austman's acceptance of the NOA's terms.
122 For contract formation, the assessment is objective, not subjective. I reject Austman's 'acknowledgement of receipt only' position as an after the event rationalisation by Mr H Kuhn. I find there was clear acceptance by Austman of the NOA document on 4 March 2008, subject only to a resolution of two minor points of detail which, as I will explain, were later resolved.
123 The NOA document bearing Mr H Kuhn's signature was returned to MGM on 4 March 2008. Mr H Kuhn had made a longhand annotation that day on his copy of the NOA before he signed and returned the NOA to MGM. As has been seen, section 7 of the NOA specifies documents which the contract was to comprise. Item 4 of section 7 contained the typed words 'General Conditions of Contract (AS49022000 as modified and agreed between the parties)'. Mr H Kuhn inserted his longhand words 'to be' into item 4, so that it then read 'General Conditions of Contract (AS49022000 as modified and to be agreed between the parties)'. He initialled the change.
124 From this, there arises another disputed issue of fact for determination. The disputed issue concerns Austman's acceptance or otherwise of MGM's modified General Conditions based on AS49022000.
125 On 6 March 2008 Mr David Quinlivan applied his signature for MGM on the NOA document that had been returned to MGM by Austman. Mr Quinlivan's signature is apparent, as is his handwritten insertion of the date, '6.03.08' (see exhibit 1, page 682).
126 So, as of 6 March 2008, the signatures of the senior representatives of both Austman and MGM had been applied to the NOA. Mr Quinlivan's signature was not strictly necessary, I find, to bind MGM: the NOA's content had been authorised for despatch when sent out to Austman on 3 March 2008 by Mr Watson.
127 An orthodox analysis of contract formation, which involves identifying an offer that is unconditionally accepted, need not be slavishly applied in every situation: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 [71] [80] (Heydon JA). However, orthodox analysis can, I find, be comfortably applied in the present case. Having done so, my conclusion is that the despatch of the NOA of 3 March 2008 was MGM's offer to Austman. The offer was then conditionally accepted by Mr H Kuhn for Austman on 4 March 2008, by his signed acceptance of the NOA document that was then returned to MGM.
128 By signing and returning the NOA on 4 March 2008 through Mr H Kuhn, with the words 'to be' inserted in section 7, Austman was making a counteroffer to MGM. From that analysis, MGM accepted the counteroffer the day it was made, when, in a telephone conversation later that day between Mr H Kuhn for Austman and Mr Malcolm Watson for MGM, the two residual issues arising by reason of Mr H Kuhn's longhand annotation on the NOA were finally resolved over the telephone.
129 Thus the NOA was completed with Austman by MGM's acceptance of the counteroffer as of 4 March 2008.
130 The 15 items of Austman/MGM correspondence identified in section 3 of the NOA are assembled between tabs 3 and 18 in exhibit 33. Austman documents are found at tabs 4, 11, 16 and 18. They comprise four (of five) tenders that were submitted by Austman to MGM between 9 November 2007 and 27 February 2008. During this period, Austman was clearly seeking the award from MGM of a design and construct contract for the crushing and screening plant to be built at Extension Hill.
131 Two other points arise. First, it is uncontroversial that an earlier draft of the proposed NOA had been sent by Mr Watson to Mr H Kuhn prior to 3 March 2008. So the eventual 3 March 2008 NOA document received by Mr H Kuhn had been the subject of prior communications and ensuing discussions as an earlier draft. Some alterations had been made to the draft as a result of negotiations.
132 Second, in relation to the issue over incorporated General Conditions still to be agreed, Mr Watson sent an email to Mr H Kuhn on 5 March 2008 at 11:45:13 am (WST). His email said:
Hartmut,
This is to confirm our telephone conversation yesterday [4 March 2008] where you advised that your initial objections to the modified general conditions would be withdrawn with the exception of two major issues, namely:
Both of these clauses are acceptable to the Principal. All other clauses will be as drafted.
Regards
Malcolm Watson
133 Mr H Kuhn's early witness statements suggest he did not receive Mr Watson's email because, at the time it was sent, he was already en route to China and then at his destination did not have access to the internet. Austman's early position seemed to be that Mr H Kuhn never actually accepted MGM's modified General Conditions, even after MGM gave ground to Austman on the two residual issues identified in Mr Watson's email.
134 However, it seems that Mr H Kuhn subsequently resiled from his earlier stance that he had not received Mr Watson's email of 5 March 2008. In any event, I find he did see the email on or about 5 March 2008. Moreover, I find there was the telephone conversation on 4 March 2008 between Mr Watson and Mr H Kuhn over the two General Conditions to which Mr Watson's email refers. This was some time in the latter part of 4 March 2008, after Mr H Kuhn had sent back the NOA to MGM, signed and annotated with his words 'to be' inserted into cl 7(3). The telephone conversation was initiated by Mr Watson to resolve the two residual issues that very day.
135 I find that Mr Watson's email of 5 March 2008 is an accurate summary of the content of the telephone conversation which occurred between the men the previous day, in the course of which Mr Watson made the two concessions required concerning MGM's modified AS49022000 General Conditions.
136 Accordingly, I find that Mr H Kuhn inserted his longhand words 'to be', applicable as regards the modified General Conditions of Contract AS49022000, on 4 March 2008 of the NOA, prior to his telephone conversation with Mr Watson. The subsequent telephone conversation resolved Mr H Kuhn's two remaining reservations over the modified MGM General Conditions. Mr Watson's email of the next day simply confirmed and recorded that settled position as a measure of prudence.
137 I find that MGM's modified General Conditions for AS49022000 had earlier been sent out by Mr Watson to Mr H Kuhn, on Thursday 28 February 2008 (see exhibit 1, pages 567 643. The modified General Conditions commence at page 593).
138 In the same 28 February 2008 transmission there was also included a skeletal contract document, the contents of which included:
139 The General Conditions of Contract, at Part 4, were largely derived by MGM from the Australian Standard document AS49022000 for design and construct contracts, but with some modifications by MGM.
140 I will make some further observations concerning these General Conditions, which form a central part of the controversy, shortly.
141 At this point, however, it is important I reiterate some key findings thus far. On 3 March 2008, MGM sent Austman the NOA. Austman had previously seen the NOA in draft. On 4 March 2008, Mr H Kuhn signed the NOA. In addition, Mr H Kuhn inserted the words 'to be' into section 7 of the NOA, so that the relevant part of that section read: '(AS49022000 as modified and to be agreed between the parties)'. Those words were inserted because Mr H Kuhn had two outstanding objections to the modified General Conditions. First, he wanted intellectual property rights in the plant's design to remain with Austman. Second, he wanted MGM to provide contract works insurance. MGM, through Mr Watson, conceded both these points to Mr H Kuhn in a telephone conversation late on 4 March 2008. Mr Watson's email to Mr H Kuhn of 5 March 2008 confirmed the two concessions. I find that Mr H Kuhn read that email on or about 5 March. MGM's two concessions were reflected in the final form of General Conditions 10 and 16A.
Was the NOA intended to create binding obligations?
142 The NOA makes mention of further contractual documentation, by a 'Formal Contract document'. The formal document envisaged is one 'evidencing the whole of the Agreement between the parties'. The word 'evidencing' is significant, in my view. Its use tends to suggest, objectively evaluated, that the parties' agreement existed independently of a formal document's execution, and that a subsequent formal document would merely constitute an evidentiary record of the agreement.
143 But Austman contends, by reference to the classic tripartite classification in Masters v Cameron, that the NOA did not constitute a binding agreement. Austman says that the parties' intention, assessed objectively, was that a formal contract document would be required to create a binding agreement between the parties. In other words, Austman argues that the NOA falls into the third category identified in Masters v Cameron. Although the parties discussed the matter after 4 March 2008, they ultimately never executed a formal contract document and so, Austman says, they never reached a binding agreement.
144 On the other hand, MGM argues that a first (or fourth, as I will explain) Masters v Cameron category applies, on the basis the parties did intend to become contractually bound as a result of Austman's acceptance of the NOA on 4 March 2008. MGM says the mere fact that the parties envisaged further formal documentation will not necessarily preclude a recognition that a binding agreement already exists.
145 It is instructive to recall some observations of the Court of Appeal in Uranium Equities Ltd v Fewster, particularly between [127] [134]. The court said [128] [129]:
Traditionally, courts have applied the three categories identified in Masters v Cameron (360) (Dixon CJ, McTiernan and Kitto JJ) as follows:
(a) the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect;
(b) the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document; and
(c) the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
A fourth category has since been added by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, 628, relying on Sinclair, Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310, 317. This is a variation of the first category. We have earlier mentioned that it is one in which the parties intend to be bound immediately by the terms which they have agreed upon, while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.
146 The legal principles governing contract formation were also summarised by Kirby P in Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14551, 14569 14570. Some are referred to and applied by the Court of Appeal in Uranium Equities [133].
147 No special form of words need be used by the parties. The content of communications passing between parties should be considered in light of the surrounding context in which the parties' written words are used. The value of the subject matter and the complexity of the 'deal' under negotiation are relevant factors to be weighed. I do so, in assessing whether these two parties can be assessed as having intended to reach a binding agreement, by less formal means, prior to them executing a more formal contract document.
148 Parties' use of terms such as 'agreement' will not be conclusive. The court renders its own assessment. Likewise, the fact parties only refer to a 'proposed' agreement will not be conclusive the other way.
149 The court can also take into account parties' conduct subsequent to the event argued to mark the creation of a binding contract: ABC v XIVth Commonwealth Games. There, Gleeson CJ said (550):
Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated.
(my emphasis in bold)
150 In Geebung Investments Kirby P said, on the same issue (14569):
In order to determine in what areas the parties were, and were not, in agreement, and what matters they considered necessary in order for an agreement to exist, it is legitimate to examine their subsequent conduct.
151 On 14 March 2008 at 2.09 pm Mr H Kuhn sent Mr Patrick Spalding - a representative of PEAK Industrial Electrical (PEAK), which did subcontracting work for Austman - this email (exhibit 1, page 724):
Subject: Mt Gibson
Pat,
This is to confirm we have been awarded the contract.
We will now need two weeks to establish the layout after which we will discuss the lectrical [sic] portion with PEAK.
Regards
Hartmut
152 But that email was not an inter partes communication as between Austman and MGM. It falls into a category subsequently discussed by Gleeson CJ in ABC v XIVth Commonwealth Games as a communication to a third party, in respect of which the position is 'by no means clear' (550). I refer to his Honour's observations concerning the relevance of such statements, on the basis they may constitute an admission against interest by the party making the statement (550 551):
[T]here may be cases in which the issue is such that the fact of the subjective state of mind of one or other of the parties is relevant. Normally, however, what is in issue is not their subjective state of mind but their 'intention as expressed' and caution may need to be exercised in relating the fact which is said to be admitted to the fact which is legally relevant.
(citation omitted)
153 Here, I will afford no weight to the email sent to Mr Spalding. What Mr H Kuhn himself then thought of the contractual situation with MGM is legally irrelevant.
154 The asserted condition of contractual uncertainty in the D&C Contract, as articulated by Austman, requires, in my view, an early recognition of three underlying considerations which all bear upon the evaluation of Austman's arguments:
155 I now propose to render some observations concerning aspects of the AS49022000 General Conditions as modified by MGM, insofar as those General Conditions may bear upon the overall analysis. I do so reiterating that the email from Mr Watson to Mr H Kuhn of 5 March 2008 confirmed a resolution, the previous day, of the only two remaining contentious aspects of the MGM modified General Conditions sought by MGM.
AS49022000 General Conditions (as modified by MGM)
156 I mention, first, the definition of 'Superintendent'. Mr Panek was appointed Superintendent. 'Superintendent'
means the person stated in Item 5 as the Superintendent or other person from time to time appointed in writing by the Principal to be the Superintendent and notified as such in writing to the Contractor by the Principal and, so far as concerns the functions exercised by a Superintendent's Representative, includes a Superintendent's Representative.
157 Also relevant is the term 'Superintendent's Representative', which
means an individual appointed in writing by the Superintendent under clause 21.
Mr Panek appointed Mr Lucas Cree to be the Superintendent's Representative.
158 General Condition 6 is headed 'Evidence of Contract'. It reads:
Until a Form of Agreement is executed by the parties, documents evidencing the parties' consensus shall constitute the Contract.
159 That provision is of some relevance here. It weighs against Austman's argument that no contract was ever made. General Condition 6 contradicts that proposition. It recognises the subsistence of the anterior contract arising out of the documents that evidence the parties' consensus (assuming there is a consensus). Here, that would be the NOA and all documents incorporated by reference.
160 General Condition 8.1 is relevant. It provides a means for the parties, through the appointed Superintendent, to resolve problems of contractual ambiguity or inconsistency. It also specifies an order of precedence among the documents, in that context. It reads:
Order of precedence and discrepancies
The order of precedence (in descending order of precedence) of the documents comprising the Contract in clause 1 of the Form of Agreement shall apply to resolve any ambiguity or discrepancy in the documents forming the Contract to the extent necessary to resolve the conflict, ambiguity or discrepancy.
Figures shall prevail over sealed dimensions in a discrepancy. Otherwise, if either party discovers any inconsistency, ambiguity or discrepancy in any document prepared for the purpose of carrying out WUC ['work under the Contract'], that party shall give the Superintendent written notice of it.
The Superintendent, thereupon, and upon otherwise becoming aware, shall direct the Contractor as to the interpretation and construction to be followed.
161 General Condition 11.1 contains an unsurprising stipulation for compliance with legislative requirements. It bears upon MGM's acknowledged inability to obtain, by November 2008, the two environmental approvals it required before it could lawfully commence earthworks at Extension Hill. General Condition 11.1 reads:
The Contractor shall satisfy all legislative requirements except those in item 22(a) or directed by the Superintendent to be satisfied by or on behalf of the Principal.
162 As regards Mr Panek and his role as Superintendent under the D&C Contract, General Condition 20, headed 'Superintendent', provides:
The Principal shall ensure that at all times there is a Superintendent, and that the Superintendent fulfils all aspects of the role and functions reasonably and in good faith.
Except where the Contract otherwise provides, the Superintendent may give a direction orally but shall as soon as practicable confirm it in writing. If the Contractor in writing requests the Superintendent to confirm an oral direction, the Contractor shall not be bound to comply with the direction until the Superintendent does so.
(my emphasis in bold)
163 MGM accepts that it had an obligation to ensure that Mr Panek, whilst acting as Superintendent, acted reasonably and in good faith. Mr Panek's evidence is that he did. So MGM says nothing more was required of it. Austman challenges that. Austman says MGM is responsible for not ensuring that Mr Panek's conduct was reasonable and in good faith.
164 As regards Austman's lack of access to the Extension Hill site in the latter part of 2008, General Condition 24, headed 'Site', relevantly provides:
[T]he Principal shall before the expiry of the time in item 26, give the Contractor access to the site or sufficient access to the site for commencement of WUC on site and to enable the Contractor to carry out the Contractor's design obligations. If the Principal has not given the Contractor access to the whole site, the Principal shall give the Contractor access of such further portions of the site as may, from time to time, be necessary for carrying out WUC or the Contractor's design obligations. Subject to subclause 39.7, delay by the Principal in giving access shall not be a breach of the Contract.
(My emphasis is in bold. I will mention General Condition 39.7, to which General Condition 24.1 is made subject, shortly)
165 General Condition 24.1 above says (unless General Condition 39.7 alters the position) that a failure to provide site access by the principal is not even a breach of contract by the principal, let alone a substantial breach or breach of an essential term.
166 General Condition 33, headed 'Suspension', is of significance in the present controversy. Acting as Superintendent under the D&C Contract, Mr Panek believed it necessary to give a direction to Austman to suspend part of the Works under Contract (WUC) on 23 October 2008. Mr Panek then invoked the power to suspend afforded him by this clause. It is apparent that his direction suspending part of the WUC was made on the basis of default by MGM: MGM had failed to give Austman access to the site, because it had not obtained the two environmental approvals required. General Condition 33 provides:
The Superintendent may direct the Contractor to suspend the carrying out of the whole or part of WUC for such time as the Superintendent thinks fit, if the Superintendent is of the opinion that it is necessary:
As soon as the Superintendent becomes aware that the reasons for any suspension no longer exists, the Superintendent shall direct the Contractor to recommence suspended WUC as soon as reasonably practicable.
The Contractor may recommence WUC suspended pursuant to subclause 33.2 or 39.9 at any time after reasonable notice to the Superintendent.
... If the Contractor otherwise incurs more or less cost than otherwise would have been incurred, the difference shall be assessed by the Superintendent and added to or deducted from the contract sum. The Contractor must mitigate the costs arising from any suspension under this clause 33.
167 General Conditions 34.3 and 34.4 deal with claims by a contractor for an extension of time. An extension of time can be sought following a 'qualifying cause of delay' that bears upon a delayed contractor reaching practical completion. A 'qualifying cause of delay'
means any act, default or omission of the Superintendent, the Principal or its consultants, agents or other contractors (not being employed by the Contractor) or any other cause of delay stated in Item 28, but does not include any other cause.
168 General Condition 34.4 lists conditions precedent to a contractor's claim for an extension of time. General Condition 36 provides that claimed variations to the WUC must be authorised by the Superintendent. The Superintendent is also responsible for pricing the approved variation: General Condition 36.4.
169 General Condition 37 deals with the making of progress claims by the contractor. Progress claims are to be submitted in writing to the Superintendent by the contractor in a form approved by the Superintendent.
170 It is then the Superintendent's obligation, arising within 14 days after receiving a contractor's progress claim, to issue both the principal and the contractor with a 'progress certificate' evidencing the Superintendent's opinion as to the monies due from the principal to the contractor pursuant to the progress claim. The Superintendent is to provide an explanation and reasons for any differences between what was claimed by the contractor and what the Superintendent has ultimately certified for the claim.
171 Payments by the principal to the contractor under progress certificates are advances by the principal, paid on account. Final payment arrangements are dealt with by General Condition 37.4.
172 General Condition 37.3 provides, under the heading 'Unfixed plant and materials':
The Principal shall not be liable to pay for unfixed plant and materials unless they are listed in item 34 and the Contractor:
. provides the additional security in item 14(e); and
. satisfies the Superintendent that the subject plant and materials have been paid for, properly stored and processed and labelled the property of the Principal,
Upon payment to the Contractor and the release of any additional security in paragraph (o), the subject plant and materials shall be unencumbered property of the Principal.
173 Assuming a D&C Contract exists and is valid, General Condition 37.3 assumes particular importance in the circumstances of this case. In order to build the crushing and screening plant, Austman needed to have certain steel components fabricated. The components were to be fabricated offshore by Austman's Chinese subcontractors. The plant's unassembled components were then to be shipped, in stages, from China to Western Australia. From Fremantle they were to be transported to Extension Hill and there assembled to create a functional crushing and screening plant.
174 Clearly, then, the individual components would be 'unfixed' until they reached Extension Hill and were assembled there by Austman. But the process of assembling and affixing Plant components never began. Those components that have been fabricated lie in storage, some in China and some in Kwinana. If General Condition 37.3 applies, it is a significant obstacle for Austman.
175 General Condition 39 sets out the parties' rights should one of them breach the contract. However, General Condition 39 preserves each party's right to terminate or obtain damages for breach of contract under common law principles. In effect, then, each party was given the option of relying on either a contractual procedure or upon common law principles, in the event of a breach of contract or a repudiation by the other party. General Condition 39.1 provides:
If a party breaches (including repudiates) the Contract, nothing in this clause shall prejudice the right of the other party to recover damages or exercise any other right or remedy.
176 General Condition 39.2 provides that the principal may give the contractor a written notice to show cause if the contractor commits a substantial breach of contract. Importantly for present purposes, 'substantial breach' is defined to include a 'wrongful suspension of work'.
177 A principal's 'show cause' notice to the contractor is governed by General Condition 39.3. The principal's rights, if the contractor fails to show reasonable cause by the required time, are set out in General Condition 39.4. One of the options afforded a principal in that situation is to terminate. Another option is to take the work out of the contractor's hands, then have it completed: General Condition 39.5. In that circumstance certain adjustments may follow at the end: General Condition 39.6.
178 General Condition 39.7 deals with defaults by the principal. It provides:
If the Principal commits a substantial breach of the Contract, the Contractor may, by hand or by registered post, give the Principal a written notice to show cause.
Substantial breaches include, but are not limited to:
179 General Condition 39.8 sets out requirements for a contractor's 'show cause' notice to the principal. It replicates the requirements of the principal's 'show cause' notice set out in General Condition 39.3.
180 General Condition 39.9 deals with a contractor's rights in circumstances where the principal fails to show reasonable cause by the required time. But the contractor's rights in such an event differ somewhat from those of the principal under General Condition 39.4. If the principal fails to show reasonable cause by the required time, the contractor can only suspend all or part of the WUC. A contractor's suspension will be ended if the principal remedies the substantial breach in time.
181 Only where the principal's breach stands unremedied for 28 days after suspension, or if the breach is not capable of remedy and the principal does not make other arrangements to the reasonable satisfaction of the contractor, can the contractor terminate under this contractual provision. Damages suffered by the contractor by reason of a suspension are assessed by the Superintendent, who will certify those assessed damages as sums due and payable to the contractor.
182 In the event the principal or contractor terminates under General Condition 39, General Condition 39.10 then applies. It provides:
[T]he parties' remedies, rights and liabilities shall be the same as they would have been under the law governing the Contract had the defaulting party repudiated the Contract and the other party elected to treat the Contract as at an end and recover damages.
183 It is clear that in this case neither party invoked the contractual procedure set out in General Condition 39. Instead, each appears to have solely relied on common law principles governing termination. This was in the wake of the mutually asserted repudiation of each other's obligations in November 2008. Austman gave notice of termination first, on 12 November 2008. It did so in the alternative to a primary position that no binding contract had ever been formed. The contractual termination provisions of the General Conditions were clearly not invoked. Austman of course had been asserting for some months before that no binding agreement existed between it and MGM. That stance would no doubt have contributed to a reluctance on its part to invoke General Condition 39. Austman would have been adopting an inconsistent position had it done that. MGM's termination was given subsequently in November 2008. It must also be assessed as only an invocation of common law rights.
184 General Condition 41 prescribes the notice required to be given in respect of a 'claim'. In the event of a claim, the Superintendent is to render a decision on the 'claim' within 56 days of receipt.
185 In the present case, Austman submitted a number of claims. They were dealt with either by Mr Panek, as Superintendent, or Mr Cree, as Superintendent's Representative.
186 General Condition 42 addresses dispute resolution. The process can be invoked in respect of disputes over claims, or even extend to reach a scenario of a direction from the Superintendent that is challenged. But there is no provision for compulsory mediation, or even for arbitration. After certain avenues of dispute resolution are exhausted, the parties' recourse is to the courts. Clause 42 provides:
42.1 If a difference or dispute (together called a 'dispute') between the parties arises in connection with the subject matter of the Contract, including a dispute concerning:
or like claim available under the law governing the Contract;
then either party shall, by hand or by registered post, give the other and the Superintendent a written notice of dispute adequately identifying and providing details of the dispute.
Notwithstanding the existence of a dispute, the parties shall, subject to clauses 39 and 40 and subclause 42.4, continue to perform the Contract.
If a party delivers a notice of dispute to the other party and the Superintendent then:
(a) within 10 days of the delivery of that notice senior representatives of the parties at project level must meet and use reasonable endeavours acting in good faith to resolve the dispute by joint discussions; and
(b) if the dispute is not resolved in accordance with subclause 42.2(a) the dispute shall be referred to the respective dispute resolution executive of the parties specified in Item 37 who must meet within 20 days of the delivery of the notice of dispute and use reasonable endeavours acting in good faith to resolve the dispute by joint discussions.
If the dispute is not resolved in accordance with subclause 42.2(b) within 60 days of having been referred to the dispute resolution executive either party may submit to the exclusive jurisdiction of the courts of Western Australia.
Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief.
187 As regards a controversial issue over MGM's delay in giving Austman access to site in October and November 2008, it is clear that Austman also did not utilise the procedures found in General Condition 42. Nor did it invoke the 'show cause' procedure established by General Conditions 39.8 and 39.10.
188 Austman also did not use General Condition 42 to challenge the Superintendent's suspension of part of Austman's WUC on 23 October 2008. To the contrary, Austman (through its legal advisers) unilaterally declared, on 12 November 2008, that Austman was ceasing work. Furthermore, Austman declared that, on the assumption there was a binding contract with MGM, it was accepting what it termed MGM's repudiation and was terminating the D&C Contract in consequence.
189 A fundamental issue, then, is whether it is correct that MGM had actually repudiated the D&C Contract, assuming it existed and was valid, as of 12 November 2008. If Austman was wrong to attempt to terminate, then that mistake, coupled with its declaration that it was ceasing all future work - in a context where Austman also steadfastly continued to refute the existence of any binding agreement with MGM - could provide MGM with its own grounds for terminating.
190 General Condition 39.7 provides that the principal's failure to provide access to site constitutes a default and a substantial breach of contract if it continues for longer than the time stated by item 36(a) of Part A of the Annexure to the General Conditions. Item 36(a) says that the applicable period is 14 days.
191 Here, Austman did not, before purporting to terminate on 12 November 2008, utilise the 'show cause' procedure in General Condition 39. It might have done so by reference to General Condition 39.8 and MGM's ongoing failure to provide access to site, albeit such a course would, once again, have been inconsistent with Austman's primary position that no contract existed. But Austman can still rely on its right to terminate or recover damages under common law principles, if it holds such a right.
192 A number of key questions now fall into focus. Was MGM's failure to provide Austman with access to site prior to 12 November 2008 a substantial breach by MGM of an essential term which entitled Austman to terminate the D&C Contract, assuming it existed and was valid? Could any of MGM's alleged breaches be assessed as repudiatory? Are MGM's alleged breaches better assessed as breaches of innominate or intermediate terms? Were any assessed breaches serious breaches? In each case, what are the repercussions of MGM's alleged breach conduct?
193 These questions require an objective assessment of the circumstances of MGM's alleged breaches. If shown I must determine whether any breaches were serious enough to afford a right to terminate: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115, Bantick v Boss Properties Pty Ltd [2000] VSC 121; [2001] ANZ Conv R 471 [124], [129], [131] and [138] [141] and AttorneyGeneral of Botswana v Aussie Diamond Products Pty Ltd [No 3] [2010] WASC 141 [227].
194 The General Conditions concerning a required provision of access to site for the contractor give a context to the process of determination. It can be observed by way of concluding summary that:
(a) Austman and MGM ignored using the contractual show cause regime prior to their respective attempted common law termination of each other in November 2008;
(b) General Condition 24.1 stipulates that its failure to provide site access is not a breach by the principal;
(c) However, General Condition 24.1 is made subject to General Condition 39.7;
(d) General Condition 39.7 lays down a regime for a contractor to require a principal to rectify a site access denial issue within 14 days or face consequences;
(e) General Conditions 39.7, 39.8 and 39.9 were not invoked by Austman.
195 [Here Austman as the contractor was held out from site access due to the absence of two required but not yet obtained environmental approvals from a State environmental authority.] MGM accepts it had the responsibility to obtain the two approvals. But the approvals ultimately proved to be outside MGM's capacity to immediately obtain by November 2008, on its case. Did the Superintendent's suspension of part of the WUC on 23 October 2008 alter any consequences of MGM's failure to provide access to site for Austman as at 12 November 2008?
196 These issues remain in prospect as I now move to assess an earlier question in the case: namely whether the documents said to comprise the D&C Contract were insufficiently detailed to constitute a binding, certain contract that could be performed according to its terms. I was assisted in this task by MGM's comprehensive closing written submissions which I largely have accepted.
197 On 31 October 2007, Mr Malcolm Watson of Merit Engineers, acting on behalf of MGM, issued by email an ITT to Austman for design services (exhibit 1, pages 3 33; also exhibit 33, tab 2). The ITT comprised (exhibit 21, pars 20 25):
(a) Part 1: Form of Agreement (page 5);
(b) Part 2: General Conditions of Contract, based on AS41222000 including annexures entitled Part A and Part B (page 6);
(c) Part 3: Special Conditions of Contract (page 20); and
(d) Part 4: Contract Brief (page 21);
(See also Malcolm Watson's witness statement, exhibit 21, pars 19 22).
198 The ITT had been sent to four potential contractors, including Austman. All but Austman submitted tenders for the design of the plant at Extension Hill.
199 Austman's response to MGM, issued through Mr H Kuhn, was that it was not interested in a mere design contract (exhibit 21, pars 26 27 and exhibit 1, page 34).
200 Mr Watson was then instructed by MGM to obtain from Austman a 'full design and construct proposal' (exhibit 21, pars 29 30 and exhibit 1, pages 36 37). He set about doing that.
201 Mr Watson related, and I find, that at a meeting on 5 December 2007, he and Mr H Kuhn discussed MGM's requirement that Austman provide everything specified in the Design Brief, apart from free issued equipment. The free issued equipment was to be supplied by MGM (exhibit 21, par 69). It is clear Austman could not just 'cherry pick' desirable parts of the work as it saw fit. A comprehensive design and construct proposal from Austman was required.
202 By email on 5 November 2007, Mr Anthony Ford, a supervisor at MGM, sent to Mr H Kuhn a different 'flow sheet' to the one found in the ITT (Tony Ford flow sheet) (exhibit 22 par 77; exhibit 1, pages 42 43).
203 Mr Ford had obtained this second flow sheet on 2 November 2007 from Mr Peter Erlynne (exhibit 1, page 42). It carries the date 19 August 2007.
204 In contrast to the flow sheet in the ITT, the Tony Ford flow sheet showed, in the middle section of the drawing, two horizontal screens, rather than one. Furthermore, some percentages on the sheet differ. Messrs Watson, Cree and Panek were not aware, at that time, that Mr Ford had sent this flow sheet to Austman (Mr Watson's statement, exhibit 21, par 32; Mr Panek's statement, exhibit 18, pars 162 163; Mr Cree's statement, exhibit 22, par 77).
205 After some more clarifications, Austman submitted its tender, PO278QUOTE001 Revision A, on 9 November 2007 (First Tender) (exhibit 1, pages 47 48 and exhibit 33, tab 4). The First Tender specified a lump sum price of $5,450,000 for design, supply and construction. It was not accepted.
206 Mr Watson spoke to Mr H Kuhn after he reviewed the First Tender. He told Mr H Kuhn that there was not enough information for MGM to even consider it. Mr H Kuhn told Mr Watson that Austman would send a more formal quote (exhibit 21, pars 39 45).
207 On 15 November 2007, Austman provided an 'updated copy' of its first quotation (the Second Tender) (exhibit 1, pages 93 100_06). The Second Tender displays no indication Austman had any difficulty understanding the scope of the Extension Hill project, or the technical requirements of the planned crushing and screening plant.
208 Austman's Second Tender was in two parts. The first part related to 'conventional roller conveyors'. It quoted a lump sum price of $3,304,000 and a spare parts price of $175,000. The second part of the Second Tender related to 'slewing and slewing/luffing stackers'. It quoted a lump sum price of $2,146,000 and a spare parts price of $120,000.
209 Mr H Kuhn now began to actively lobby MGM's personnel for the award of a design and construct contract to Austman. He told Tony Ford, in effect, that Austman had submitted what amounted to a final design, rather than a mere preliminary design (exhibit 1, pages 101 102).
210 After reviewing design only quotes from the other tenderers, Mr Malcolm Watson made a recommendation to MGM to accept the design only tender submitted by Wilshaw Engineering. He told Mr H Kuhn of this on 26 November 2007 (exhibit 1, page 103; exhibit 21, pars 48 50). He also told Mr H Kuhn that Austman's First and Second Tenders had been rejected on the basis that MGM had decided to proceed on a design only award (exhibit 21, par 51; exhibit 1, page 103).
211 However, Mr Watson was subsequently asked by MGM's management to reconsider a design and construct contract award. He did so. Mr Watson then approached GR Engineering Services Pty Ltd seeking from it a quote for the design and construction of the Extension Hill plant, on the basis of the ITT. He did this so MGM would have a basis for assessing Austman's tender for a design and construct contract for the plant (exhibit 21, pars 53 55). GR Engineering's design and construct tender was initially $21 million, but was subsequently adjusted to $17.5 million. This was too high for MGM.
212 On 5 December 2007, a meeting was held between Messrs H Kuhn and M Kuhn of Austman, and Rolf Forster, Tony Ford, David Quinlivan and Peter Panek of MGM (Mr Watson's statement, exhibit 21, pars 57 70; Mr Panek's statement, exhibit 18, pars 20 24; and exhibit 1, pages 104 105).
213 By email the next day, Austman confirmed the outcomes of the discussions at that meeting (exhibit 1, page 106). Austman was to 'upgrade the design & construct tender' to include some further matters, including the erection at site of MGM free issue items. MGM was to provide further drawings and other information. In particular, the flow sheet (bearing in mind there were now two in circulation) was to be confirmed as being 'final and correct'. MGM was to provide Austman with 'layout drawings' for all free issue items, including weights and dynamic loadings. It was also to specify the type and size of loader to be used on the 'ROM' pad.
214 Arising out of this meeting Austman's now envisaged further tender was to be on the basis that practical completion of the crushing and screening plant for Extension Hill would be achieved by the end of November 2008. That timeline was then just under a year off (exhibit 1, page 106).
215 Discussions at the 5 December 2007 meeting addressed the crushing and screening plant which was described by the ITT. Mr Watson had a copy with him at the meeting (exhibit 21, par 60). There was, I find, no discussion at that meeting to the effect that MGM now proposed or had decided to commission some other crushing and screening plant different in its required components or functionality to the plant that was described by its ITT.
216 Following the 5 December 2007 meeting, MGM provided additional information and specifications to Mr H Kuhn (exhibit 21, pars 73 75). These included further electrical specifications and PDF drawings of the MGM free issue equipment (exhibit 1, pages 216 280). A drawing now provided was of a JOEST screen (exhibit 1, page 142). The drawing showed a screen which was the same size as a screen shown on another, third, flow sheet (see exhibit 2, pages 839 840). The third flow sheet was sent to Mr M Kuhn by Mr Cree some time later, on 3 April 2008. It was described as 'the revised crusher flow sheet showing the correct screens'.
217 On 10 December 2007, Mr S Kuhn sent MGM a list of further information Austman said it needed before it could submit its further tender (exhibit 21, par 76; exhibit 1, pages 281 283). Responses followed by an email that day from MGM and, subsequently, by a further email from MGM on 11 December (exhibit 21, pars 77 79; exhibit 1, pages 284 314).
218 Mr Watson spoke to Mr H Kuhn on 17 December 2007. He asked if Mr H Kuhn had all the information he required to submit a revised proposal by the end of that week. Mr H Kuhn told Mr Watson he had all the information he required (exhibit 21, par 80; exhibit 4, page 2352).
219 On 20 December 2007, Mr H Kuhn sent Austman's further design and construct tender (Third Tender) to Mr Watson (exhibit 1, pages 315 324 and exhibit 33, tab 11). The lump sum tender price had now risen to $10,700,000.
221 In the new year MGM's receipt of the Third Tender led to a meeting on 10 January 2008, attended by Messrs Tony Ford, Geoff Ball from Merit, Peter Erlynne, Malcolm Watson and Mr H Kuhn (exhibit 21, par 84). Documents bearing upon this meeting include:
(a) Mr Watson's longhand notes, made on a copy of Austman's Third Tender (exhibit 1, pages 323 324);
(b) Mr Ball's list of questions (exhibit 4, page 2341); and
(c) Austman's minutes of the meeting (exhibit 1, pages 371 372).
222 Also on 10 January 2008, a Ms Crosby from MGM sent Mr H Kuhn a memo inviting him onto the Extension Hill Hematite Project on Aconex, MGM's secure electronic communication system. She said, 'I have quickly run through an overview of using Aconex with Martin'. Ms Crosby stated that all projectrelated communications must now be sent through Aconex, rather than normal email (exhibit 1, page 345).
223 Austman subsequently communicated with MGM using the Aconex system. I have no doubt that from this time on Messrs H and M Kuhn clearly understood MGM would communicate with Austman, and vice versa, via the secure Aconex system.
224 On 10 January 2008, Mr M Kuhn sent a message to Mr Watson via Aconex, attaching data sheets for the proposed plant's conveyors (exhibit 21, par 90; exhibit 1, pages 370_01 370_10). The same day, Mr M Kuhn forwarded a letter from his father to Mr Watson, addressing four issues which had been raised at that day's meeting (exhibit 21, par 91; exhibit 1, pages 374 374_02).
225 Another meeting between the parties' representatives followed on 14 January 2008 (exhibit 21, pars 92 93). The minutes for the meeting (again prepared by Austman) record (see items 2 and 4) that Austman was to action the '[f]inal tender with 10 months construction time to include pricing for' various items. MGM had also requested that the scope of work be varied to include an 'Apron Feeder' (exhibit 1, pages 375 377).
226 Meetings of 10 and 14 January 2008 led to a revised Austman design and construct tender of 16 January 2008, described as Quotation PO280/Rev 1 (Fourth Tender) (exhibit 1, pages 381 390). The lump sum tender price was now $10,742,000.
227 Austman's Fourth Tender (like its third) was for a '1 off Crushing and Screening Plant complete as shown on DRG No PO278002 and PO278001 c/w free issued items'. By the 'Work Included' at cl 2, Austman tendered to manage and administer the work. Work included the provision of detailed designs 'required for manufacturing, fabrication, installation & commissioning of the plant'.
228 Two drawings mentioned by Austman were graphical representations of the plant sent out with the ITT, namely, MGI11340L001 Rev A (exhibit 1, page 32). The two drawings Austman now referred to were based upon an MGI drawing (ts 199). That drawing was of the 'plant layout - plan and sections'.
229 Negotiations look to have stalled for about a month and a half after Austman's Fourth Tender. But on 26 February 2008, Mr Watson once again met with Mr H Kuhn. Mr Watson advised Mr H Kuhn that the Apron Feeder was no longer to be included. Instead, he said MGM would use a ROM pad.
230 At this meeting Mr H Kuhn sought to have the price of $10,700,000 in the Fourth Tender increased by 2%, due to the time that had elapsed (exhibit 21, pars 99 101 and see also Mr Watson's notes of this meeting, exhibit 4, page 2354).
231 On 27 February 2008, Mr Watson emailed Mr H Kuhn regarding the previous day's meeting (exhibit 1, page 410). The Apron Feeder option was confirmed as deleted. Austman was asked to confirm that its lump sum tender price was $10.914 million. The date of practical completion was expressed to be 12 months from the date of MGM's award (exhibit 21, par 102; exhibit 1, page 410).
232 Mr H Kuhn replied to Mr Watson on the same day (exhibit 1, page 412). His email said:
(a) Austman agreed the lump sum price of $10.914 million 'for the original bid without the apron feeder and a construction time of 12 months';
(b) the parties agreed that terms and conditions 'shall be based' on AS49022000 for Design and Construction 'with some alterations (Part B) and fill in data in (Part A) equal and fair to both sides';
(c) if the date of award was the starting date, 'those terms and conditions must be agreed on, or our standard terms and conditions apply till agreement on terms and conditions is reached'; and
(d) that Austman needed confirmation on eight items of technical detail, as listed in the email, before it could start work. These were expressed to be:
The 27 February 2008 email communication from Mr H Kuhn is referred to as Austman's Fifth Tender.
233 Mr Watson then sent a draft NOA to Austman on 28 February 2008 (exhibit 21, pars 104 110; exhibit 1, pages 563 566). Mr H Kuhn was asked by Mr Watson to review the draft NOA and 'confirm any changes/amendments if required' (exhibit 1, page 563; see also exhibit 1, page 648).
234 A process of reviewing a draft NOA would tend to suggest that the parties, objectively assessed, intended that, if the content of a final NOA was unequivocally accepted, the as settled upon NOA's content would be the parties' binding agreement. That final NOA agreement was still later to be evidenced by a formal contract (see draft NOA and final NOA section 7, under the heading 'The Agreement'. See also General Condition 6, to which I have referred).
235 A formal contract was not expressed as being urgent or even necessary before WUC could begin. Both the draft and final NOA documentation clearly states that the date of MGM's award would be the date upon which work would commence, and that the time for completing practical completion would run from then. The subsequent formal contract would be issued for execution 'in due course'.
236 Section 2 of the draft NOA refers to Austman's First Tender, then to '[a]greed changes to the original submission', as detailed in section 3. A drafting technique that incorporated documents by reference was adopted in the draft and final NOA. Section 7 of the draft NOA, detailing the 'Agreement', refers to the same eight constituent documents of the parties' agreement as are referred to by the final NOA.
237 The overall structure of the draft NOA was largely the same as that seen in the final NOA. Both expressly state that the 13 items of correspondence mentioned in section 3 form part of the parties' agreement.
238 The draft and final NOAs both set out the scope of work at section 4. In turn, section 4 then picks up the items of correspondence referred to by section 3, as well as other information provided to Austman. Section 4 expressly incorporates the scope of work from the ITT.
239 Overall then, after four months, numerous meetings and five tenders, Mr H Kuhn at the end of February 2008 now took little exception, if any, to the draft NOA, nor to the final NOA, particularly as to its delineation of the scope of work for a design and construct contract award.
240 On 28 February 2008, one minute after sending the draft NOA to Austman, Mr Watson sent a second email to Mr H Kuhn, now attaching a copy of MGM's 'standard conditions of the contract' (exhibit 21, pars 105 110; exhibit 1, pages 567 643). That attached document was entitled 'Design & Construct Contract Template'. It used AS49022000 General Conditions as the template, but with some highlighted areas, indicating changes to clauses being made to the template by MGM.
241 Mr H Kuhn made a few notes on these General Conditions (exhibit 1, pages 463 519). The template also contained, at part 5, MGM's proposed Special Conditions.
242 There ensued on 28 February, or possibly on the morning of 29 February 2008, a telephone conversation between Mr H Kuhn and Mr Watson (exhibit 21, pars 111 115). I find Mr H Kuhn expressed himself in words to the effect that he had not had enough time to review the General Conditions, so that these were still subject to his agreement. Mr Watson replied to the effect that, if there were any MGMmodified clauses MGM and Austman could not agree upon, the parties could revert back to the unaltered versions of the (template) clauses. Mr H Kuhn was happy with that. Mr Watson's evidence about this conversation is essentially unchallenged. Mr H Kuhn in effect accepts he then said that if the parties could not reach agreement over MGM's variations to AS49022000, the parties would revert back to those unaltered General Conditions (exhibit 9, par 8).
243 As a result of that conversation, Mr Watson proceeded to amend section 7 in the draft NOA. Item 4 was adjusted to read 'General Conditions of Contract (AS49022000 as modified and agreed between the parties)' (Mr Watson's statement, exhibit 21, pars 116 118).
244 On 29 February 2008, Mr Watson sent out the updated NOA document by email to Mr H Kuhn. Again, Austman was asked to confirm its contents were acceptable. Mr Watson advised he would get a signed copy to Austman as soon as possible (exhibit 21, pars 119 120; exhibit 1, pages 648 652).
245 Close scrutiny of the parties' extensive passing communications, leading up to 4 March 2008, is important to the exercise of assessing objectively whether an agreement was formed by reference to the content of the final NOA. Contrary to Austman's primary case, I find that Mr H Kuhn's signature on the NOA on 4 March 2008 was a lot more than a mere acknowledgement of the receipt of that document. Mr Watson clearly asked Mr H Kuhn to confirm Austman's acceptance of that final iteration of the NOA. That was after having already given Mr H Kuhn a draft NOA and engaging in discussions over the modified AS49022000 General Conditions.
246 On Monday 3 March 2008, Mr H Kuhn sent Mr Watson '[his] few comments' on the modified General Conditions AS49022000 (exhibit 21, pars 122 126; exhibit 1, pages 653 655). Austman, he wrote, was 'not too concerned' about most of MGM's changes to the General Conditions (ts 228 229). Mr H Kuhn also wrote that he had not had time to look at the Special Conditions, but that he expected 'no surprises'.
247 Mr Watson issued a final iteration of the NOA to Austman on 3 March 2008.
248 Mr Watson's evidence, which I accept, was that he recalled saying to Mr H Kuhn, on Tuesday 4 March 2008, words to the effect that most of Mr H Kuhn's emailed comments on the General Conditions were not big issues (exhibit 21, pars 128 133).
249 The Special Conditions proposed by MGM for the NOA dealt with routine safety requirements, environmental protection and conservation requirements, site security, access and accommodation and matters of that kind (exhibit 21, par 124). There is no evidence to suggest Austman expressed any concerns regarding any of those Special Conditions.
250 Mr Watson's evidence was that he knew Mr H Kuhn's planned departure from Perth to China was imminent. He told Mr H Kuhn that MGM would need a copy of the signed NOA before Mr H Kuhn left for China (exhibit 21, par 133).
251 On 4 March 2008 Mr Watson emailed Messrs Panek, Cree and Gerry Larsen. He reported that Mr H Kuhn had only raised two issues over the General Conditions (exhibit 21, par 134; exhibit 1, page 661_01). Mr Watson said there was now no need for the meeting which had previously been arranged with Mr H Kuhn. Mr Watson said that Mr H Kuhn was flying to China 'tomorrow' (i.e. Wednesday 5 March 2008), 'to get the engineering started and needs time to prepare'.
252 I find that there was now, in early March 2008, a sense of urgency, shared by both MGM and Austman, regarding the need to commence the Extension Hill project works. Austman's completion date as stated in the NOA was to be 12 months from the date of award. The Austman lump sum price had risen to $10.914 million by the Fifth Tender. It had escalated 2% in the period between Austman's Fourth and Fifth Tenders. These were matters clear to both parties. Objectively, they provide insight concerning why both parties, as of 4 March 2008, were seeking to finalise a binding agreement. MGM was expecting Austman to commence, via Chinese subcontractors, a very substantial steel fabrication process as part of the WUC. Furthermore, the NOA provided that '[t]he Contractor shall provide Certificates of Currency for all insurances required under the Contract no later than 14 days after acceptance of this letter'. An inference I draw from this clause is that the parties intended the NOA to be a legally binding agreement, albeit they also anticipated that a formal contract document would subsequently be executed 'in due course'.
253 On Tuesday 4 March 2008, one day before he was to depart for China, Mr H Kuhn signed the final version of the NOA on behalf of Austman. He also faxed it back to MGM (exhibit 21, par 135; exhibit 1, pages 658 661).
254 As already noted, Mr H Kuhn inserted his longhand words 'to be', before the word 'agreed' in section 7 of the NOA, in a part dealing with the modified AS49022000 General Conditions. But I accept Mr Watson's evidence that Mr H Kuhn only raised two areas of concern over the General Condition clauses (exhibit 21, pars 131 132). First, Austman wanted to retain intellectual property under the contract. Second, Austman wanted MGM to be the party responsible for obtaining contract works insurance, not Austman. Both points were conceded by Mr Watson in his telephone conversation later that same day with Mr H Kuhn. Those two outstanding points were thereby resolved in Austman's favour at that time. Mr Watson then - rather prudently, as things transpired - confirmed their resolution in his email to Mr H Kuhn on Wednesday 5 March 2008 (exhibit 1, page 683). This email did, I find, come to Mr H Kuhn's attention shortly thereafter. Mr H Kuhn did not demur from what Mr Watson's email said at the time.
255 It is noteworthy Mr H Kuhn only inserted his words of qualification in relation to the AS49022000 General Conditions. There was otherwise no expression or indication by him as to any wider concerns over terms of the NOA that Austman was being asked to accept. There was no manifestation of a lack of agreement upon any other issue or topic from Mr H Kuhn at this time. Overall that position is hardly surprising given the five prior tenders and four months of intensive negotiations over an award of a D&C Contract to Austman.
256 I reject as untenable the attempted rationalisation that Mr H Kuhn, on 4 March 2008, was simply acknowledging 'receipt' of the NOA (amended reply and defence to counterclaim (reply and defence to counterclaim) par 2), since:
(a) Austman had earlier been asked by Mr Watson to confirm it agreed upon a draft NOA and final NOA;
(b) Austman's execution and return of the NOA, then its commencing of work, ostensibly under the NOA's terms, are events providing independent confirmation; and
(c) Austman's only expressed concerns by Mr H Kuhn related to the two rather confined aspects of the General Conditions 'to be' agreed. But those two concerns were very swiftly resolved in Austman's favour after the 4 March 2008 telephone discussion between Mr Watson and Mr H Kuhn.
257 The terms and conditions of the NOA had been settled by 4 March 2008, notwithstanding that the Annexures to the General Conditions were yet to be completed (ts 421.7). Any blanks could be completed, according to Mr Watson, 'from information gathered over the tender process' (ts 421 422). I accept that to be the case.
258 On Tuesday 4 March 2008, Mr Watson forwarded the NOA document - now signed, dated and returned by Mr H Kuhn on behalf of Austman - to Messrs Panek, Cree and Larsen (exhibit 21, par 135; exhibit 18, par 37; exhibit 1, page 657). Mr Panek, as Project Manager, forwarded the signed NOA document to Mr David Quinlivan of MGM. Mr Panek stressed an urgent need for MGM to sign the NOA because Mr H Kuhn had travelled to China to 'get the engineering underway' and had to have a signed copy by Thursday 6 March 2008.
259 On Wednesday 5 March 2008 at 11.45.13 am, Mr Watson sent an email to Mr H Kuhn (exhibit 21, pars 138 140; exhibit 1, page 662_01). The email read:
This is to confirm our telephone conversation yesterday where you advised that your initial objections to the modified general conditions would be withdrawn with the exception of two major issues, namely:
Both of these clauses are acceptable to the Principal. All other clauses will be as drafted.
260 Austman pleads that this email was not received by Mr H Kuhn, as it was transmitted via Aconex and Mr H Kuhn was unable to access the Aconex transmission whilst travelling to and whilst in China. Austman pleads it did not become aware of this communication until early 2009, after the commencement of this litigation (see Austman's reply and defence to counterclaim, par 3). Austman did, however, turn up a copy of the email during discovery (see exhibit 1, page 662).
261 Mr Panek explained the Aconex system in the terms I have earlier set out (exhibit 18, pars 166 176). He explained:
(a) when a party is sent a communication via Aconex, the receiving party becomes aware of the new communication the next time it logs onto Aconex;
(b) when a user logs onto Aconex, any new communication or document that has been sent via Aconex will be marked as unread in that user's 'tasks' window; and
(c) the default setting for new users of Aconex is such that Aconex sends an email to the receiving party's external email address notifying them that they have been sent an Aconex communication and includes a link that allows the document to be viewed (see information sheet, exhibit 4, pages 2385 2386).
262 Mr H Kuhn said his son Mr M Kuhn had joined the Aconex system on or about 4 January 2008 (exhibit 8, par 3.1.11). On 10 January 2008, Mr M Kuhn sent to Mr Peter Erlynne data sheets for conveyors via Aconex (exhibit 21, par 90; exhibit 1, pages 370_01 370_10).
263 So, Austman had access to, and knowledge sufficient to use, Aconex by early January 2008.
264 Austman's position by trial, on my analysis, had evolved from its pleaded assertion that Mr H Kuhn did not receive Mr Watson's 5 March 2008 email, to an assertion that Austman had not 'accessed' the email until after the proceedings were commenced. But I must reject both assertions as untenable.
265 At trial, Mr H Kuhn said he did not read Mr Watson's email until it was shown to him in 2009. Under crossexamination, he explained that he had been en route to China when this email was sent by Mr Watson on 5 March 2008. Therefore he could not access it. But he said that when he arrived at his hotel in China and saw that Mr Watson had sent him an email, he dismissed the email as an 'old thing' not worth reading. I reject Mr H Kuhn's evidence on this point. I infer it to be overwhelmingly likely that he learned of the content of Mr Watson's email at a point not later than a few days after it was sent to him on 5 March 2008.
266 The evidence I have rejected on this point was in my assessment an attempt by Austman to avoid some perceived adverse consequences from accepting that Mr H Kuhn had learned of, but raised no objection to, Mr Watson's email - an email that strongly indicated that Austman and MGM had reached an accord concerning MGM's modified General Conditions in the NOA.
267 Contractual commitments were now swiftly effected in China by Mr H Kuhn by two subcontracts with Chinese steel fabricators, on 10 and 12 March 2008 (exhibit 1, pages 716 717, 719 720).
268 Austman's ensuing engagement of two Chinese steel fabricating subcontractors is wholly consistent with the existence by this time of a perfected D&C Contract. By entering into the two subcontracts, Austman exposed itself to direct liabilities to pay for steel fabrication process work that was to be undertaken offshore. I find it very unlikely that Austman would have done so, or that MGM would have expected Austman to do so, without first holding a binding head contract with MGM.
269 On 6 March 2008, Mr Quinlivan signed the NOA. A copy signed by Mr Quinlivan on behalf of MGM was then sent to Austman (exhibit 21, pars 144 145; exhibit 18, pars 45 46; exhibit 22, pars 18 28; exhibit 1, pages 678 683).
270 On 7 March 2008, Mr H Kuhn, still then in China, now wrote in an email to his son, Mr M Kuhn, 'I need to know if Mt Gibson have signed the letter of award' (exhibit 1, page 687). It is no surprise at all that the execution of the $10.914 million lump sum NOA by MGM was important to Austman. Mr H Kuhn was, most understandably, keen to know if MGM had signed off on the NOA. In his oral evidence at trial Mr H Kuhn accepted what is commercially rather selfevident. Obtaining an executed NOA from MGM was of importance to Austman, before it engaged and exposed itself to contractual liabilities to its two Chinese subcontractors (ts 229.8).
271 A few days later, on 10 and 12 March 2008, Mr H Kuhn on behalf of Austman signed the offshore subcontracts for the design and construction of crushing and screening plant components (exhibit 1, pages 716 717 and 719 720). In my assessment, Mr H Kuhn was astute enough never have done that in the absence of a binding head contract with MGM (see ts 280).
272 On 14 March 2008, Mr H Kuhn confirmed by an email to PEAK that Austman had been awarded 'the contract' (exhibit 1, page 724). But for reasons given earlier, I have not placed any reliance on that third party communication. It is unnecessary to do so in any event.
273 I pause to deal with one issue somewhat obscurely raised by Mr H Kuhn whilst under crossexamination. Austman's pleaded defence made reference to the NOA being little more than an acknowledgement of 'receipt'. But it emerged from Mr H Kuhn's crossexamination that one of Austman's explanations was that Mr H Kuhn's application of his signature on the final NOA was a mere 'commitment' by Austman to MGM. That word seemed to be being deployed by Mr H Kuhn to suggest 'commitment' was some arrangement falling short of being a binding legal agreement. The bounds of this lesser concept were never really made clear to me.
274 The word 'commitment' from then was deployed on a number of occasions by Mr H Kuhn (see ts 184 and following, ts 245, ts 259, and then in reexamination at ts 280). Mr H Kuhn said he would not have gone to China if he did not believe he had a 'commitment' from MGM and that he had made a 'commitment' to the Chinese subcontractors (ts 184). However, the 'commitment' to the Chinese steel fabricators by Austman was under written subcontracts. Mr H Kuhn accepted later that he had made an 'agreement' in China, on the basis of a 'commitment' from MGM (ts 184).
275 I would reject Mr H Kuhn's use of 'commitment' as an unsuccessful effort at diverting spin, if it is advanced as implying something less than a binding and legally enforceable agreement.
Conclusion as to contract formation on 4 March 2008
276 It was, as I observed, important by the first week of November 2008 for both parties that the NOA be signed without undue delay. Austman signed the NOA on 4 March 2008 through Mr H Kuhn. In the months before, its content had been thoroughly discussed, negotiated and, finally, settled upon. Austman had submitted five tenders in all to MGM, in a tenacious and sustained effort to obtain from MGM the award to it of a design and construct contract for the Extension Hill project. Austman finally achieved its longstanding goal on 4 March 2008. Mr H Kuhn left for China the next day to engage steel fabrication subcontractors for much of the crushing and screening plant works required. The NOA had been executed before Austman entered into any subcontract or otherwise commenced any work on the plant.
277 My conclusion is reinforced by an assessment of Austman's conduct after Mr H Kuhn signed the NOA. Until about the end of June 2008, no real suggestion had emerged from Austman that the final terms of its design and construct contract with MGM had not been fully settled and resolved in the terms as stated in the NOA.
278 Objectively assessed, I conclude, the two parties intended the executed NOA to be legally binding as their D&C Contract. This is, I find, also consistent with industry practice. Mr Kendall's expert evidence, which I accept, was that, in his experience, once parties have developed a shared understanding it is usual to award a contract as work also commences on preparation of the detail of the contract documentation (exhibit 25, pars 3.3.10 3.3.11).
279 I have observed that an objective assessment of the communications passing between the parties does not have to follow an unbending adherence to the orthodoxy of offer and acceptance. Here, however, I would conclude that Austman's tenders were offers to contract. MGM's NOA amounted to a counteroffer to commit on its terms and conditions. Once the parties finally settled the terms of the NOA, and Austman had communicated its acceptance of all terms on 4 March 2008, a legally binding agreement was, from then onwards, perfected.
280 Alternative analyses of offer and acceptance - based upon Mr Watson's subsequent email of 5 March 2008, or Mr Quinlivan's signing the NOA on behalf of MGM on 6 March 2008 - are also open. But they still deliver the same outcomes for these parties: a binding D&C Contract, arising out of the accepted NOA, subsisted as from the first week of March 2008.
281 A 'kickoff' meeting was held between MGM's and Austman's representatives on 18 March 2008. At the meeting MGM answered questions posed by Austman. MGM provided Austman with more information relating to works to be performed. The first meeting was attended by Messrs Watson, Cree, Higgins, H Kuhn and M Kuhn (exhibit 21, pars 147 156; exhibit 4, page 2355; exhibit 2, pages 772 774; exhibit 22, pars 32 70; exhibit 4, pages 2360 2362). Mr Cree's evidence, which I accept, is that at this meeting, noone from Austman said anything that would suggest that the terms of the contract or the scope of work was not yet agreed between the parties (exhibit 22, par 40).
Contractual uncertainty arguments as to essential terms of the D&C Contract: 3 April 2008 flow sheet
282 Around 3 April 2008, Mr Cree provided Mr M Kuhn with his confirmation as to the flow sheet that was to be used by Austman (exhibit 22, pars 71 92). It is helpful to set out Mr Cree's evidence concerning the various flow sheets and a related issue as to a 'scalping screen':
(a) I had realised the flow sheet in the ITT incorrectly only showed a single product screen instead of 2;
(b) Malcolm had sent me an email on 13 March 2008 advising me of information that Austman had requested and I was following this up [MTG.002.001.0351] [TB 0721]; and
(c) at some stage around the time of the kickoff meeting either Malcolm or Hartmut had referred to the final flow sheet that Austman had requested, being part of the information that Malcolm had asked me to follow up [MTG.002.001.0351] [TB 0721].
(a) input material lump size is increased by 20% [MTG.002.001.0227] [TB 0730]; and
(b) input material lump size is decreased by 20% [MTG.002.001.0226] [TB 0729].
(a) Tony Ford flow sheet shows a 2.4m x 7.0m double deck banana screen; and
(b) the flow sheet I sent to Austman on 3 April 2008 shows a 3.6m x 7.2m double deck banana screen.
(a) a 3.5% increase or
(b) 4.4% decrease.
283 I accept all this evidence from Mr Cree. It ultimately goes towards answering various arguments raised by Austman as to the alleged uncertainty in law of the D&C Contract.
284 The flow sheet sent by Mr Cree was attached to a transmittal on the Aconex system on 3 April 2008 (exhibit 2, pages 839 840). The size of the screen on this flow sheet was the same size as that shown on a PDF drawing sent to Austman by MGM in December 2007 (exhibit 1, page 119).
285 But even were the Cree communication of 3 April 2008 assessed as a request by MGM for a larger scalping screen, that would only raise the issue of a possible variation. As seen, Austman held rights under the D&C Contract General Conditions to seek variation allowances, approved by the Superintendent.
286 I find Austman conducted itself, after Mr H Kuhn signed the NOA of 4 March 2008 up until 20 June 2008, as if it held a binding contract to build the Extension Hill crushing and screening plant for MGM. Austman's conduct included submitting progress claims under the D&C Contract for approval by the contract Superintendent. Some claims were approved and resulted in interim payments from MGM to Austman.
287 Until 20 June 2008 then, Austman behaved, in its dealings with MGM, as if it were bound by and performing a D&C Contract. That would be relevant to advancing MGM's estoppel argument, were it necessary for me to finally evaluate such arguments. Austman seeks to explain its conduct in this period, however, by saying that it conducted itself in 'anticipation of a concluded and enforceable agreement being reached' (reply and defence to counterclaim, par 9). I assess that explanation to be barren.
288 By around mid2008 the parties' differences had intensified due, in essence, to claims made by Austman that had been refused.
289 On 16 July 2008, Austman received what I assess to be very causatively significant (to its ensuing conduct with MGM) legal advice (exhibit 3, pages 1877_01 1877_02). That advice was disclosed to MGM's Mr Quinlivan. That constituted the clearest waiver of Austman's privilege in the advice. The advice by Austman's legal advisers, Pilley McKellar, was that Austman did not have any binding agreement with MGM. Significantly as well, Austman was also told by its legal adviser it could make a claim against MGM on a quantum meruit for work performed.
290 Assessed from midJuly 2008 on, Austman now presents as having adopted the legally assisted stance that it would be better off if there was no binding agreement. From this point, Austman's communications to MGM repeatedly assert that no binding agreement had been reached.
291 Progress payments by MGM on Austman's submitted claims are listed in Schedule A to MGM's further amended defence and counterclaim (defence and counterclaim), par 23(a); and reply and defence to counterclaim, par 11(c); exhibit 4, pages 2274 2274_1. It is uncontroversial MGM paid the full amount of Austman's progress claims, to the extent that they had been certified for and allowed by Mr Panek, as Superintendent under the D&C Contract. All up this amounted to $842,283 (defence and counterclaim, par 23(b); reply and defence to counterclaim, par 12).
292 However as is explained below, sizeable components of Austman's progress claims were refused by Mr Panek. I find Mr H Kuhn and Austman were most aggrieved by these refusals by midJuly 2008.
293 From about the end of May 2008 onwards, Austman had been seeking more money from MGM as contract price increases beyond the lump sum tender price of $10.914 million, by variation claims to the Superintendent.
294 The first variation claim related to additional safety guards. The extra amount claimed was $998,874.90. Mr Cree's evidence addresses this (exhibit 22, pars 225 236). Mr Cree says Austman was asked to provide a quote for a type of safety guard that MGM had used at Geraldton. Ultimately, MGM did not go ahead. The price was too high. MGM advised Austman of this (exhibit 3, page 1477_01). On 30 June 2008, Mr M Kuhn responded that Austman would 'design and construct safety guards in accordance with common practise to satisfy the Australian Safety Standard' (exhibit 3, pages 1583 1584). Mr H Kuhn's evidence was that MGM never agreed to any change. The original guards were installed (exhibit 8, par 5.2.10). There was, therefore, no basis on which Austman could legitimately seek this variation, never approved by the Superintendent.
295 The next variation claimed related to a change in the height of a plinth. The variation was not accepted. Mr Cree addresses this issue (exhibit 22, pars 230 236). By email on 19 June 2008, MGM advised Austman it had reviewed Austman's proposal and did not wish to proceed with increasing plinth height as had been proposed (exhibit 3, page 1433). Mr H Kuhn stated that Austman provided MGM with additional costs MGM would not accept. As a result, Austman ultimately did not raise the plinth height (exhibit 8, pars 5.1.22 5.2.13). There is, therefore, no basis upon which Austman could press a claim for this variation.
296 The third variation claimed by Austman was the 'Quote for Contract Variation 003 - Change in Scope of Work' of 28 May 2008 (exhibit 3, page 1349). The claim was made on Austman's assertion that the plant's conveyors had increased in length, height and installed power since Austman's Fifth Tender had been accepted. The variation sought an additional $850,917.00. The claim was rejected on 18 July 2008 by Mr Cree, as Superintendent's Representative (exhibit 3, page 1891).
297 Austman's electrical subcontractor, PEAK, increased its quote due to inflation and higher costs (exhibit 3, pages 1388_01 1388_03). Austman then attempted to pass the additional cost onto MGM by claiming a fourth variation of $493,967.
298 That variation claim was rejected by the Superintendent, on the basis that allowances made within the original contract price should not be increased (exhibit 18, pars 106 111; exhibit 3, pages 1478 1480; exhibit 4, page 2347).
299 Mr H Kuhn in a responsive witness statement of 15 January 2011 seems to accept that 'Austman gave PEAK version 1 of the proposed contract document, but did not give PEAK the scope of work in the ITT' (exhibit 9, par 21). PEAK had been provided, before its quote of December 2007, with MGM's electrical specifications (exhibit 1, pages 280_02 280_03, 331_01).
300 The four rejected claims for variations under the D&C Contract in this period show:
(a) Austman had to this point conducted itself consistently with there subsisting a binding D&C Contract with MGM, pursuant to which agreement Austman could seek the variations;
(b) Austman pursued variation amounts from the Superintendent or Superintendent's Representative, pursuant to D&C Contract machinery; and
(c) the third and fourth variation claims for $850,917 and $493,967 respectively, as submitted by Austman, together exceeded $1.2 million. But they were both rejected. If Austman completed and was held to the lump sum contract price of $10.914 million, its profit margins would now be very severely squeezed, if not consumed altogether.
301 Accordingly, there was from this point in time a strong economic motivation for Austman to try to move away from the strictures of the D&C Contract and instead seek remuneration on a quantum meruit, the option its legal adviser had raised on 16 July 2008.
302 Furthermore, if there was no binding contract with MGM, as Austman was now suggesting, Austman would also be running serious risks by taking on further direct obligations to Chinese steel fabricators in anticipation of finalising the contract with MGM Austman was openly now saying was still to be perfected.
303 On two occasions after 4 March 2008, MGM sent Austman, for execution, formal contract documentation, as was envisaged under section 7 of the NOA. By these documents, terms and conditions settled under the NOA were now said by MGM to be restated in a form that was fuller, or more precise, but not different in effect.
304 On 2 May 2008, Mr H Kuhn sent Mr Cree several completed schedules containing information required for a formal contract document (exhibit 22, pars 180 182; exhibit 2, pages 999 1010). A hard copy of the formal document was couriered to Austman by Mr Larsen on 7 May 2008 (exhibit 22, pars 104 108; exhibit 2, pages 1168 1242, 1251).
305 On 15 May 2008, Mr M Kuhn sent Mr Cree a letter from his father. Mr H Kuhn raised some concerns over the scope of work (exhibit 22, par 109; exhibit 2, pages 1281 1282). Mr H Kuhn stated that '[i]n general we agree with the Notice of Award dated May 11 and the listed correspondence which was signed on March 3rd. We differ however in the interpretation of the correspondence listed'. But the issue ventilated by Mr H Kuhn at this time was as to the interpretation of section 3 of the NOA, not over the existence or otherwise of a binding agreement.
306 A dispute over a 'tramp metal magnet' ensued. Austman argued that it did not tender for a crushing and screening plant at Extension Hill which included such a device. In late May 2008, Austman took a position that a tramp metal magnet was not within the scope of work. However, such a magnet was referred to in par 2.5.9 of the Design Brief, which formed part of the ITT (exhibit 1, page 26; and see exhibit 18, pars 62 66). Austman's position was without merit.
307 On 5 June 2008, Mr M Kuhn sent Mr Cree comments regarding the formal contract documentation that had been sent to Austman (exhibit 22, pars 110, 198; exhibit 3, pages 1379 1382).
308 On 12 June 2008, a meeting was convened between representatives of MGM and Austman (exhibit 18, pars 67 76). Exhibit 3, at pages 1416 1418, 1474_01 1474_09 and 1823 1838 are documents produced to assist those discussions. Exhibit 3, pages 1447 1448 suggests the parties were then talking about a formal document. For example, in respect of cl 1.3, MGM's response was:
The wording from clause 1.3 was contained in reference E.
This clause was not modified or excluded in any of the correspondence that forms the agreement between MGM and Austman as documented in reference D.
Reference C contains requests similar to Austman's comments; MGM's view is that these form requests for information post agreement and not the agreement itself.'
309 Reference D is the NOA (exhibit 3, page 1455). The document was given by Mr Cree to Mr H Kuhn and Mr M Kuhn at the meeting and resent to Mr M Kuhn via Aconex on 25 June 2008 (exhibit 22, pars 121, 128). Mr Cree's evidence in relation to this meeting is at exhibit 22, pars 111 122; exhibit 3, pages 1466 1474, 1839 1854; exhibit 4, page 2375.
310 On 16 June 2008, Mr M Kuhn sent Mr Cree a letter notifying him of a difference of opinion regarding scope of work and associated costs (exhibit 22, pars 123 126; exhibit 3, pages 1419 1420). The letter did not assert that there was no contract. At its outset it said that there was a 'difference of opinion' as to the scope of work and as to costs. Flow sheets and a layout drawing, MGI11340L001Rev A, looked then to be at the heart of Austman's generalised assertion that the scope of work was uncertain.
311 On 26 June 2008, Mr Larsen of MGM sent an updated version of a General Conditions Table to Mr H Kuhn via Aconex (exhibit 22, par 129; exhibit 3, page 1484). Another copy was sent in July 2008 (exhibit 22, par 133; exhibit 3, pages 1822_01 1822_18). A further version of a formal contract document was couriered to Mr H Kuhn by a Mr Nixon of MGM, on 11 July 2008 (exhibit 22, par 134; exhibit 3, page 1800). There was no substantive response from Austman.
312 On 15 July 2008, Mr M Kuhn wrote to Mr Cree disputing, for the first time it would seem, that changes to the AS49022000 MGM General Conditions had been agreed (exhibit 22, par 135; exhibit 3, page 1871). On 16 July 2008 Austman received the written Pilley McKellar legal advice which it then disclosed that same day to Mr Quinlivan at the parties' dispute meeting.
313 From midJuly 2008, Austman displays, in my assessment, considerable efforts in its communications with MGM to lay groundwork for a change of position: with it now being articulated repeatedly that no binding agreement had ever been entered with MGM. Austman also now would not progress the finalisation of any of the formal contract documents sent to it by MGM. In crossexamination, Mr H Kuhn denied that this had been his and Austman's strategy from mid2008 (ts 246 247). Mr H Kuhn said Austman's solicitor, Mr Pilley, had never even explained to him what a quantum meruit was. According to Mr Kuhn, he still did not know what that concept meant, even as he gave his evidence at trial (ts 247). I cannot accept this most unlikely evidence.
314 The letter of advice from Pilley McKellar proceeds on the basis the addressee will know what is meant by the term 'quantum meruit'. Mr H Kuhn tactically disclosed and deliberately deployed this letter at his dispute resolution meeting with Mr Quinlivan, thereby waiving privilege, the same day he received it. The dispute resolution meeting had focused on resolving Austman's accumulating grievances. Solicitors on both sides were now actively involved and routinely communicating back and forth as between themselves from this point on behalf of their respective clients.
315 As mentioned above, Austman now made repeated written assertions in its correspondence from midJuly 2008 onwards that it had not yet reached any final or binding agreement with MGM. However, my assessment of the contractual formation position as a whole remains strongly to the contrary, namely that there was a legally binding agreement in place between Austman and MGM from 4 March 2008. Whilst a more formal document could follow, it did not necessarily have to. That position is consistent with the 'first' or 'fourth' categories as identified in Masters v Cameron and cases following.
316 I find Austman had, by midJuly 2008, come to a realisation that it had underquoted on its last tender to design and construct the plant for MGM at Extension Hill. From this point onwards, it actively sought with legal assistance a way of avoiding what loomed as an unprofitable and inconvenient bargain. In addition, Austman gradually became more and more aggrieved at what it saw as MGM's inflexible approach to the administration of the contract - particularly the rejections of Austman's claims for variations. Austman now sought to escape the strictures of the D&C Contract and claim instead on what it saw as a more fluid quantum meruit basis.
317 On 30 June 2008, in an email to Mr Cree, Mr M Kuhn referred to Austman and MGM's contract documents as 'yet to be ratified contract documents'. He referred to a 'dispute over the scope of work in our contract variations claims and your rejections thereof' (exhibit 18, par 79; exhibit 3, page 1491).
318 Mr M Kuhn's email is the first recorded instance of Austman asserting that there was no contract on foot. Three events precede and provide some important context to this 'no contract' assertion.
319 First, on 15 May 2008, Mr H Kuhn told MGM that Austman did not agree with MGM's interpretation of the scope of work (exhibit 22, par 109; exhibit 2, pages 1281 1282). Second, four Austman variation claims had been rejected. Third, Austman's Chinese fabrication subcontractor, Wuxi Sinoman Heavy Machinery Co Ltd, informed Austman by letter signed 25 June 2008 that it was no longer in a position to perform its subcontract (exhibit 3, page 1481).
320 Four days after Austman had asserted to MGM that it did not have a binding contract with that corporation, it nevertheless entered a new subcontract for the fabrication of plant components with Wuxi Yitai Heavy Machinery Co Ltd (Yitai) (exhibit 3, pages 1614 1615). This action was curious. Wuxi Sinoman Heavy Machinery Co Ltd had reneged on its agreement to fabricate plant components for Austman. Austman had just asserted it had no binding contract with MGM. Yet Austman did not wait until it had in place (on its case) a binding contract with MGM before entering the fresh contractual obligation with another Chinese entity (Yitai) to pay for fabricated components.
321 Mr M Kuhn's email of 30 June 2008 was followed by a letter to Mr Panek dated 2 July 2008. The Superintendent was now 'officially notified' that in accordance with 'yet to be ratified contract documents' Austman and MGI were in dispute (exhibit 18, pars 80 82; exhibit 3, page 1618; exhibit 22, pars 130 132).
322 Mr Panek responded to Austman on 14 July 2008 (exhibit 3, page 1805; exhibit 18, par 83) in explicit terms:
The purpose of this correspondence is to give notice that:
323 A meeting to discuss the 'dispute' followed on 16 July 2008 (exhibit 18, pars 84 103; exhibit 4, page 2345). Mr H Kuhn told this meeting he had received legal advice that there was no contract. He also deployed the letter from Pilley McKellar to Mr Quinlivan (exhibit 18, pars 87 95). The Pilley McKellar advice to Austman was in these terms (exhibit 3, pages 1877_01 1877_02):
We confirm our advice given over the telephone yesterday as follows.
We have reviewed the documentation and confirm that it is our firm view that no Contract currently exists between MGML and Austman for the following reasons:
MGML required an increased scope of works to be carried out by Austman for the same price. There is therefore no agreement as to what that increased scope of works will be and for which, presumably, Austman will reprice the works once that increased scope of works is agreed upon and the price to be paid for it is also agreed upon. The various pieces of documentation listed by MGML under '3.0 Correspondence' on page 2 of its letter to Austman dated 3 March 2008 increases the scope of work compared with the scope of work Austman originally agreed to carry out for $10,914,000.00. The fact that letter is described as a Notice of Award is irrelevant if no agreement has been reached on the scope of works or what price is to be paid for the increased scope of works required by MGML.
Finally, the fact you have commenced work on the project does not constitute an acceptance of an offer by MGML. If agreement is not eventually reached and you cease work then you have a right to recover the costs incurred on a quantum meruit.
Hopefully your meeting today will clarify the final scope of works and/or contract price. We will then review the contract terms and conditions then offered to you.
324 I would observe that the Pilley McKellar legal advice to Austman:
(a) categorises the NOA issued by MGM to Austman on 3 March 2008 as a 'counter offer to your tender'. However, the advice does not go on to conclude that the NOA was signed by Mr H Kuhn on 4 March 2008 by way of substantial acceptance albeit with a further counter proposal as regards the two modified General Conditions that needed to be and were subsequently resolved as between Mr H Kuhn and Mr Watson for MGM on 4 March 2008;
(b) refers to MGM requiring an 'increased scope of works', in response to Austman's tender of $10.914 million for certain design and construction works. The analysis proceeds without making reference to any recorded underlying facts to support the stated conclusion as to an increased scope of works;
(c) concludes, in effect, that the NOA falls within the third category identified in Masters v Cameron, largely by reason of the provision providing for a formal contract document to be executed in future;
(d) is based on a factual premise that the AS49022000 General Conditions, as modified, had not been 'sighted' or 'agreed upon' (presumably, by Austman). That premise, I have concluded, is incorrect;
(e) expressed a 'firm view' that no contract existed, but that a quantum meruit remedy was available for Austman.
325 More dispute meetings followed, on 23 July 2008, 31 July 2008, 4 August 2008 and 29 August 2008 (exhibit 18, pars 103 105). But the parties remained at loggerheads. One recurrent key grievance was that Austman sought to be paid under its progress claims, before it had assembled any fabricated components of the plant and affixed them at the Extension Hill site. As has now been seen, General Condition 37.3 expressly provided for payment to the contractor only after an affixation at site, unless arrangements to different effect had been concluded. They had not.
326 At the dispute meeting on 16 July 2008, Mr H Kuhn and Mr Quinlivan discussed a potential compromise over the progress payments for fabricated components: MGM would pay for the components fabricated in China once Austman presented to it a bill of lading evidencing that there had been a despatch of fabricated steel components to Perth from China by sea. But Austman's strategic stance that there was no contract with MGM now inhibited it from too readily seeking to formally vary the workings of General Condition 37.3.
327 In my assessment, a compromise proposed by Mr Quinlivan by reference to bills of lading was never finalised as an agreed variation or as a separate agreement between Austman and MGM. This conclusion is supported by:
328 Accordingly, Austman's contention as to a side agreement or variation arrangement concerning an MGM payment obligation for its progress claims by reference to submitted bills of lading, effectively reversing the site affixation prerequisite to its right to payment imposed by General Condition 37.3 (see Austman's statement of claim par 43A B), fails. I find no such agreement was ever concluded.
329 Austman alternatively contends that if there is ascertained to be a perfected D&C Contract (as I have found), nevertheless that D&C Contract arising out of acceptance of the NOA, or any other contract, was, as a matter of law, void for uncertainty (statement of claim, par 35).
330 By particulars to its par 35, Austman refers to various matters raised under its statement of claim, pars 3 21. It alleges:
(a) the parties did not reach consensus in three essential areas of any works contract, namely scope of work, commercial conditions and price;
(d) by the NOA or any other contract, MGM purported to take the benefit of the lump sum price, but for a greater scope of work, on different terms and conditions;
(e) Austman had proceeded to perform approximately half the works in accordance with a scope of work which changed from time to time. At par 19, Austman says that between March 2008 and October 2008 the parties continued to negotiate the scope of work and price. At par 19A Austman pleads that between 28 February 2008 and midAugust 2008, MGM proffered various versions of a proposed contract, none of which were accepted or agreed to by Austman; and
(f) the totality of the scope of works to be performed by Austman was never agreed by the parties.
331 The notions of contractual formation and contractual uncertainty are discrete, but closely related: see ABC v XIVth Commonwealth Games (548). In each case it is a matter of assessing, objectively, the parties' intentions.
332 For an agreement to be enforceable as a valid contract, its essential terms must be sufficiently certain or ascertainable in order to permit a court to enforce them. But it is only the omission of an essential term that will make an agreement so incomplete or uncertain as to render it invalid as a matter of law: Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 [29] (Ipp J).
333 More recently, McLure P in Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191 has observed as to contractual uncertainty [6]:
There are two limbs to the uncertainty doctrine. A contract (or a term thereof) is void for uncertainty if (1) all the essential and critical terms of the bargain have not been agreed upon or (2) the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, 436 - 437; Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101. Under the first limb, the contract is incomplete. Under the second limb, the court is unable to attribute a meaning to the language used by the parties. I refer to the latter as linguistic uncertainty. Both limbs apply only to essential terms.
Austman invokes both limbs of that formulation, contending that any D&C Contract suffered from incompleteness as well as linguistic uncertainty.
334 If essential terms of an agreement are settled and are precise enough in their meaning to be enforced, the agreement will be a binding contract, even if there is more detail to be resolved at a later point: see Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601, 619, referred to by Ipp J in Anaconda Nickel. In Anaconda Nickel, Ipp J concluded his analysis of the law surrounding contractual uncertainty at [32] and [33] by referring to two overarching general considerations. Both bear upon an evaluation of the present uncertainty arguments now raised by Austman. The first general consideration is that the presence of some elements of ambiguity in a written agreement is not necessarily fatal. Interpretive exercises upon contracts are a daily occurrence in courts of construction. Mere ambiguity is to be viewed in conceptual contrast to a terminal deficiency that is manifested by a contract in which no definite meaning can be ascertained for an essential term therein. The second consideration arising from Anaconda Nickel is an exhortation of policy to the effect that where it is possible courts ought be upholders of contractual bargains, rather than their destroyers.
Uncertainty by incompleteness: Some matters pleaded in pars 3 21 of Austman's statement of claim
335 Some of the ensuing issues have already been canvassed in part, whilst I have been resolving the earlier issue of contract formation. Nevertheless, certain issues appear to be reventilated in advancing Austman's uncertainty arguments. I say 'appear' because some of Austman's arguments concerning the D&C Contract's alleged uncertainty manifested, I thought, a most unsatisfactory 'dump and run' approach. In this area, some quite technical arguments, involving complex engineering concepts, were raised but not ever properly developed by either oral or written submissions. For instance, when I asked for a more precise elaboration of the design and construct 'problem', during Austman's closing, I was referred back to Mr H Kuhn's witness statement, essentially to work it out myself (ts 757 758). I was able to accomplish the task in the end because in large part the defendant's written closing submissions dealt seriatum with Austman's many uncertainty arguments.
336 Austman made another variation claim in relation to electric motors and electric cables. The variation was rejected, on the basis the items had been included within the original contract price (exhibit 18, pars 106 111; exhibit 4, pages 1985 1987).
337 Paragraph 2.20 of the Design Brief (which forms part of the ITT) provides that '[a]ll induction motors, where practicable, are to be WEG mining specification type'. Paragraph 2.16.7 of the Design Brief specified the cabling types to be used. I can find no absence of essential detail in this arena.
338 Mr H Kuhn in his responsive witness statement said that 'Austman gave PEAK version 1 of the proposed contract document but did not give PEAK the scope of work in the ITT' (exhibit 9, par 21).
339 Prior to the quote of December 2007, PEAK was only provided with MGM's electrical specifications (exhibit 1, pages 280_02 280_03, 331_01). PEAK's initial quote to Austman in December 2007 therefore did not take into account the requirements in the Design Brief. This created a problem for Austman, once the additional information was given to PEAK.
340 The electrical cost did increase. But this was a result of Austman's poor communication with PEAK, not a lack of detail provided by MGM.
341 Mr H Kuhn said that item 30 of the minutes of meeting of 1 May 2008 records that 'MGI requires a Magnet, which Austman has not allowed for in its tender. Both parties are to clarify the issue' (exhibit 8, par 5.1.23).
342 Mr H Kuhn then said that a tramp metal removal magnet was not allowed for in any of Austman's tenders. He said that the issue was not discussed in the preaward tender negotiations and is not listed in associated correspondence.
343 On 22 May 2008, Mr Panek directed Austman to include the magnet, and to make a claim if, in Austman's opinion, this constituted a variation (exhibit 8, par 5.1.32). Mr Panek addressed this issue in his witness statement at exhibit 18, pars 62 66.
344 The tramp metal magnet was a requirement specified by section 2.5.9 of the Design Brief in the ITT. That Design Brief was sent to Austman as part of the ITT (exhibit 18, par 65). The parties' agreement required Austman to provide a tramp metal magnet and a metal detector. The agreement is not deficient or uncertain in this respect.
345 A functioning iron ore crushing and screening plant, I conclude, normally requires such a magnet. Mr Panek's witness statement says, and I accept, that such a magnet performs the important task of removing pieces of metal, such as broken drill bits and rock drills, that may otherwise seriously damage the crusher (exhibit 18, pars 63 64).
346 The first occasion Austman raised an issue over providing a tramp metal magnet was during a meeting on 1 May 2008 (exhibit 22, pars 173 and 175).
347 I reject Austman's argument that the parties' disagreement over provision of a tramp metal magnet was of such moment as to render the D&C Contract void for uncertainty.
348 Austman pleads that MGM was to supply, as free issue items, a fines stacker in singular form, several chutes and one structure associated with the free issued terms. It then argued that, during subsequent negotiations, MGM asked Austman to supply those items at no extra cost. Austman refused the request. The issue 'died' at that point.
349 This argument is over very 'small beer', in my assessment. It cannot render the D&C Contract void for uncertainty on the basis of an unresolved essential term.
350 Here the argument appears to be that the flow sheet (of 5 February 2008) sent to Austman by Mr Cree on 3 April 2008 was a substantial departure from the parameters of the earlier Tony Ford flow sheet (of 5 November 2007, see exhibit 1, pages 42 43). Changes are said to flow from an increase in the size of a scalping screen, from 2.4m x 7.0m, up to a much larger 3.6m x 7.2m.
351 Austman's argument is that although this screen was an MGMsupplied 'free issue' item, the increased size consequently required changes to the design of a support structure, including an increase in the length and height of the associated conveyors, and with a correlative increase in the associated power needed for the plant overall.
(a) the change in size 'had a domino effect of increasing the support structures and the length and height of the associated conveyors' (exhibit 8, par 5.1.8);
(b) when Austman later presented a claim for additional costs, as part of its claim for the increase in conveyor lengths, lift and power, the claim was refused (exhibit 8, par 5.1.9);
(c) the increased screen size 'would increase the support structure and the conveyor feeding on the screen may need to be made longer' (exhibit 10, par 20); and
(d) as a result of changes to the flow sheet, MGM changed the scope of work from the scope that had been accepted preaward. This required changes to the length of the conveyors as well as the increased power.
Mr H Kuhn estimated that cost increases were in the region of $1 million (exhibit 10, par 20).
353 On 28 May 2008, Austman submitted a claim for a third variation by reason of what it characterised as a new flow sheet (exhibit 3, pages 1349 1351). It sought an additional $850,917. Mr H Kuhn said the claim was 'derived by linearly increasing the tendered cost with increase in size' (exhibit 8, par 51.1.12). However, there was no analytical basis provided to support that bland assessment as to the increased cost. No documents were tendered that support the cost increase sought.
354 The third claim for variation was rejected. The Superintendent took a position that it was up to Austman to design the plant and to make allowances for changes to and limitations in data provided to it. He also thought that Austman, which held itself out as possessing expertise in the design of crushing and screening plants, should have known the conveyors would have to be longer.
355 Putting the merits of that variation determination to one side for the moment, it could not possibly result, in the end, in the parties' agreement being assessed as void for uncertainty. The D&C Contract General Conditions allow for a challenge to the Superintendent's rejection of a variation claim. Contested variations are hardly novel in the day to day workings of construction contracts. The fact disagreements arise, or are of some magnitude in pure monetary terms, by itself, falls very short of providing a sufficient basis to conclude that the parties' overall agreement is void for uncertainty.
356 In any event, I would conclude that the facts do not support Austman's base assertion that a new flow sheet caused an increase in its costs that ought to have been recoverable from MGM as a variation. Relevantly, on 7 December 2007, a Ms Sims of MGM sent to Mr H Kuhn and Mr S Kuhn Transmittal000011. This included drawing AUO2305 (exhibit 1, page 142). The drawing shows a scalping screen of the size of 3.66m x 7.32m. Thus MGM in fact did provide Austman with the dimensions of a larger scalping screen as early as December 2007. The 7 December 2007 communication was a document listed in section 3 of the NOA. Mr H Kuhn's evidence was that the information listed in section 3 of the NOA was vital to Austman's tender and had been carefully considered (ts 193 and following). He also said:
(a) between 6 and 11 December 2007, Austman was sent information it had requested concerning free issue items, together with a further standard and generic specification (exhibit 8, par 3.2.4);
(b) those documents were considered, with their requirements included in Austman's tender price (exhibit 8, par 3.2.5).
357 The same drawing was again sent to Mr H Kuhn by Mr Watson as MGMTRANSMIT000124, on 6 March 2008 (exhibit 1, pages 689 693). That was a little under a month before the April 2008 flow sheet was provided to Austman by Mr Cree.
358 Mr Cree's witness statement confirms that the drawing had been sent earlier (exhibit 22, par 92).
359 Subsequently, as to these flow sheet contentions, Austman adjusted its arguments. This was by a change in emphasis, now pressing the ramifications arising by reason of a change in weight (see also exhibit 8, pars 5.3.15(a), 5.1.42(d); exhibit 10, par 20). In exhibit 9, par 28 Mr H Kuhn refers to weight and a 'different drawing'.
360 Mr M Kuhn's evidence supports my finding that the articulated grievance of Austman, at first, was the increase in size, not weight (exhibit 13, par 12).
361 Austman's adjusted grievance, now said to be over the increase in the screen's weight, not its size, was very late in emerging.
362 As regards the increased weight grievance, the evidence was:
(a) A JOEST screen drawing, with final dimensions, was sent to Austman on 7 December 2007 (exhibit 1, page 142). It showed the same size as the drawing sent on 6 March 2008 (exhibit 1, page 692).
(b) On 3 April 2008, Mr Cree sent Austman the updated flow sheet, showing the JOEST screen (exhibit 2, page 840).
(c) On 4 April 2008, Mr M Kuhn met Messrs Erlynne and Cree of MGM together with CME personnel (exhibit 2, page 849). At this meeting 'maxed out' flow sheets for the plant were discussed (exhibit 2, pages 832 834).
(d) Minutes of a meeting held on 14 April 2008 (exhibit 2, page 859_01) at item 12 refer to circulating loads having increased on the 'new flow sheet from MGI'. Item 2 states 'JOEST scalping screen requires clarification. Layout drawing received from MGM is different to that received from JOEST'. The party nominated to act on that item is MGI, to take place by 17 April 2008.
(e) These events preceded Austman being sent Revision 3 of the JOEST drawing on 18 April 2008 showing an estimated increase in weight (exhibit 2, page 911). Prior to 18 April 2008, Austman had received Revision 1.
(f) On 17 April 2008, in preparing a scope of work statement for the formal contract document, MGM used Revision 1 of the drawing (see exhibit 2, page 887, and 2.2 on pages 894 and 909). This is repeated on the 18 April 2008 version (exhibit 2, pages 910_07, 910_22). Both versions were sent to Messrs Cree and Panek.
(g) The argument by Austman is that the drawing sent on 18 April 2008 (not the 3 April 2008 flow sheet) was a radical change, as the weight of that screen was now seen to be heavier (ts 194). That drawing is the version 3 referred to by Mr H Kuhn (exhibit 2, pages 911 912).
(h) There is no evidence Austman expressed any concerns at the time about a weight increase. No claim for increased cost associated with extra weight was then advanced.
(i) The change indicated by Mr Cree in his covering email was that the dimensions that were hitherto missing were provided on the further version of the drawing.
(j) On 22 April 2008, Mr Cree sent Mr M Kuhn a list of drawings that had been requested. One of these was Revision 1 of AU02305, being the JOEST drawing (exhibit 2, page 945).
(k) The minutes of the meeting on 23 April 2008 show, as item 2, the same reference as in the minutes for 14 April 2008 (exhibit 2, pages 859_01, 952 954). The item has been repeated. Item 12, concerning circulating load, is unchanged.
(l) By the meeting on 22 May 2008, both items had been removed (exhibit 3, page 1332). The excision on a rolling agenda of action items suggests the issue had been actioned.
(m) On 28 May 2008, Austman's third variation claim was submitted. It claimed the conveyors had increased in length, height and installed power since its original tender and included a data table (exhibit 3, pages 1349 1351). Austman claimed an increase of $850,917. Neither the 'quote', nor the table, refer to an increased weight of the scalping screen.
(n) Records of the debate over the third variation claim carry no mention of any issue being raised about the increased weight of the screen (exhibit 3, page 1440).
(o) On the May 2008 version of the formal contract documents sent to Austman (exhibit 2, page 1010_01 and following), Mr H Kuhn made notes on his copy. There are none seen next to cl 2.2.2 of Part 2, concerning the scalping screen (exhibit 2, page 1010_17). Revision 3 of the JOEST drawing is listed in the reference documents. Mr H Kuhn has given it a tick (exhibit 2, page 1010_33).
(p) In Austman's comments, Mr H Kuhn merely says that free issue items are to be fully assembled (exhibit 2, page 1242_02).
(q) In MGM's response to Austman after the parties' 12 June 2008 meeting, Austman's comment about the free issue scalping screen was '[s]ame as for cl 2.1.1 of Part 2' (exhibit 3, page 1445). The comment for cl 2.1.1 was, 'Free issue items to be fully assembled'. It was marked by MGM 'No Change Required'. A copy was given to Austman at the meeting.
(r) In a letter of 25 July 2008, Austman's complaint is about the height, not the weight, of the free issue items (exhibit 4, page 1948_02).
(s) Revision 2 of the contract documents, in the schedule of drawings, refers to Revision 3 of the JOEST drawing (exhibit 3, page 1678). No complaint based on an increase in the weight of this free issue item was advanced.
363 The grievance over the size or weight of the scalping screen overlaps with complaints about the flow sheet, sent on 3 April 2008 by Mr Cree (exhibit 2, pages 839 840). Mr H Kuhn described it as a 'new flow sheet' (exhibit 8, par 5.1.7). He contends the new flow sheet represented a change to the agreed scope of works. At first, his contention related to the size of the scalping screen. He said the change in size to a 'much larger 3.5m x 7.2m', had a flowon effect of increasing support structures and the length and height of the associated conveyors. Mr H Kuhn mentions examining the flow sheet and determining its consequences.
364 Austman's third contract variation claim was said to be 'based on the new flow sheet issued by Mr Cree on 3 April 2008' (exhibit 8, par 5.1.11; exhibit 3, pages 1349 1351). This claim was rejected (exhibit 3, page 1440).
365 At that time, Mr H Kuhn did not ground Austman's arguments upon anything contained in the drawing of the scalping screen sent on 18 April 2008 (exhibit 2, pages 911 912).
366 Austman now seeks to argue it is not the size of the screen that mattered, but rather its weight (see ts 208 213). But this late attempted rationalisation must be rejected. Mr Cree's witness statement exchanged before trial had said that Austman was sent a drawing of the JOEST screen with the larger measurements in December 2007, then again in March 2008. No complaint was made over the 18 April 2008 version of the drawing.
367 Mr H Kuhn referred to pre and postaward conveyor calculations, in relation to what he contended were increases to power requirements carried as a result of the new flow sheet. But his witness statement said nothing about the weight of the screen (exhibit 8, pars 5.1.11 5.1.20).
368 Referring to Mr Cree's 18 July 2008 email to Mr H Kuhn (exhibit 3, pages 1902 1903), Mr H Kuhn said that the new flow sheet increased the size of the scalping screen (exhibit 8, par 5.3.15(a)). Again he said nothing about increased weight.
369 Mr Cree deals with the issue of the flow sheet and the JOEST drawing of the scalping screen in his statement (exhibit 22, par 71 and following). He sent out the revised flow sheet on 3 April 2008. He said that the change in the size of the scalping screen was slight and would not have had a material impact (exhibit 22, pars 86 88). He also said that Austman had been provided with a copy of the larger scalping screen drawing during the tender process, as was indeed the case (exhibit 22, par 92).
370 Mr Cree then refers to a meeting held on 14 April 2008 (exhibit 22, par 147). There was some discussion about drawings of the scalping screen MGM was supplying (exhibit 22, pars 155 158). Mr H Kuhn had in his possession a drawing obtained from JOEST, showing not only a screen, but also a surrounding structure (exhibit 22, par 156). At the time, Mr Cree told Mr H Kuhn that he should use drawings MGM supplied and not a drawing from JOEST (exhibit 22, par 158).
371 There is no indication in the minutes of the 14 April 2008 meeting that there was any problem raised as to the screen's weight of the sort now sought to be raised by Austman. I accept and prefer Mr Cree's evidence on all this. His evidence is consistent with the state of the documentation.
372 Mr Peter Erlynne, another witness for MGM, also addressed the screen issue by his witness statement relating to the flow sheet (exhibit 24, par 100 and following). From par 112 on, Mr Erlynne explains the increase in the size of the scalping screen. JOEST, he says, recommended the increase in screen size (par 113). His evidence as to the impacts of that increase in size refer to a need for a bigger support structure, as the screen would be heavier (par 114). But Mr Erlynne assessed the required changes to be minimal (par 121), particularly if an isolation frame were used to support the scalping screen (par 122). The ITT incorporated an isolation frame for a secondary scalping screen as indicated at par 2.14(d) of the Design Brief in the ITT. I accept Mr Erlynne's evidence. The factual premise of Austman's grievance over the screen is not established.
374 Austman also asserts that contractual uncertainty arises from another issue related to the changes to the flow sheet and the scalping screen: an increase in the power required to drive the plant's conveyors. The argument was (Austman's additional further particulars, par 4(b)):
The instruction to increase the power of the conveyors was given by Lucas Cree of [MGM] at a meeting held at the offices of CME on 4 April 2008 ... At the meeting [Austman] was given a copy of a revised plant simulation showing the potential for the conveyor under the crusher to have to carry loads as high as 850 tph instead of 700 tph as designed by [Austman]. [Austman] was required to check the design to ensure the conveyor drives were capable of handling the increased tonnage rates and to check on stacker capabilities. By reason of these changes to the scope of the Contract Brief it was necessary for [Austman] to increase the installed power of the conveyors to handle the increased loads.
375 On 25 July 2008, Mr M Kuhn advised that Austman would have to start its now 'complete' design all over again. Austman then submitted a claim for an extension of time, as well as for additional costs (exhibit 4, page 1948_02). Mr M Kuhn said Austman had to change the design completely. He also said that new instructions would also need to be given to Austman's Chinese subcontractors.
376 In crossexamination, Mr H Kuhn accepted that, in fact, no redesign took place (ts 217). This conclusion is further supported by:
(a) Austman providing some 79 drawings to Mr Jonathan Brown for his expert quantity surveyor's report (exhibit 31, pages 42 44);
(b) Mr Brown's evidence that these drawings were presented by Austman as final design drawings for the plant (ts 618 619); and
(c) the fact that, of the 79 drawings, three at the most bear a date of August 2008 or later.
377 This all indicates that the plant was never redesigned by Austman. I find no redesign took place.
378 The uncertainty arguments grounded upon these issues fail as well.
379 Mr H Kuhn and Austman worked off assumptions made about the material properties of the iron ore to be processed at the crushing and screening plant that was to be built at Extension Hill (see exhibit 1, page 412). That 27 February 2008 email was one of the documents the parties accepted would be part of their agreement, it being listed in section 3 of the NOA (exhibit 1, page 680).
380 Objectively assessed, the parties proceeded on the basis of those assumptions as to the properties of iron ore likely to be encountered at Extension Hill. Furthermore, it is not now suggested that these assumptions were erroneous in any respect.
381 Mr Watson gave evidence concerning a kickoff meeting of 18 March 2008 (exhibit 21, pars 150 166). At par 153, he addressed material properties issues. At par 157, Mr Watson explained that MGM was not able to provide actual material property specifications to Austman. That proposition was put in crossexamination to MGM's witnesses (ts 425 426, 443, 488). They all accepted it to be the case.
382 Mr Panek related a discussion about material properties that he was involved in during the meeting on 16 July 2008 (exhibit 18, pars 97 102). At par 99, he said Mr H Kuhn advised that he had made assumptions about the properties of the materials to be crushed and screened. At the meeting, Mr Panek recalls that someone from MGM confirmed that the assumptions were okay and that MGM would advise if this position changed.
383 Mr Cree deals with the issue at exhibit 22, pars 41 53. At par 46, his evidence is that he recalled saying to Mr H Kuhn that Austman were expert in this kind of equipment and should know what the material properties were. He also offered up a statement to the effect that Austman's design needed to allow for variable material properties. At par 47, Mr Cree says Mr H Kuhn replied to him to the effect that he would proceed on the basis of assumed 'valley angles' and 'chute angles', unless MGM told him otherwise. The parties left it at that.
384 At par 48, Mr Cree says the outcome of the discussion at this meeting was that Austman was to proceed on assumptions as to the ore's material properties. Nevertheless, MGM would try to get actual material property data. In the end MGM was not able to provide any actual material property data to Austman before the D&C Contract was terminated (exhibit 22, par 52).
385 Mr Erlynne's evidence for MGM was that an experienced contractor, provided with the ITT, should be able to design and construct the crushing and screening plant sought by MGM, although it would need to make certain assumptions to do that. He said it was common practice for a contractor to make assumptions under a design brief (exhibit 24, pars 31 37).
386 Mr Erlynne also said, on the issue of material properties, it was standard in the industry for both contractor and owner to make assumptions to fill gaps in available data (exhibit 24, pars 38 68). I find this is precisely what happened in the present case as regards the assumed material properties of the ore at Extension Hill. There is no deficiency in this area for Austman to found a viable uncertainty argument upon.
387 For MGM, Mr Kendall's expert report said the material properties of the ore are normally provided (exhibit 25, par 2.2.1). The Design Brief did not set out these properties. However, Mr Kendall also noted that cl 1.2 of the ITT required the tenderer to deal with ore that might be 'anything from "riprap" to "pea gravel"'.
388 Detailing what had been assumed, Mr Kendall explained that while ore properties might usually be relevant, they were not in this case (exhibit 25, par 2.2.8). This was because the items in the plant that were potentially affected (i.e. crushers, feeders and screens) were being provided by MGM as free issue items. Their performance, in light of the ore's properties as eventually encountered at site, was a matter for MGM. It was not Austman's concern. I accept this expert evidence.
389 Mr Kendall also said, in his view, a competent contractor provided with the ITT, NOA and documentation referred to in the NOA, would be able to quote, then design and construct, MGM's crushing and screening plant. If material property data was not available, the designer could assume material properties, or a range of properties. In his experience, it would do that after discussions with the principal (exhibit 25, par 3.5.1.7).
390 Austman's independent engineering expert, Mr Hallion, it would seem also accepts this position (exhibit 28, par 2; exhibit 30, par 33).
391 So, the evidence, overwhelmingly, is that both parties proceeded on the basis of assumed material properties for the ore expected to be encountered at site. I find that was both a permissible and reasonable course to follow. Furthermore, the ore properties as assumed by Austman are not contended to be wrong.
392 Once again, I am wholly unmoved by this uncertainty argument. The D&C Contract was not deficient in this respect.
393 As mentioned earlier, Mr Kendall's report opines more generally to the effect the ITT, NOA and NOA documentation provide adequate information to enable a competent engineering design and construct contractor to build the Extension Hill plant (exhibit 25, par 2.1). He is of the view that all essential aspects of the scope of works were settled and that the scope of work was not uncertain or incomplete. These opinions stand uncontradicted by Austman's independent experts, Messrs Hallion and Stone.
Essential terms and conditions: Scope of work, commercial conditions and price
394 Austman says that between 28 February 2008 and midAugust 2008, MGM proffered to Austman various versions of a proposed contract for the works and amendments thereto, but that none were accepted or agreed to by Austman (statement of claim, par 19A). I have already considered and rejected Austman's arguments as to there being no binding contract formed between the parties. To the contrary, I have concluded that on 4 March 2008 the parties agreed to immediately be bound to a D&C Contract (upon the verbal resolution that day of two concerns about the modified General Conditions, which were both conceded in Austman's favour). That the parties' 4 March 2008 agreement would later be embodied in a more formal written agreement does not detract from my conclusion that a binding contract had already been formed.
395 As I have already concluded, the modified General Conditions were finally agreed and accepted between Mr H Kuhn and Mr Malcolm Watson in their telephone conversation of late on 4 March 2008, after Mr H Kuhn had signed and returned the NOA that day. This resolution was confirmed by Mr Watson's email to Mr H Kuhn of 5 March 2008 (exhibit 21, pars 127 132, 138; exhibit 1, page 662_01).
396 Nevertheless, Austman argues that even if Mr H Kuhn did accept the MGMmodified General Conditions for Austman as part of a binding D&C Contract, that the overall D&C Contract is void for uncertainty by reason of incompleteness in some General Conditions, as addressed below.
Incomplete Annexure Part A to modified AS49022000 General Conditions
397 Mr H Kuhn says that, at the time he signed the NOA on 4 March 2008, 'there was still only an incomplete contract document dealing with the conditions of contract based on AS49022000 with an incomplete Annexure Part A to that standard form' (exhibit 8, par 4.5).
398 Austman pleads that as of 3 March 2008, or any time thereafter, the parties did not agree on the terms to be specified in Part A of the Annexure to the proposed General Conditions of Contract, as regards (statement of claim, par 20(g)):
399 Item 22 refers back to General Conditions 11.1 and 11.2(a)(iii). General Condition 11.1 provides:
The Contractor shall satisfy all legislative requirements except those in Item 22(a) or directed by the Superintendent to be satisfied by or on behalf of the Principal.
The Contractor, upon finding that a legislative requirement is at variance with the Contract or the Principal's project requirements, shall promptly give the Superintendent written notice thereof.
400 General Condition 11.2(a)(iii) addresses situations where a legislative requirement necessitates changes to, amongst other things, 'so much of WUC as is identified in Item 22(b)'.
401 I conclude that it was unnecessary for item 22 to have been completed. Left incomplete, the result was that Austman, as contractor, had to satisfy all applicable legislative requirements. But a faithful compliance with the law is hardly a novel or onerous requirement. General Condition 11.2 operates where, amongst other things, there has been a legislative requirement which necessitates a change to the principal's project requirements; to the Works, being the provision of services by a municipal, public or other statutory authority in connection with WUC; or in a fee or charge; or payment of a new fee or charge.
402 Notwithstanding that item 29 was not filled out at the time of the NOA, the NOA nevertheless referred to Transmit000006 Revised Quote ref PO280 Rev 01 (exhibit 1, pages 381 390). Page 6 in that document states that damages, liquidated or otherwise, would be limited to 5% of the contract value, with liquidated damages to be calculated at 0.5% per week after 11 months. The issue was clearly resolved in correspondence forming part of the NOA.
403 Item 30 refers to General Condition 34.8. Plainly, no amount is stated. Hence, no bonus for early completion was agreed. This is hardly an essential matter. The uncertainty argument is fanciful.
404 I addressed this provision in the context of its negative ramifications for Austman against the allowance of its progress claims for steel components which were fabricated, but not yet assembled and, importantly, not yet affixed at Extension Hill.
405 Item 34 refers back to General Condition 37.3. General Condition 37.3 provides that the principal is not liable to pay for unfixed plant and materials, unless the plant or material is listed in item 34 and the contractor provides additional security and satisfies the Superintendent that the subject plant and materials have been paid for, properly stored and protected, and labelled the property of the principal.
406 Item 34 looks to have been completed as 'N/A'. The same outcome would result, even had the space been left blank.
407 But the clause is fully functional in either event. MGM was not liable to pay for unfixed plant and materials. That is the clear result of the words used in General Condition 37.3. That there was no specified derogation from that outcome injected into item 34 to alter its operative consequence does not mean the D&C Contract was left incomplete. There was no rectification argument advanced about the terminology used in this General Condition.
408 If Austman wished to receive a progress payment for unfixed plant and materials, it ought to have raised some other process acceptable to both parties for express insertion into item 34. It never did so, before or after the D&C Contract was formed.
409 Austman may have been very unhappy over the practical workings of this General Condition that resulted. But the validity of the D&C Contract is not undermined by reason alone of that subsequent discontent.
410 Were the annexure left physically incomplete as of 4 March 2008, that still could not carry a legal conclusion that the parties' overall agreement was incomplete: see Graham Evans Pty Ltd v Stencraft Pty Ltd [1999] FCA 1670; (2000) 16 BCL 335 [63]. In that case, it was held that a binding contract had been entered by the parties, notwithstanding blank spaces in the AS2124 standard form contract had not been filled out.
411 On 3 March 2008, Austman provided its 'few comments' upon MGM's modifications to AS49022000 (exhibit 21, pars 122 126; exhibit 1, page 653). Mr H Kuhn also wrote:
We are not too concerned with most of the additional and one sided amendments, as long as MGI sticks by its contributions and information supplied. I have had no time to look at your special conditions and expect no surprises.
412 The Special Conditions deal with safety requirements; environmental protection and conservation requirements; and site security, access and accommodation (exhibit 21, par 124). There was nothing, on an objective assessment, to suggest that there was any impediment to Austman reviewing the standard Special Conditions it received from MGM. Nor is there any evidence Austman raised any concerns over the Special Conditions before Mr H Kuhn signed the NOA and returned it to Mr Watson on 4 March 2008. There is no sensible argument as to contractual uncertainty by reference to the Special Conditions raised by Austman in my view.
413 Another undeveloped argument on this issue by Austman seemed to be that there was terminal confusion over the identity of the true principal in its agreement, i.e. as between MGI and MGM (statement of claim, par 35, 3rd item in Schedule B).
414 But in the ITT, as well as in the draft conditions for a design contract, MGM is clearly identified as the principal. This never changed.
415 The NOA clearly identifies MGM as the principal. The NOA was signed on behalf of MGM. Austman knew all that.
417 This was an overarching in principle submission by Austman. But it was not ever really fleshed out by showing an actual inconsistency. No specific clash, beyond issues I have now canvassed, was raised. Even had it been, it is doubtful there would have been raised anything beyond an issue of some potential ambiguity in the D&C Contract.
419 The ITT describes the plant and scope of work. That description yields to later qualifications and elaborations about scope of work that are addressed in the section 3 communications. See also General Condition 8.1 as to the order of precedence between documents.
420 There is no novelty in the fact issues of interpretation can arise from ambiguities in a complex commercial contract. It is a phenomenon courts encounter and resolve almost on a daily basis. Ambiguity is no necessary indicator of contractual uncertainty: see Ipp J in Anaconda [32]. This is consistent with common sense and a commercial reading of a document from the perspective of reasonable business people: see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749, 771; McCann v Switzerland Insurance Aust Ltd [2000] HCA 65; (2000) 203 CLR 579, 589 [22]; Home Building Society Ltd v Pourzand [2005] WASCA 242 [25]-[33].
Uncertainty: Totality of scope of works never agreed?
421 MGM's expressed position was always that Austman's acceptance of the NOA amounted to an agreement to perform work as set out in the ITT, as amended by the correspondence listed under section 3 of the NOA. Austman's contrary expressed view was that the scope of work in the ITT largely became irrelevant (notwithstanding the express reference to the ITT in section 1 of the NOA), by reason of a 5 December 2007 consensus over scope of work and the content of Austman's Third Tender (of 20 December 2007), which does not refer to the ITT.
422 In the present case, an analysis of the objective facts demands a conclusion that Austman's acceptance of the NOA, after its five tender proposals and with an express reference to the ITT in section 1 of the NOA, must mean that the content of the ITT did not become redundant. There was, by the NOA's acceptance, an agreement to design and construct a crushing and screening plant that MGM had told Austman it wanted built at Extension Hill. The task included meeting the requirements specified in the ITT, unless they had been revised, deleted, changed or expanded in the communications listed under section 3 of the NOA.
423 Mr Kendall's expert evidence, which I accept, is that Austman by then had sufficient information and guidance to proceed to design and construct the crushing and screening plant for MGM at Extension Hill.
424 Without more it is also irrelevant Austman may have been labouring under some subjective misapprehension as to the scope of the tasks it had committed to meeting: Graham Evans Pty Ltd v Stencraft Pty Ltd [58]. I make it clear that is only a hypothetical observation. I make no such finding as regards Austman's subjective position.
Scope of work: Austman's position alters between July and August 2008
425 Because of the clear waiver of privilege, which Austman conceded had occurred, Mr H Kuhn was crossexamined over the legal advice from Pilley McKellar received in midJuly 2008 (ts 243 and following). This was Austman's written advice from Mr Pilley of 16 July 2008 and then shown to Mr Quinlivan at the parties' dispute meeting convened the same day (see exhibit 9, par 18).
426 Mr Pilley's advice was that the outcome delivered by the correspondence listed in section 3 of the NOA had increased the scope of work, compared to the scope of the work Austman originally agreed to carry out. However, by August 2008, Austman was articulating an opposite proposition, namely that the scope of work it had contracted to perform was found in section 3, not section 4, of the NOA (letter from Pilley McKellar to MGM of 13 August 2008, exhibit 4, pages 2033 2036). Mr H Kuhn, under crossexamination, accepted that Austman's position, as it had been stated by Pilley McKellar's advice of 16 July 2008, had been wrong (ts 245).
427 In the end, all Austman's arguments, asserting an uncertain or incomplete scope of work, fail.
428 Given conclusions I have now reached rejecting Austman's arguments that there was no binding D&C Contract, and alternatively, that any agreement found was vitiated by reason of uncertainty, it is unnecessary to deal with further issues raised in the alternative by MGM, that would invoke principles of conventional estoppel.
429 But I broadly incline to a view that MGM's estoppel argument is unlikely to have been fruitful. First, by 30 June 2008 and onwards, Austman denied there was a binding contract. Second, it is difficult to see how conventional estoppel could cure an uncertainty deficiency, had a sufficient one been identified by Austman. In the end I do not need to delve further into these issues, given the primary conclusions now reached as to an efficacious D&C Contract.
430 From the established base that there was a binding and efficacious D&C Contract in place between MGM and Austman as from 4 March 2008 or, at the latest, from 6 March 2008, the key residual issues concerning breach and repudiation of the D&C Contract may finally be approached.
431 Each party effectively accepts that if there was a binding contract, it came to an end in November 2008. Each party also contends it validly terminated the D&C Contract following the repudiation or serious breaches of the contract by the other.
432 In this context it is to be remembered that at least since disclosure by Austman of its legal advice from Pilley McKellar on 16 July 2008, Austman had repeatedly asserted to MGM that there was no binding contract subsisting between them. Such erroneous declarations usually constitute an act of repudiation without more, although that result may not be obtained if the parties are in ongoing negotiations towards formal contract documentation: Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board [1989] 1 Qd R 499, 504 505 and Braidotti v Queensland City Properties Ltd [1991] HCA 19; (1991) 172 CLR 293, 303 304.
433 I conclude that Austman's insistence a D&C Contract did not exist was a repudiation of the contract. But until late November 2008, MGM took the position that Austman should continue to perform its obligations under the contract. An act of repudiation that is not accepted counts for little. However, Austman, undeterred, maintained the stance with MGM that there was no perfected contract unabated.
434 It is now necessary to trace the parties' conduct to the end of November 2008, giving close attention to the treatment of Austman's progress claims as well as its notices of dispute and for delay, especially by reason of it being unable to obtain access to site at Extension Hill.
435 Austman, by Mr M Kuhn, issued notifications of delay and sought delay costs from MGM by:
(a) a notification of delay of 2 September 2008 sent the next day (exhibit 4, pages 2096 2097);
(b) a first claim for weekly delay costs of 10 September 2008 for $92,969 (exhibit 4, pages 2114 2117); and
(c) a second claim for weekly delay costs of 3 October 2008 for $265,707 (exhibit 4, pages 2181 2182).
436 The two delay cost claims by Austman were rejected by Mr Cree as Superintendent's Representative on 11 September and 6 October 2008 (see exhibit 4, pages 2119 and 2184). A lack of substantiation of Austman's claimed actual costs, by reference to General Condition 34.9 and item 31A, appears to have been the main problem.
MGM's failure to provide access to site, and the Superintendent's suspension of part of Austman's works under contract
437 Significant evidence upon these issues was given by MGM's trial witnesses, Messrs Quinlivan, Panek and Cree. These witnesses were extensively crossexamined. I say at the outset that, in my assessment, all three gave their evidence in a credible and straightforward fashion, in the face of close questioning directed towards the establishing of Austman's misconduct and conspiracy arguments. That was particularly so for Mr Panek, who held and discharged the dual roles of Project Manager and Superintendent.
438 To frame some attempted understanding of Austman's conspiracy and misconduct allegations, I will refer to the statement of claim. This component of its pleading spans pars 44 through 52:
Meeting on 29 August 2008 as described in the Plaintiff's Notification of Delay to the Superintendent Ref: 278001 dated 2 September 2008.
(a) it was ready to mobilize to site on 8 September 2008 as scheduled;
(b) but that due to the lack of access by the Defendant, the works would be delayed.
Particulars
Notification of Delay Ref 267001 dated 2 September 2008.
(a) it had received final environmental approval of management plans for the Extension Hill Project from the Federal Government;
(b) the said approval was the final environmental approval required prior to the commencement of ground disturbing activities at the Extension Hill Project.
Letter dated 21 October 2008 from the solicitors for the Defendant to the solicitors for the Plaintiff.
(a) was always responsible for obtaining all necessary approvals to enable it to provide the Plaintiff with access to the site;
(b) has failed to apply for any outstanding State government approvals;
(c) alternatively, has failed to pursue or advance any such applications; and
(d) failed to do all things necessary to obtain all relevant approvals.
(a) the Plaintiff was to suspend the carrying out of part of the works under the contract being the civil construction, construction and erection of the plant, and no load testing of the plant;
(b) the basis for the purported suspension was an act of the Defendant in being unable to carry out the necessary earthworks on the site upon which the crushing and screening plant was to be erected.
(a) a number of its customers had requested delays to iron ore shipments scheduled for the quarter commencing October 2008;
(b) three of those customers had defaulted on their binding off take agreements;
(c) the impact of some [of] its customers defaulting on Mount Gibson's near term cash flows together with its desire to continue priority development at Koolan Island and Extension Hill required the raising of additional equity finance;
(d) it had signed binding heads of agreement with its major shareholder and with Shougang Concord International Enterprises Company Ltd for, inter alia, a rights issue;
(e) the rights issue was expected to raise gross proceeds totalling $162.5 million;
(f) some construction activities at Extension Hill would be deferred, with commencement of ore production expected in the March quarter of 2010;
(g) all contracts with key suppliers had been retained and no material delay penalties would be incurred.
Announcement to the Australian Securities Exchange dated 3 November 2008.
(a) failed to direct the Plaintiff to suspend the carrying out of the works;
(b) failed to specify the time or period of the suspension as he thought fit;
(c) failed to express his opinion that the suspension was necessary;
(d) failed to direct the Plaintiff to recommence the suspended works as soon as reasonably practicable or to advise the Plaintiff as to whether the reason for the suspension no longer exists;
(e) failed to assess, properly or at all, the cost of the suspension and/or delay costs to which the Plaintiff is entitled by reason of the purported suspension and add them to the contract sum.
(a) the works remain suspended;
(b) the Project remains deferred;
(c) the Defendant failed or refused to advise the Plaintiff of the true cause or causes for the suspension; and
(d) neither the Defendant or the Superintendent has given any notice to the Plaintiff as to whether, and if so, when the Project will resume and/or the suspension will be lifted.
439 From this section of Austman's statement of claim, I can highlight certain aspects. First is the introduction to par 48, concerning what Austman 'does not accept'. A serious implication in this plea is that the Superintendent's notice of part suspension was issued for some hidden reason, other than MGM's failure to obtain 'the outstanding State environmental approvals'. Second, I note at par 49 use of the pejorative phrase, 'purportedly directed', as regards Mr Panek's Superintendent's direction of 23 October 2008. Third, I highlight in par 52(c) a plea that MGM failed or refused to advise the plaintiff of the 'true cause or causes' of the Superintendent's suspension. This terminology is suggestively sinister, yet nothing more is said in elaboration of the true causes so called.
440 This section of Austman's pleading tantalises. Using some weasel words, it insinuates MGM and Mr Panek were underhanded in their dealings with Austman, but does not make the clear allegation to that effect. That pleading technique is both illegitimate and unacceptable.
441 MGM's response to these pleas is at pars 44 to 52 of its defence and counterclaim. All veiled insinuations were uniformly rejected. These responsive pleas by MGM influenced my decision during the trial not to inhibit the crossexaminations of Messrs Quinlivan, Panek and Cree as regards the serious allegations. Senior counsel for MGM had raised an early objection over this issue in Austman's opening (ts 27). But bearing in mind the joinder of issue by the MGM defence as well as the fact that comprehensive witness statements had already been prepared and exchanged in which Messrs Quinlivan, Panek and Cree reject any suggestion as to their misconduct, I did not think it appropriate then to constrain the crossexaminations. I am of course cognisant of the observations of Ipp J in Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 [38] as to the raising of serious allegations of misconduct and the need for a legitimate basis of fact to emerge. See also the Western Australian Barristers' Rules, rr 60, 63 and 64 and Legal Profession Conduct Rules 2010 (WA), r 36(3) (5) and (8). With the benefit of hindsight, assessing the state of the evidence which ultimately did not emerge to support the misconduct assertions, I doubt I would have allowed the misconduct line of questioning. In the end, however, MGM's key witnesses directly met and answered these challenges.
442 I need to clear up one potentially diverting issue concerning a 'suspension' letter of 21 October 2008 sent from MGI's solicitors to Austman. This letter preceded another letter of suspension from the Superintendent, which was sent on 23 October 2008. Mr Panek's first witness statement explains how this occurred:
443 The first letter sent by MGM's solicitors on 21 October 2008 was ultimately of no consequence. Suspension of part of Austman's works as contractor was effected by Mr Panek's notice by his letter of 23 October 2008.
444 I have closely examined all the documentation from the DMP file tendered by Austman, which constitutes exhibits 15 and 16. Together, exhibits 15 and 16 comprise 38 pieces of individual documentation (tendered out of chronological order) ranging between 2 August 2007 and 1 April 2010.
445 In terms of the environmental approvals sought by MGM and MGI from what was then the DOIR for the mining proposal (MP) and project management plan (PMP) at Extension Hill, the review reveals what I would assess as only essentially routine communications.
446 No hint of a 'go slow' approach by MGM can be detected. There is no document that could possibly be described as a 'smoking gun'. No such damaging document was identified by Austman in closing.
447 For the sake of overall subsequent intelligibility, it will be more helpful to specifically address some of the more important DMP materials in chronological order, rather than in the disorder in which they present in exhibit 15. In this process I will also interweave several further documents from exhibit 27, being the extra documents tendered from the same source, but by MGM, so as to have these documents assessed coherently in overall context:
(1) Exhibit 15, tab 25 - MGM's letter of 7 July 2008 to Messrs Bouwhuis and Bartleet of the DOIR submitting MGM's revised MP for the Extension Hill hematite project (signed by Mr Panek as Project Manager), which said:
Please do not hesitate to contact either Peter Panek or Joe Ranford if you have any queries or comments. Phillip Loerch will be overseas and uncontactable until Monday 21 July.
(2) Exhibit 15, tab 24 - Ms Rosemary De Bari of DOIR's email of 21 July 2008 to Mr Panek, which contained a request for further information, following the latest submission of MGM's MP.
(3) Exhibit 15, tab 30 - Mr Panek's response to Ms De Bari, which was dated 23 July 2008 and enclosed additional information.
(4) Exhibit 15, tab 23 - Ms De Bari's email of 7 August 2008 to Mr Loerch of MGI, which contained Ms De Bari's final comments and listed 14 issues for discussion at a meeting scheduled for Monday 11 August 2008.
(5) Exhibit 15, tab 22 - Ms De Bari's email of 12 August 2008 to Mr Loerch, which was sent in the aftermath of the 11 August 2008 meeting and dealt with 'draft Unconditional Performance Bond amounts for each of the tenements in the proposal'.
(6) Exhibit 15, tab 21 - Mr Loerch's email to Ms De Bari, sent via Aconex on 15 August 2008, which said, 'Mount Gibson Mining's responses to your final comments and issues, using the same number format, and including your text for clarity'. The email appears to be incomplete.
(7) Exhibit 27, tab 1 - Mr Quinlivan's letter of 21 August 2008 to Ms De Bari, which enclosed MGM's 'Final Mining Proposal document'.
(8) Exhibit 27, tab 2 - Mr Loerch's letter to Ms De Bari of 25 August 2008 regarding the final MP document attaching 'plans for the Perenjori Rail Siding, which were missing from Appendix K in the Final Mining Proposal document which was delivered to your offices on Friday 22 August 2008. Also included is a CD with the corrected soft copy'.
(9) Exhibit 15, tab 20 - Ms De Bari's email of 9 September 2008 to Mr Loerch, with an attached copy of draft tenement conditions 'that will be applied to the leases upon approving the proposal' and which said that 'a detailed list of conditions broken down per tenement will be sent out with the bond request letter once the assessment process is finalised'.
448 Perhaps - it is still not clear - by tendering most of these documents as relevant Austman seeks to have me draw some adverse inference against MGM of a kind famously illustrated in Sir Arthur Conan Doyle's story 'Silver Blaze', based on a lack of 'barking dog' genre correspondence from MGM to the DOIR. In other words, where does MGM press the DOIR for a grant of the two outstanding environmental approvals during September and October 2008? It is put by Austman that apparent passivity by MGM supports a theory that MGM had decided to go slow in obtaining the two environmental approvals (akin perhaps to the 'go slow' instruction in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387). If that was the suggested adverse inference, it was based upon a very inadequate foundation and I am not at all moved to accept it.
449 In this case there was, over time, an extensive pretrial discovery process, comprehensive exchanges of witness statements, and ultimately a provision of a great deal of documentary material from the DMP in response to Austman's subpoenas. There was also the opportunity to subpoena to trial relevant DMP officers, including Ms De Bari. A subpoena by Austman to Ms De Bari to attend and give evidence at trial was ultimately not called on to be answered by that person (ts 336 338). Yet none of this has unearthed even one document to provide a basis for Austman's suggested adverse inferences against MGM or Mr Panek.
450 Austman suggested, in effect, that I could also draw an adverse inference from the relative speed with which MGM ultimately obtained the same MP and PMP approvals after the Extension Hill project was revived in 2010. MGM had resubmitted an application for approval of its MP on 3 February 2010. Approval was given on 30 March 2010. Similarly, MGM resubmitted its application for approval of its PMP on 11 March 2010. The approval was given on 1 April 2010. Austman suggests that the speed of all this in 2010, when compared with the interminable pace of the process of 2008, supports an inference MGM deliberately went slow in its attempts to obtain the approvals in 2008.
451 But what Austman is really inviting me to do is to draw an inference based on a comparison of apples (2008 process) with oranges (2010 process). On the evidence, it is wholly unknown how much work the DOIR's officers still had to do in October and November 2008 before the two outstanding approvals could be issued. It is not clear whether approvals were, in October 2008, days, weeks or months off. Austman had every opportunity to call a departmental officer as a witness at the trial so the issue could be confronted outright. That did not happen. Instead, it ventilates serious misconduct allegations, yet leaves the allegations in the end to be resolved by suggested adverse inferences. In my assessment, that is a less than satisfactory approach to proof of serious allegations.
452 Most importantly, however, I have now had at the trial the considerable advantage of seeing and hearing the evidence of Messrs Panek, Quinlivan and Cree, including seeing them closely crossexamined. Weighed against that there is only the suggested adverse inferences of misconduct by Austman.
453 Mr Panek was crossexamined over the long time taken by MGM to obtain the necessary environmental approvals for the Extension Hill project (see ts 388 394). I assessed Mr Panek's answers on this issue, as on others, to be credible and straightforward. At one point this exchange arose in crossexamination (ts 393):
Did you get on the phone to anybody before you decided to suspend this project and say, 'Listen we need this approval. What's the holdup'?---My experience with various government departments is they take an extraordinary amount of time. I didn't expect - I know we had been in touch with the departments on numerous occasions. They worked in their own infinite glacially slow time frame.
454 Counsel for Austman then reacted with some scepticism to Mr Panek's description of the approvals process as 'glacially slow'. Counsel cited the speed with which the approvals were obtained in 2010. This followed (ts 394):
In fact, Mr Panek, I put it to you that you stopped pursuing those approvals earlier than the date of suspension. You stopped responding by July 2008?---I don't believe so. I believe we provided the department with all the information that they requested and we were expecting the approvals to be issued.
455 Nothing tangible emerged to contradict Mr Panek's refutation. At ts 395 this exchange occurred:
When did you first become aware that there were problems with the Chinese customers defaulting on agreements?---I probably became aware of it when it was announced to the Stock Exchange.
Mr Panek, are you seriously suggesting to his Honour that in your role as project manager of Mount Gibson Mining and your working relationship with Mr Quinlivan, the COO of both Mount Gibson Mining and Mount Gibson Iron, that the first time you heard about these problems was through the public announcement to the Stock Exchange?---Yes, I am seriously suggesting that, yes.
Are you saying that there were no internal communications to which you were a party between MGI and MGM, or internally within MGM, which concerned this problem with the Chinese customers?---I am. That's exactly what I'm saying.
Did you have any discussions with Mr Quinlivan about this problem before the suspension?---No.
Did you have any discussions with Mr Quinlivan about your decision, before you took it, to suspend this job?---No.
Why not?---Well, in my role as superintendent it was up to me to advise the contractor that we could not provide him with access to the site. There was no way we could allow him to continue - and indeed there was correspondence from him saying you need to tell us and we can mitigate costs etc so I took it upon myself.
457 There was absolutely nothing to contradict this evidence from Mr Panek, whose evidence I accept. Then followed (ts 397):
Mr Panek, forgive me, but you seem to be speaking as a superintendent with a quite separate persona and state of knowledge than that of the project manager for MGM. In that latter role you must have known about the circumstances with the Chinese customers which were casting great doubt upon the viability of this project?---The viability of the project remains the same. The issue of the customers is not something for the project; it's something for the corporate department to look at. It's nothing to do with me. I had a job to do.
Are you saying at no point leading up to suspension you were advised that the project was going to be put on hold, that is suspended, because the customers were defaulting on agreements?---Yes, I am.
You seriously suggest that you have just been kept in the dark by those above you about what was actually going on and was the real reason for the suspension of the overall project I put to you?---I wasn't consulted with their problems so, yes, I was not consulted with what their problems were.
Are you also telling us that in the lead up to your decision to suspend this part of the project you did not speak to Mr Quinlivan about the decision or the reasons for it?---Yes, I did not speak to Mr Quinlivan about the reasons for suspending.
458 That evidence is uncontradicted. Again I accept it. The crossexamination now seemed to me to proceed more in hope, rather than from any platform of supporting adverse fact.
So Mr Panek, you go to work one day about 23 October, you issue the notice of suspension in relation to this project and are you saying then it was just a sheer coincidence that a short time after you read an announcement to the Stock Exchange in which Mount Gibson Iron was explaining the difficulties it was having with Chinese suppliers defaulting on their agreements, the financial stress that put the company under and therefore the decision to defer Extension Hill until sometime in 2010?---I don't know what stresses the Chinese customers defaulting on their contracts put on the company. All I know is that I suspended the contract because I couldn't provide access to the site.
You couldn't provide it?---The company couldn't.
460 I accept all Mr Panek's evidence. It stands essentially uncontradicted against what are only equivocal suggested adverse inferences that Austman would seek to draw, yet cannot ground in fact.
461 Further questions were put to Mr Panek in crossexamination (ts 400):
Did you speak to Mr Quinlivan about the approvals issues before deciding to suspend the works?---Again, I believe we would have had numerous discussions about the approvals. The importance of the approvals is well known to the project and to myself. We didn't have them at that time. I couldn't see that they were forthcoming. I had no other course of action before me and I didn't need anyone's permission to act as a superintendent.
After you had issued the notice of suspension what, if anything, did Mr Quinlivan say to you about it?---I don't recall any specific things but he certainly didn't object to my suspension. It was an act that, in my view, I had no alternative but to issue the suspension. I didn't have to defend my position.
Mr Panek, why did you form the view that you had no option?---I had no approvals.
But why suspend the works?---The contractor - I think the due date for going on the site was about 2 October. It was after 2 October. I couldn't allow him to proceed onto the site. I would be breaking the law. Therefore, I said, 'Don't go to site, I've suspended the works on site'.
463 Again, I accept this evidence from Mr Panek. Again, the crossexamination only probed. Ultimately it got nowhere. The crossexamination in this area simply reinforces a conclusion that Mr Panek had taken a careful and scrupulously independent approach in reaching his decision to suspend part of the WUC.
464 In suspending Austman from performing activities at site on 23 October 2008, Mr Panek acted, I conclude, justifiably and in accordance with his powers as Superintendent held under General Condition 33.1.
465 I also mention Mr Panek's evidence concerning the DMP's requests for information, to which MGM responded within a matter of days (ts 391 392); the importance of obtaining of federal environmental approvals before commencing work (ts 392); and his rejection of a suggestion that there was any discussion between him and Mr Quinlivan regarding MGI's defaulting customers (ts 397 400). I find Mr Panek correctly assessed such issues as irrelevant and not for him.
466 In his second witness statement Mr Panek lists a range of approvals - 26 in all - that were required for the Extension Hill project. For the DMP, three relevant approvals are identified, listed as items 15, 16 and 17. Items 16 and 17 are the most relevant, they being the approval of the MP and the approval of the PMP for commencement of mining operations at Extension Hill.
467 In Mr Panek's third witness statement, it is made clear at par 3 that the approvals required before MGM could commence preparatory earthworks at site at Extension Hill were the MP and the PMP. They still had not been obtained by 23 October 2008. As a result of their absence, Mr Panek says he issued his notice to suspend part of Austman's WUC.
468 Mr Panek related that 'MGM received approval for the Mining Proposal and Project Management Plan on 30 March 2010 and 1 April 2010, respectively' (par 4).
469 Mr Panek was extensively crossexamined over his 23 October 2008 decision as Superintendent to suspend part of Austman's WUC, as well as other matters, including his decisions rejecting large parts of Austman's claims for progress payments. As mentioned, I assessed Mr Panek's evidence to be thoroughly reliable. He was a careful witness. I found him to be appropriately cognisant of the independent and important role he discharged as Superintendent in his dealings with Austman and MGM. It was very apparent to me from Mr Panek's evidence overall that he took his independent responsibilities as Superintendent seriously and, further, that he brought that perceived independence to bear in making decisions in the capacity of Superintendent. In short, he was noone's lackey.
470 Of course, Mr Panek also fulfilled another function as Project Manager for MGM. But no conflict of interest problem arises from the fact that he performed both roles: see Perini Corporation v Commonwealth [1969] 2 NSWR 530.
471 During Mr Panek's crossexamination, counsel for Austman attempted to suggest to Mr Panek that he was someone who did not respect his responsibility to act independently when performing his role as Superintendent. Counsel attempted to portray Mr Panek as someone who would, in essence, act against Austman at MGM's bidding. Counsel got nowhere in those endeavours. The suggestion Mr Panek was a party to misconduct was put, but firmly rejected. I saw no tangible evidence emerge to support this line of attack.
472 Overall, Austman in the end has failed by a very considerable distance, on my assessment, to show Mr Panek did not perform his role as Superintendent reasonably and in good faith.
473 It follows, then, that Austman's further attack that MGM had failed to ensure that Mr Panek performed the role of Superintendent reasonably and in good faith also fails.
474 I pause to repeat that of the extensive range of documents subpoenaed by Austman from the DMP and returned at trial, none proved capable of supporting Austman's allegations of misconduct and conspiracy. Viewed collectively, the same conclusion is reached. There was nothing in the subpoenaed documents to suggest Mr Panek or MGM deliberately went slow in obtaining the approvals of the MP and PMP. Nor is there anything to suggest Mr Panek suspended part of Austman's WUC under a request or orders from MGM because MGM or MGI was then in a difficult financial position as a result of the 2008 global financial crisis and its negative impact on the iron ore industry.
475 Viewed from a hindsight perspective of a now completed trial, I would assess it as unacceptable that the misconduct allegations were put and pressed against Mr Panek without a proper foundation in supporting evidence emerging. Client beliefs or suspicions are not enough, no matter how strongly they are held. Suggested adverse inferences, based on equivocal evidence, are not enough. Nor is a vague hope that something may possibly be unearthed from documents produced in answer to a widely drawn subpoena.
476 There is an onus upon a pleader who raises an allegation of fraud or of serious misconduct to show a reasonable factual foundation for such a plea. Assertions of fraud must be pleaded with clarity and full particulars: see Rules of the Supreme Court 1971 (WA) O 20 r 13(1). So also for allegations of serious impropriety: The Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; (1923) 33 CLR 199, 219; Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17 [605] [606].
477 As has now been seen, Austman's statement of claim carried imputations of serious misconduct and conspiracy in an oblique fashion. The pleading used weasel words such as 'purported', and referred to socalled 'true positions'. The allegations were also aired during Austman's opening. Counsel for MGM objected. He warned that Austman's proposed approach was improper (ts 27). Nevertheless, counsel for Austman did not retreat.
478 Having now heard and reviewed all the evidence, at the conclusion of the trial, I conclude that Austman's allegations of misconduct and conspiracy raised against Mr Panek were baseless.
Mr Quinlivan's evidence as to suspension and the State environmental approvals
479 Under crossexamination, Mr Quinlivan also rejected all suggestions that MGI or MGM deliberately went slow in obtaining the environmental approvals in order to ameliorate financial difficulties MGI faced as a result of the global financial crisis (see ts 342 and following).
480 Counsel for Austman questioned Mr Quinlivan about the manner in which other contractors at Extension Hill were affected by MGI's decision to suspend the project. In particular, Mr Quinlivan was asked whether the other contractors were compensated for delay costs, and how other costs associated with the project's suspension were met (ts 359 360). MGM did not raise any objection to these questions or the evidence that flowed from them. I accept the truth as to what Mr Quinlivan said in answering these questions, indeed all put to him. But I do not regard his answers as relevant to the issues before me. In my view, the way MGI and MGM dealt with the other contractors is not relevant to my assessment upon how MGM and Mr Panek dealt with Austman.
481 Mr Quinlivan also said some parts of the Extension Hill project that had been approved were allowed to proceed (ts 348). There is obviously a vital conceptual distinction between suspending the project as a whole, as MGI did, and a suspension of works under a contract.
482 As to the two environmental approvals, the position in late November 2008 was that MGM's applications seeking PMP and MP approvals were still pending. Mr Quinlivan and others on behalf of MGM had engaged in an ongoing dialogue with the DOIR throughout 2008 with a view to obtaining those approvals (ts 348). A key obstacle along that path, namely the obtaining of a separate approval from the Commonwealth Department of Environment, was only achieved in October 2008 (ts 349 350). Procedurally, State approvals usually followed after Commonwealth approvals.
483 Mr Quinlivan related how, in October 2008, it would have been open under the General Conditions for Austman to seek compensation from MGM, by reason of delays incurred (ts 360 362). Mr Quinlivan was asked in crossexamination (hypothetically) what MGM would have done in October 2008, after Austman's WUC were partly suspended by the Superintendent, had Austman asked for compensation for delay costs which had been substantiated. He said delay costs would have been paid in such circumstances (ts 369). That exercise was hypothetical and again, of no relevance to my task concerning an assessment of what actually did transpire.
484 Nothing in Mr Quinlivan's witness statement or in his evidence at trial provides a sufficient basis for even speculating over whether he interfered, or sought to interfere, with any decisions Mr Panek made in his capacity as Superintendent. I find he did not. In particular, there is also no foundation at all in the evidence for any suggestion that Mr Quinlivan or MGM deliberately went slow in attempts to obtain the requisite environmental approvals, or sought to influence the Superintendent's decision concerning suspension of part of Austman's contract works on 23 October 2008.
485 For the Superintendent's Representative, Mr Lucas Cree, once again I can discern nothing in the evidence to conclude that he did or participated in any conduct that suggests MGM went slow in seeking the environmental approvals (see ts 463, 470 and 472).
486 In the end, MGM's three key witnesses all faced Austman's asserted challenges of conspiracy and misconduct. They entered the witness box, were confronted with the allegations and refuted them. I accept their evidence. Essentially it has not been contradicted, undermined or weakened by anything approaching a proper level of tangible evidence to the contrary.
487 In the case of Mr Panek, who exercised the independent role of trust as Superintendent under the D&C Contract, Austman's allegations were particularly grave. Austman's imputations and suggested grievances concerning Mr Panek have been answered. They were exposed at trial as baseless.
488 In the end I assess all Austman's misconduct attacks against Messrs Panek, Quinlivan and Cree to be based upon marginal or equivocal inferences and, as a matter of merit, baseless.
489 The legitimacy and validity of Mr Panek's 23 October notice to Austman, suspending part of Austman's WUC, has not been undermined. At the time it was issued, two significant environmental approvals were still required before earthworks could commence at the Extension Hill site.
490 Under the General Conditions, Austman might have challenged the Superintendent's notice of suspension. The suspension notice was, as I assess it, a 'Superintendent's direction'. As is now seen, the General Conditions contained dispute resolution procedures applicable to disputes or claims of compensation for delay. None were pursued by Austman. Of course, Austman was at this time still resolutely insisting there was no binding agreement with MGM and that MGM's modified AS49022000 General Conditions had not been accepted - contentions I have now assessed to be wrongly made.
491 I turn then to implications of the suspension of part of Austman's works, ordered under General Condition 33.1 by Mr Panek as Superintendent.
492 I commence from the contractual position that item 26 in Annexure A to the General Conditions had specified Austman was to be given access to site within 14 days of acceptance of the tender. Austman planned to, and did, have the components of the crushing and screening plant fabricated in China. That process obviously took some time. So Austman does not contend that it sought access to site within the 14 days following 4 March 2008.
493 By par 44 of its statement of claim, Austman pleads that on 29 August 2008 it had been advised by MGM that its access to site had been delayed, due to the lack of the required environmental approvals. It says MGM told it that the new start date would be 15 November 2008.
494 On 3 September 2008, Mr M Kuhn sent a communication complaining of delay to Mr Michael Maddox of MGM and copied to Mr Panek (exhibit 4, page 2096). Mr M Kuhn then advised:
It would have been appreciated and costs may have been mitigated if you had informed us earlier of this delay. You were aware that our commencement date was 8 September [2008]. You stated that it takes approximately a further 3 weeks for environmental approval to come through and on top of this the time required for you to prepare site for us. With this in mind you should have notified us at least 6 weeks ago that we would not receive access on time. The completion date will be delayed the same as the commencement date which is now 15 November as was advised by yourself. We will now assess the costs associated with this delay and submit them once completed.
This delay will also affect other projects that we are currently involved in.
495 The included notice of delay marked for the attention of Mr Panek, of 2 September 2008, said (exhibit 4, page 2097):
We were informed by Mount Gibson at our meeting on Friday 29 August that site access had been delayed due to lack of Environmental Approval which is Mt Gibson's responsibility. Site Mobilisation was to commence on Monday 8 September. This will delay all on site activities. We were informed that new start date would now be 15 November. Austman are ready to mobilise to site as per schedule on 8 September. This will delay start and finish dates by 68 days.
496 So essentially Austman was informing MGM as of 2 September 2008 it had expected to receive access to site by 8 September 2008.
497 Details of the activities or works by Austman said to have been delayed by reference to a start date and end date were specified:
Transportation
All Construction Activities
Practical Completion
498 But for the consideration that Austman was denying at the time that any binding contract had been reached, or that the General Conditions had been agreed to, Austman's delay notice at this time might have been assessed as a perfectly orthodox communication by a contractor in accordance with delay notification provisions of modified General Conditions in the D&C Contract. The delay consequences and any resulting entitlement to compensation for the contractor fell within the jurisdiction of the Superintendent to assess.
499 On 4 September 2008, Mr M Kuhn sent to Mr Maddox Austman's fifth invoice, including copies of bills of lading number 1 and number 2, and 'the updated project schedule' (exhibit 4, pages 2100 2104).
500 On 5 September 2008, Mr Cree sent to Mr M Kuhn a response to Austman's delay notice (exhibit 4, page 2105). Mr Cree suggested that the site access date stipulated by item 26 of the General Conditions had actually been 2 October 2008, not 8 September 2008, as Mr M Kuhn had said. Mr Cree's communication went on to advise that MGM would 'endeavour to give Austman 14 days notice of the actual site access date'.
501 Mr Cree elaborated on the asserted later 2 October 2008 site access date in his subsequent communication, also on 5 September 2008, to Mr M Kuhn (exhibit 4, page 2107). He said:
The 2 October 2008 date per Item 26 General Conditions of Contract, was inserted into the contract as a result of advice from Austman received on the 24/4/08 (ref Austman Transmit000007). Further, in Austman's review of the Design and Construct Contract, Extension Hill Hematite Project Comments to Design and Construct contract rev A dated 5 June 2008 (ref Austman Transmit000028) no exception to the time for giving access of 2 October 2008 was voiced by Austman. Mount Gibson Mining (MGM) have therefore been proceeding on the basis of 2 October for site access.
502 Further correspondence ensued over Austman's claim for delay costs, passing between Mr M Kuhn and Mr Cree on 10 September 2008 (exhibit 4, page 2114). This included Austman's claim for 'weekly delay costs'. Debate over the delay costs claim being bloated or unsubstantiated was ongoing (see exhibit 4, pages 2119 and 2125).
503 The September 2008 passing communications over delay were focused on the monetary repercussions of the delay in Austman obtaining site access. I do not assess Austman to have been suggesting then that MGM's delay in providing it with access to site at Extension Hill was repudiatory conduct by MGM, thereby constituting a renunciation of MGM's obligation to provide Austman with site access: see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (135 136). Of course, Austman was itself still maintaining then that there was no binding contract with MGM.
504 On 18 September 2008, Mr Cree asked Mr M Kuhn for Austman's 'footing layout drawings', noting (exhibit 4, page 2129):
Without the earthworks design finalised MGM will be unable to commence site earthworks in preparation for AUSTMAN's site construction.
505 Throughout October 2008 there ensued communications concerning the earthworks (exhibit 4, page 2175); a submission of Austman's second delay costs claim of 3 October 2008 (exhibit 4, page 2181); and a rejection of that delay costs claim by Mr Cree on 6 October 2008 (exhibit 4, page 2184).
506 Mr Cree wrote to Mr M Kuhn on 7 October 2008 regarding revision of Austman's fifth progress claim, with a request for clarification and observations upon what he described as Austman's 'prematurely submitted tax invoice #7' (exhibit 4, page 2193).
507 Freehills' letter regarding suspension (to which I have referred) followed on 21 October 2008 (exhibit 4, page 2220), sent by Mr Dragovic of Freehills to Mr Pilley of Pilley McKellar. I mentioned that since June 2008 solicitors had actively been utilised by both Austman and MGM in the parties' dispute communications on an ongoing basis. Mr Dragovic now advised Mr Pilley, after reference to a voicemail message he had left on Mr Pilley's mobile phone, that:
We confirm that the superintendent has, as at today's date and pursuant to clause 33.1 of the Contract, suspended the carrying out of the whole of the works, on the basis that our client has not granted access to the Site to your client as a result of outstanding State environmental approvals.
508 The reference to 'clause 33.1' was an obvious reference to the General Conditions. Reference to the whole of the works being suspended was, however, erroneous. Mr Panek explains and corrects this in his witness statement, as I set out earlier.
509 On 23 October 2008, Mr Pilley for Austman responded to Mr Dragovic (exhibit 4, page 2221). He said that the General Conditions AS49022000 'as purportedly amended by your client are not conditions of contract which apply with this contract' (my emphasis in bold). That proposition, for reasons now given, was fundamentally wrong in my assessment.
510 Under cover of that position, Mr Pilley then proceeded to observe that Freehills were not the Superintendent. Nor, he said, were Freehills acting on behalf of the Superintendent, because Freehills' client was MGM, the principal. That proposition must be accepted. Based on what followed, this point as raised by Mr Pilley looks to have been accepted by Freehills and MGM, as it should.
511 Mr Pilley's letter asked for a copy of the actual direction of the Superintendent purporting to suspend Austman's contract works and then observed:
We note trading in your client's shares was suspended by the ASX this morning. We can only conclude that this is the real reason for the suspension of works.
(my emphasis in bold)
Mr Pilley was apparently referring to trading in MGI's listed shares being suspended at MGI's request that day.
512 Later that same day, on 23 October 2008, Mr Panek as Superintendent now informed Mr H Kuhn directly of a suspension of part of Austman's works (exhibit 4, page 2224). Mr Panek advised:
Dear Hartmut
In accordance with the General Conditions of Contract AS49022000 Clause 33.1 the Contractor is herewith directed to suspend the carrying out of part of the WUC. The WUC which is suspended is;
The Basis of suspension is because of an act of the Principal in that the Principal is unable to carry out the necessary earthworks on the site upon which the crushing and screening plant is to be erected.
513 In the face of Mr Pilley's correctly raised objection to the earlier Freehills communication of 21 October 2008, the Superintendent's direct communication of 23 October 2008 can be assessed as the operative partial suspension under the General Conditions. I say, for completeness, that I do not draw any unfavourable inference from the fact Freehills sent an ineffective initial notice of suspension, particularly given the prior significant involvement of each side's legal advisers in the passing communications addressing a range of issues concerning the D&C Contract.
514 The notice of suspension of part of Austman's WUC issued by Mr Panek on 23 October 2008 was in accordance with General Condition 33.1. It was based on a default by MGM, the principal, as regards earthworks. But it was only a part suspension of works, not a full suspension. Hence, the part suspension would not inhibit Austman's works under contract other than at Extension Hill. As a result, there was nothing in the notice to inhibit Austman continuing with fabrication processes then taking place in China.
515 Mr Panek did not specify a duration for the part suspension. By General Condition 33, a Superintendent is entitled to suspend until the reason for the suspension ceases to exist. I see no reason in principle or logic why a suspension or part suspension cannot be for an indefinite period, pending subsequent advice to follow. It may be necessary for a Superintendent to adopt an openended approach, particularly in the face of some interrupting event that by its very nature renders it difficult to gauge a more precise period needed for a problem to be resolved.
516 Mr Panek's suspension of part of Austman's WUC was not colourable or lacking in bona fides, for the reasons I have now given. The part suspension was the act of the Superintendent, not the act of MGM. The part suspension is therefore not in any event capable of being attributed to MGM as a substantial breach by MGM of the D&C Contract.
517 Nor can this part suspension of works by the Superintendent be assessed as a repudiation of MGM's contractual obligations under the D&C Contract. To the contrary, this part suspension arose from an invocation of provisions within the D&C Contract, as found in the General Conditions. Even had this part suspension been assessed as being wrongly given by the Superintendent (which it was not), it still would not be capable of constituting conduct that could be assessed as a possible breach or repudiation of the D&C Contract by MGM.
518 There followed an Aconex communication to Austman on 29 October 2008 by Mr Panek 'in my role as Superintendent under the Contract' (exhibit 4, page 2236). This was responded to by Austman on 31 October 2008 (exhibit 4, pages 2240 2242). The tenor of Austman's response, yet again, was first to deny the existence of any binding contract between the parties. That stance extended to disputing that Mr Panek was a Superintendent under any subsisting contract between the parties.
519 Given my view that there was indeed a binding D&C Contract then subsisting between the parties since 4 March 2008, Austman's communication on 31 October 2008 was, again, repudiatory in its character. Mr H Kuhn's letter bluntly asserted at this time:
Your letter assumes you are a Superintendent under a contract between the parties. There is in fact no concluded contract between the parties as at this time and your role as Superintendent has been accepted by the parties as an interim measure pending finalisation of contractual terms, which will no doubt incorporate a Superintendent having an obligation to act reasonably and in good faith, as required by clause 20 of the contract conditions.
520 Austman's communication on 31 October 2008 then proceeded to address various other issues, including the part suspension of the works by Mr Panek.
521 A communication from Pilley McKellar followed on 31 October 2008 (exhibit 4, page 2247). Austman then communicated directly with MGM via email, on 4 November 2008 (exhibit 4, page 2255) and 5 November 2008 (exhibit 4, page 2264). In that email Mr M Kuhn responded, as regards a direction to purchase 45 shipping containers, 'Consequently, we do not propose to comply with your direction as you have no power to give it'.
522 On 5 November 2008, Pilley McKellar wrote to Freehills (exhibit 4, pages 2266_01 2266_11). Mr Pilley enclosed a copy of an ASX announcement by MGI of 3 November 2008. He said:
It is noted from this document [i.e. the ASX announcement] that your client, because of its troubles with its customers in China, proposes to defer 'some construction activities at Extension Hill' and not commence ore production at that site until the March quarter in 2010. Presumably, construction activities will be deferred until late in 2009.
Please confirm by close of business tomorrow, Thursday 6 November 2008, your client's intentions in this matter.
We find it remarkable that your client has failed to inform our client of the true position of its intentions in relation to our client's involvement in this matter, especially given that your client continues to insist, along with the Superintendent, that there is a binding contract in existence between our client and your client, which of course our client denies.
In this latter regard, we advise that we have conferred with an experienced junior counsel specialising in construction law who has confirmed in conference our view that there is no binding contract in existence between the parties.
We await your reply.
523 Mr Pilley's reference to the ASX announcement appears to be to page 3 of that announcement, where MGI had said:
Some construction activities at Extension Hill will be deferred, whilst commencement of ore production is rescheduled to the March quarter, 2010. All contracts with key suppliers have been retained and no material delay penalties will be incurred.
524 On 7 November 2008, Freehills for MGM responded to Mr Pilley's letters of 31 October and 5 November 2008. The response concluded (exhibit 4, page 2305):
In accordance with the notice issued by the Superintendent, Mr Panek, dated 23 October 2008, the contract remains, in part, suspended. Subject to that suspension, our client remains ready, willing and able to perform its obligations under the Contract.
525 On 12 November 2008, Pilley McKellar sent what is a pivotal letter to Freehills regarding Austman's position (exhibit 4, page 2311_01 2311_03). The communication said, in part:
As you know, our client's position is that there is no concluded contract with your client. In current circumstances, our client believes that a concluded contract cannot now be reached.
Accordingly, our client is left with no practical alternative other than to totally cease work on this project. It will therefore now take steps to mitigate its loss with respect to the equipment that has been or is being manufactured and which is currently in China and Western Australia.
(my emphasis in bold)
526 For reasons given, the declared position once again on behalf of Austman that there was no concluded contract, was wholly wrong. There was a binding D&C Contract. Furthermore, a total cessation of work on this project, by steps Austman would now take, was a distinct and further act of renunciation against Austman's obligations under a subsisting D&C Contract.
527 The letter from Pilley McKellar alternatively expressed the reasons why, if there was a binding D&C Contract, Austman then had a right to terminate it. The first two reasons related to the notices of suspension sent on 21 and 23 October, first by Freehills and then by the Superintendent. I have dealt with the part suspension. A third reason related to MGM's alleged failure to ensure Mr Panek performed his role a Superintendent reasonably and in good faith. None of these reasons, considered together or alone, in my assessment entitled Austman to validly terminate the subsisting D&C Contract with MGM.
528 The fourth reason given in the letter related to the two pending environmental approvals required in order for earthworks at Extension Hill to lawfully begin:
The only approval that has not been given by the Western Australian authorities is the approval from the Department of Industry and Resources giving your client permission to commence site works. The reason for this is that your client has failed to supply further information to the Department in respect of the application and therefore the failure to obtain the necessary permit is due to your client's procrastination.
(my emphasis in bold)
529 The factual premise of the fourth reason is wrong. There is no evidentiary basis to support an assertion MGM failed to supply further information to the DOIR, or that MGM procrastinated. I repeat my previous findings and conclusions upon these issues. The fourth reason was meritless.
530 A fifth and final reason expressed by the letter was:
Together with these actions is the latest announcement by your client issued to the Stock Exchange referred to above. It is significant that in that announcement your client has notified the Stock Exchange that while it has temporarily suspended development activities at Koolan Island and expects to recommence in July 2009, it only states that 'some construction activities at Extension Hill will be deferred, whilst commencement of all production is rescheduled to the March quarter 2010'. Your client has not announced to the Stock Exchange when it proposes to recommence construction activities at Extension Hill. One can only assume, given the preceding paragraph relating to Koolan Island, that recommencement of construction activities at Extension Hill will not take place until late 2009, given the commencement of ore production is rescheduled for the March quarter 2010.
531 It is clear that Mr Pilley for Austman, in articulating that fifth reason, was not invoking General Condition 39.7 within the D&C Contract. Thus Austman was not then issuing a 'show cause' notice to MGM over a failure to provide access to site, constituting a substantial breach by the principal. Had a show cause notice under that General Condition been given, the allied procedural path would have been very different from that point. Mr Pilley's fifth reason was of a different character. It was immediate in its application. It concluded, 'Have you instructions to accept proceedings?'
532 In any event, MGI's announcement to the Australian Stock Exchange on 3 November 2008 could not, on my assessment, amount to a possible repudiation by MGM of MGM's obligations under the D&C Contract. First, the ASX announcement was, very plainly, not by MGM. Second, the announcement mentioned only 'some' construction activities being deferred. Third, Austman had an option under the D&C Contract General Conditions of claiming delay costs following Mr Panek's suspension of part of its WUC. Fourth, the part suspension only affected a commencing of works at site, not elsewhere. Fifth, a deferment of the overall Extension Hill project by MGI would not necessarily carry, as its inevitable consequence, the intended deferment of MGM's contractual obligations under its D&C Contract with Austman. That non sequitur was conceptually exposed during Mr Quinlivan's crossexamination (ts 362):
Are you saying in light of what you've told us about the majority of other contracts that went on to be resumed once the mine came back on or the project came back on line that MGM would have been prepared to pay whatever costs were being incurred by Austman from the suspension right through to when things eventually resumed?---That's correct. That's what we did with the other suppliers.
533 Mr Quinlivan also made reference to contracts that MGM had in place with other parties, for work to be performed on things like the port, the rail siding and the railway wagons (ts 359).
534 The fifth reason as expressed does not provide a basis for Austman's termination (given in the alternative) on 12 November 2008.
535 Accordingly, Austman's efforts to terminate the D&C Contract on 12 November 2008, in the event a D&C Contract did exist, properly analysed, was not supportable. Furthermore, the character of Pilley McKellar's communication, sent on 12 November 2008 on behalf of Austman, was itself, on my assessment of it, a wrongful renunciation of Austman's obligations of future performance to MGM under the subsisting D&C Contract.
Austman's wrongful repudiation of the D&C Contract
536 Austman, pointing to its legal advice, presented itself in its dealings with MGM, from 16 July 2008, on the basis that it did not have a binding D&C Contract with MGM. In that it was fundamentally wrong. Added to that, however, Austman's attempt (in the alternative) at a common law termination of the D&C Contract on 12 November 2008 was, in my assessment, wrongful. I assess it as premature and, ultimately, unjustifiable wrongful conduct by Austman at that time.
537 The declaration of position on 12 November 2008, on behalf of Austman, had very clearly been fermented in the parties' tense working relationship over previous months (see Mr Panek's correspondence of 29 October 2008, exhibit 4, page 2236). But, in my view, Austman's unilateral declaration that it had no alternative other than to 'totally cease work on this project', was badly misguided. It was a fulsome renunciation by Austman of its performance obligations under the D&C Contract and was therefore repudiatory in character.
538 Because the letter of 12 November 2008 was repudiatory in character, it provided an independent basis for MGM itself to terminate the D&C Contract and then to pursue Austman for damages, unless Austman retreated from that stance before MGM acted. It will be remembered that Freehills had told Mr Pilley on 7 November 2008 that MGM was ready, willing and able to perform, subject to the Superintendent's part suspension (exhibit 4, page 2305).
539 Austman did not alter its stance. Ultimately, MGM, by Freehills, did issue a notice of MGM's decision to terminate the D&C Contract with Austman on 28 November 2008, on the basis of Austman's repudiatory conduct (exhibit 4, page 2320_02). In making that election, MGM, on my assessment, was entirely justified.
Repercussions of MGM's lawful termination of the D&C Contract on 28 November 2008
540 Given that Austman repudiated the D&C Contract, and MGM then accepted that repudiation and terminated, Austman has no entitlement to common law damages for breach of the D&C Contract by MGM. To the contrary, the entitlement to damages for breach belongs to MGM.
541 MGM was not required to prove it was in a position to perform the D&C Contract to completion before it accepted Austman's repudiation on 28 November 2008. Austman's steadfast stance contending since the middle of July 2008 that there was no binding contract, then that it was ceasing further work and finally that, if there was a D&C Contract, that Austman had terminated it by reason of MGM's asserted breach conduct, effectively rendered pointless any need for proof as to MGM's readiness, willingness and ability to perform: Foran v White [1989] HCA 51; (1989) 168 CLR 385, 427 (Brennan J), 437 (Deane J); Killarney Investments Pty Ltd v Macedonian Community of Western Australia Inc [2007] WASCA 180 [20] (Steytler P and McLure JA).
Residual issues on Austman's wrongful repudiation and termination by MGM
542 At one point, Austman appeared close to submitting that it would be entitled to obtain a quantum meruit in its favour, even if I concluded (as I do) that MGM had validly terminated the D&C Contract after it was repudiated by Austman's breach conduct. That legal proposition is unsupportable. In law it is the innocent party to the breach of contract which would hold the entitlement. In Sopov v Kane Constructions Pty Ltd (No 2) [2009] VSCA 141; (2009) 24 VR 510, the right to elect a quantum meruit was held by the builder, who was the innocent breach party. I find nothing in that decision to support any reverse contention as to a quantum meruit favouring a builder who is found to have been the repudiating party. Sopov v Kane Constructions followed the Privy Council decision in Lodder v Slowey [1904] AC 442 as to the quantum meruit election issue for an innocent breach party.
543 Next is the issue raised by Austman in respect of the parties' unconditionally held rights, accrued as at 28 November 2008, applying the McDonald v Denys Lascelles principle. What accrued unconditional rights to monies under the D&C Contract (if any) were held by Austman as at 28 November 2008?
544 Applying FPM Constructions v The Council of the Blue Mountains, to which I earlier referred, the answer to that question must be, none. Under the D&C Contract, Austman held no accrued rights upon its progress and delay claims in the absence of the Superintendent's approval of those claims. But Austman's claims had not been approved, for the reasons now explained. The amounts that were certified on progress claims had all been paid by MGM. In any event, MGM's payments of progress claims on the lump sum contract were only payments on account. In the end this D&C Contract was not completed because it was repudiated by Austman. Austman's serious miscalculation as to its position with MGM provided a legitimate basis for MGM itself to end the future performance of that agreement, as MGM so elected on 28 November 2008.
545 MGM therefore held the right to claim breach damages from Austman, placing MGM by monetary compensation in a position it would have been in but for Austman's breach. MGM, as a result, says by counterclaim that it is entitled to receive back as damages the $842,283 it paid out to Austman as progress claims, on the basis that these outlaid funds have ultimately been totally wasted. I agree. That result follows inexorably from the conclusions I have reached as to breach.
546 The declaration as to Austman's position on 12 November 2008 was unequivocal. It was a stance incapable of being excused as a circumstance in which a party takes a genuine, but ultimately erroneous, view of its contractual obligations (as to which see Green v Summerville [1979] HCA 60; (1989) 141 CLR 594, 612 (Mason J, Murphy and Aicken JJ agreeing) and DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 431 432 (Stephen, Mason and Jacobs JJ)). In those situations the court did not readily infer from erroneous views an unwillingness to perform the contract according to its true construction. Here, however, Austman additionally denied the existence of any binding contract and then wrongly maintained that stance for many months.
547 On 12 November 2008 Austman attempted to buttress its stance by articulating a position, in the alternative, that if there was a binding contract, Austman had no option but to cease all work under the contract immediately. Having unilaterally declared that position to MGM through solicitors, Austman did not subsequently alter its position in communications with MGM over the ensuing 16 days. In those circumstances, the position is much more than one of an erroneous interpretation being taken about the effect or workings of contractual provisions. The position is closer to that described by Mason CJ, Brennan and Dawson JJ in Braidotti v Queensland City Properties Ltd (303 304). There, erroneous views expressed by vendors as to a nonapplication of s 72 of the Property Law Act 1974 (Qld) could not be excused, according to three justices of the court. The vendors erroneously purported to rescind. Albeit obiter, Mason CJ, Brennan and Dawson JJ observed (303 304):
The vendors rescinded the contract and sought a declaration that it had been validly rescinded. By their actions they signalled their unqualified intention not to proceed with the contract. On the view we take of s 71 they were mistaken in their interpretation of the statutory definition. By reasons of that mistake they appear to have refused unequivocally to perform the contract according to its terms. The case is to be distinguished from cases such as DTR Nominees Pty Ltd v Mona Homes Pty Ltd where a party acts on a mistaken but bona fide interpretation of a contract in circumstances in which it is proper to infer that the party, though maintaining that his or her interpretation of the contract is correct, will perform the contract according to its terms, if the interpretation is shown to be incorrect.
548 Deane and Gaudron JJ appear to have taken a contrary view (311, 317 318). The observations of the plurality in Braidotti were recently applied by Murphy JA (with whom Pullin and Newnes JJA agreed) in JR Marine Systems Pte Ltd v Wavemaster International Pty Ltd (in liq) [2011] WASCA 16 [60] [68].
Damages and quantum meruit had Austman succeeded
549 Given my other conclusions as now reached, Austman has failed to show any basis for an entitlement to damages against MGM for breach of contract. Nor, as will be seen, can Austman obtain a quantum meruit.
550 But lest different views be taken, I will state briefly some conclusions for that alternate hypothesis. There are 12 fundamental conclusions I would have reached, had it been necessary for me to do so.
551 First, having failed to show any breach of the D&C Contract by MGM, Austman holds no rights to restitutionary relief on a quantum meruit. That result may seem selfevident, even trite. But it is necessary to state the conclusion explicitly, since at times Austman's written and oral submissions, particularly a bland submission that 'Austman just wants to be paid for the work it did' (irrespective of whether there is found to be a binding contract or not), strayed close to advancing a wholly erroneous proposition of law. Austman cited no authority to support a proposition that it may repudiate its contractual obligations to MGM, yet still obtain a quantum meruit in its favour.
552 Had there been ascertained to be no binding or enforceable contract, that premise would certainly have carried far different considerations. But in the face of a binding and enforceable D&C Contract, which Austman repudiated and was then lawfully terminated by MGM, Austman simply has nowhere to go on a quantum meruit claim. A contrary conclusion would be irreconcilable with Deane J's observation in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, 256, that where a contract is found to be on foot, there is no basis for 'fair and just compensation'.
553 Second, had Austman succeeded in showing a repudiatory breach of the D&C Contract by MGM, a breach of an essential term therein (or even a serious breach of an intermediate term), and had Austman then used that breach as a basis for its election to terminate the D&C Contract, Austman would then have been in a position to also obtain loss of bargain damages from MGM. Additionally, on the current state of Australian law, Austman would then have been entitled, because the D&C Contract was selfevidently a construction contract, to elect, in lieu of damages and before final judgment, for a quantum meruit.
554 The right of a builder to elect a quantum meruit, in lieu of damages for breach of contract, is grounded upon longstanding case authority: see Lodder v Slowey [1904] AC 442, 453. In Sopov v Kane Constructions Pty Ltd (No 2) the Victorian Court of Appeal reviewed that long line of authority at [5] [18]. It observed [12]:
The right of a builder to sue on a quantum meruit following a repudiation of the contract has been part of the common law of Australia for more than a century. It is supported by decisions of intermediate courts of appeal in three States, all of which postdate McDonald and two of which postdate Pavey & Matthews. If that remedy is now to be declared to be unavailable as a matter of law, that is a step which the High Court alone can take.
555 In Sopov (No 2) the Victorian Court of Appeal also observed Lodder v Slowey had been the subject of criticism to the effect that a builder's right to elect a quantum meruit was founded on the 'heretical' notion that an innocent party's acceptance of another party's repudiation results in the rescission of a contract ab initio, a proposition standing in conflict with the accepted common law position in Australia stated by Dixon J in McDonald v Dennys Lascelles. At [11], the Court of Appeal described these criticisms as 'very powerful'.
556 Accepting this line of authority as applicable until the High Court decides otherwise, there is still nothing that I detect in the Lodder v Slowey line of cases to support a proposition that a builder may elect a quantum meruit in its favour, if that builder has been found to be in breach, or to have repudiated. An application for special leave to appeal against the Victorian Court of Appeal's decision in Sopov (No 2) was refused on 11 December 2009: Sopov v Kane Constructions Pty Ltd [2009] HCATrans 338.
557 Third, in relation to quantum meruit as to services (and I assume as well for a quantum valebat for goods), it will be remembered that since Pavey & Matthews v Paul, the foundational principle identified as underlying that remedy in Australia is the concept of unjust enrichment. More precisely stated, the principle is the unjust enrichment of a defendant, taken at the expense of a plaintiff.
558 As regards quantum meruit relief, for the present litigation there are two quite different scenarios in which a restitutionary remedy would need to be evaluated. First is where a binding contractual relationship is established, followed by a termination of that contract, where the innocent breach party, in lieu of damages, elects instead, in the realm of a construction contract, to receive a quantum meruit. In that unique (some suggest antiquated) situation, if the principal is the party in breach and the contractor elects a quantum meruit in lieu of damages, it would present as conceptually a lot harder for the principal to contend it has not been unjustly enriched at the innocent builder's expense. The principal, as breach party, is likely to have interrupted a performance of the construction contract. The principal can hardly be heard to credibly assert in that situation it has received no benefit and so has not been enriched, if a performance of the construction contract for its benefit has been otherwise interrupted by its very own breach conduct.
559 But that scenario of contract, principal's breach and builder's election to terminate, is to be distinguished conceptually from a quite distinct situation. This is where there has been a failed attempt by the parties to reach agreement, or their contract is assessed as ineffective for some reason, such as contractual uncertainty. In that situation, breach is not a factor on either side of the ineffective contract. Absent breach, there is more scope for application of the general rule that 'if a man spends money on the property before there is a binding contract with regard to it, he cannot recover it from the expected vendor if negotiations go off': see Schreiber v Dinkel (1886) 54 LT 911, 912 (Cotton LJ). That rule is in harmony with the underlying notion for restitutionary relief that the enrichment must be unjust: Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 286 ALR 12 [30].
560 Here, had an ineffective contract platform been established by Austman, it would nevertheless have remained very much exposed, in my view, to an application of the principle that Austman had at its own risk outlaid funds and incurred liabilities, effectively gambling that a contract would later be reached with MGM. This is particularly so here, in circumstances where, from the middle of 2008, Austman repeatedly told MGM there was, as it viewed matters, no binding contract. Nevertheless, Austman was clearly causing steel fabricating work to be performed in China. Austman then declared that it was ceasing all work by its solicitors' letter of 12 November 2008.
561 Had there been an ineffective contract scenario here, an assessment would be required, as to whether it was reasonable for Austman from mid2008 onwards to still be commissioning ongoing offshore fabricating work in China and incurring liabilities in anticipation, presumably, of eventually perfecting a contract with MGM, as it saw things. Next would follow a need for an assessment as to whether, in circumstances where there ultimately was no perfected contract (on Austman's case), with nothing ever delivered, assembled or affixed by Austman at Extension Hill (leaving MGM to essentially pay full price to a new contractor to get a functional crushing and screening plant in 2011), Austman could be assessed, for the purposes of the quantum meruit or quantum valebat remedy, to have conferred upon MGM an ascertainable benefit, from which MGM could then be assessed as being unjustly enriched at Austman's expense.
562 Fourth, the D&C Contract required Austman to design and construct an operative crushing and screening plant at Extension Hill for a lump sum price of $10.914 million. That was so, notwithstanding Austman's entitlement under the D&C Contract to submit and obtain progress claim payments, effectively on an interim basis, prior to it achieving practical completion. Clearly, practical completion was never achieved here. Work at the Extension Hill site never even commenced. No fabricated steel components ever reached Extension Hill. Austman contends approximately half of a crushing and screening plant had been fabricated by its Chinese subcontractors. But the fabricated components sit unassembled in storage, either in China or Kwinana. Storage costs for these unassembled components have been and continue to be incurred by Austman. The unassembled components should have a value greater than scrap. But what their resale value may amount to is unclear from the evidence.
563 Fifth, these stored plant components, lying unassembled in China and Kwinana, are now of no obvious benefit to MGM. For a recommenced Extension Hill project, MGM, as I mentioned, has had to engage a new contractor, Metso, to build its crushing and screening plant. MGM will pay Metso the full cost of that plant, with no setoffs or benefits from its prior dealings with Austman.
564 Sixth, had Austman been found to hold a common law entitlement to damages for loss of bargain, by reference to a repudiatory breach of the D&C Contract by MGM, damages would be assessed on the basis of an award of monetary compensation, seeking to put Austman in the position it would have been in had the D&C Contract been performed to completion. That damages hypothesis would see Austman, prima facie, receive from MGM as damages Austman's lost profit margin (which I assess at approximately 10% of the lump sum purchase price under the D&C Contract), roughly $1.0914 million. Additionally, Austman, as a part of its damages, would also be entitled to be reimbursed its expenditures under the D&C Contract, and indemnified against its incurred liabilities up to the time of termination of the D&C Contract by Austman (assumed on this hypothesis to be 12 November 2008).
565 Austman would hold a damages entitlement for a lost profit margin that should be assessed as accruing to it from the likely time (say, April 2009) Austman would have completed the plant at Extension Hill and, as a result, finally received the lump sum under the D&C Contract.
566 Seventh, the sixth conclusion, as to the assumed composition of Austman's loss of bargain damages, needs to be qualified by the required recognition that, on the evidence in the present case, if Austman had fully met its performance obligations under this D&C Contract to completion, it would, at the end, have found itself in a lossmaking situation visàvis its inadequate lump sum price of $10.914 million. Rather than realising a net profit of approximately $1.1 million, clear of all expenditures and all liabilities, here Austman is overwhelmingly likely, on my assessment, to have been out of pocket at completion of this project on that price. Events leading up to November 2008 demand a conclusion that Austman's lump sum tender price of $10.914 million was far too low to ever turn a profit.
567 Ongoing, sustained efforts by Austman throughout 2008 to obtain from the Superintendent by contractual variations, approved increases to that lump sum price, all failed. Those claims rightly failed on their demerits. Austman's likely cost 'blowouts', assessed by reference to disallowed claims for variations, would have eroded all Austman's profit margin, had it achieved completion on the D&C Contract at the lump sum of $10.914 million.
568 That is not to say Austman might not conceptually have pursued a claim against MGM for loss of bargain damages, constructed by reference to a lossmaking project outcome and an unhappy 'washup' of its overall expenditures or exposures. But a lossmaking expenditure recovery damages calculation would be a distinctly different exercise: see Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 84. That exercise was not attempted.
569 Eighth, on the hypothetical scenario of an Austman quantum meruit, the underlying facts present here as wholly unique and therefore rather challenging conceptually, as to some matters of principle. Quantum meruit as a quasicontractual remedy in Australia, since Pavey & Matthews v Paul, redresses the unpalatable outcome of a party being unjustly enriched at the expense of another. Almost inevitably, fact scenarios in the cases concerning claims to quantum meruit relief by builders, and in construction cases generally, involve a partially commenced, but ultimately unfinished building or structure, that is usually left affixed to land. In the more routine fact situations, on a breach and termination scenario, it is easier to accept how a landowner, held to be in the wrong contractually, but who is an ultimate beneficiary of a partly completed structure left affixed to their land, has received a benefit. Furthermore, it is plain that the landowner's end benefit is received at the builder's expense. It is easier then to accept that the landowner could thereby be assessed to have been unjustly enriched at the builder's expense, if the owner does not render some fair monetary compensation to the builder for what it has received as a discernible tangible benefit.
570 But the more routine fact scenario of (interrupted) partial completion of a physical structure or object, with the demonstrable benefit, arising from the holding of a part finished structure by an owner, is far removed from the facts here. No fabricated steel components of a crushing and screening plant reached Extension Hill. None were assembled or affixed there. Moreover, MGM has had to engage another contractor to construct from scratch its Extension Hill crushing and screening plant.
571 Had MGM been held (hypothetically) to have been in breach of the D&C Contract, then its ultimate lack of any end benefit from Austman might not have mattered that much conceptually. The result (i.e. no benefit to MGM) would essentially follow causatively from MGM's own breach conduct. Fault would rightly lie at its door, not Austman's.
572 But in a no fault situation, such as where there is assessed to be either no contract at all, or an ineffective contract, the identification of any end benefit said to have been received by MGM needs to be identified in a more tangible way. Here the task would be very difficult. This is particularly so if Austman had commissioned works and incurred liabilities to others, only anticipating an eventual consummation of a contract with MGM in future, yet knowing it did not then hold a binding contract with a putative principal.
573 Ninth, in the present case, Mr Jonathon Brown, Austman's quantity surveyor, has completed an expert report (exhibit 31). The report provides, as Mr Brown was instructed, a quantity surveyor's orthodox 'fair allowances' assessment for work done or caused to be performed by Austman in respect of the Extension Hill project. But significantly, Mr Brown was not asked in his report to deal with, and so has not addressed, issues as to the quality or suitability of the fabricated components (exhibit 31, page 5, par 9).
574 Tenth, were Austman hypothesised as an innocent party on a scenario of its accepted termination of the D&C Contract, it follows that MGM would stand exposed, at Austman's further election (on the present state of Australian law) to a quantum meruit (and, I assume also, a quantum valebat) claim. On Mr Brown's analysis, I would assess that to be a maximum restitutionary exposure of $4,141,779 less $947,322 (see exhibit 31, par 25(d)), because as I explain under the eleventh conclusion, there are difficulties in attributing a value to the unassembled fabricated plant components.
575 Eleventh, in the present case, a body of documentary evidence at trial points to serious deficiencies in some steel components fabricated for Austman by its Chinese subcontractors. Some documents forwarded by Austman to its Chinese subcontractors are revealing in their very damning assessments of the quality of the offshore fabrication work.
576 At trial, Austman sought to explain away some bluntly expressed and highly critical emails that its own personnel had sent to its Chinese subcontractors complaining about the poor standard of fabrication work carried out. Austman then said, in essence, that deploying such a highly critical tone in its communications was simply the way business was done in China. Mr M Kuhn said that critical communications of this sort were not uncommon dealing with the Chinese, but would not be sent by Austman to an Australian subcontractor (ts 315 and following). I reject this attempted gloss on what I consider to be strong evidence that Austman itself had raised serious complaints about the workmanship of components fabricated by the Chinese subcontractors. Many communications concerning poor workmanship by the Chinese subcontractors raise, for me, strong doubts over the quality of the workmanship of the components. Mr Brown I reiterate was specifically not asked to address the issue of the quality of the components.
577 Austman's position seemed to be that it must receive just compensation from MGM on a quantum meruit, even for defective or deficient components. But conceptually Austman must, I think, first meet a threshold requirement of showing that MGM received a benefit, and to have thereby been enriched. I was not so satisfied as regards the Chinese fabricated plant components.
578 A concerning body of documentary evidence frames doubts about adequacy of the design and subsequent fabrication work carried out for Austman by its Chinese subcontractors. That is particularly so in circumstances where the end plant contracted for was never delivered, completed, assembled or affixed at Extension Hill. Hence the components have not been tested. This cannot be a fact situation where there has been some acceptance by MGM of an end result or end product, let alone a free acceptance: see Steele v Tardiani [1946] HCA 21; (1946) 72 CLR 386, 402 404.
579 To assess whether MGM has been unjustly enriched by a benefit received, the socalled benefit must first be evaluated. If a plant ultimately constructed by Austman would have manifested design, construction or performance deficiencies, ultimately needing correction at Austman's expense, proper account must be taken of a likely repair cost in computing Austman's fair allowances. The following documentary evidence concerning potential design deficiencies is relevant:
(a) Vlad Czajka's comments of 17 October 2008 concerning a design problem with the ROM bin splicing system and at the same reference Mr M Kuhn's earlier email to Mr Czajka regarding design of connections on the first level of the secondary structure that 'brought tears to [his] eyes' (exhibit 4, page 2211);
(b) Mr H Kuhn's communication of 20 October 2008 to Stuart Stone regarding 'belated structural design' (exhibit 4, page 2214);
(c) Mr Czajka's email of 27 October 2008 to Mr M Kuhn regarding the stair drawing of tower 3 not complying with the Chinese designer's drawing (exhibit 4, page 2230).
Regarding potential defective workmanship, I mention:
(a) Mr H Kuhn's email to JG Chen of Shanghai Sinoman Industrial Ltd of 2 October 2008 as to spots of inferior quality and a failure to preassemble (exhibit 4, page 2167_01);
(b) Mr Sean O'Donnell's email on 16 October 2008 to Mr M Kuhn in relation to the trial assembly of the three stackers and the marked difference in overall quality of the last stacker, with the first two stackers being 'pretty poor' (exhibit 4, page 2211_01);
(c) Mr M Kuhn's email of 26 October 2008 to Eric Riquelme concerning incorrect connections in the secondary structure and the observation that '[n]ot one connection has been fabricated correctly and will need a lot of rework' (exhibit 4, page 2229_01);
(d) Wayne Tripplett's email to Mr M Kuhn of 3 November 2008 concerning a poor standard of corrosion control as regards paint and the subcontractor's continued disregard of Austman's input on this issue (exhibit 4, page 2248);
(e) Mr M Kuhn's email of 29 November 2008 to Julia Chen of Sinoman including adverse comments on towers 1, 2 and 3 commenting as regards the third tower that it is 'preassembled but only 80% complete, is considered irreparable, no progress has been made on the remedial work on this structure in 6 weeks'. As regards the first tower, the comment was '80% material has been purchased and cut, all connections are wrong' (exhibit 12);
(f) Mr S Kuhn's email of 2 December 2008 to Aileen of Yitai concerning deficient trial assembly of trusses before galvanising (exhibit 4, page 2320_03);
(g) Mr H Kuhn's email of 10 December 2008 to Julia Chen concerning galvanisers observing, 'Yitai intentionally did not take Wayne [Tripplett] to the galvanisers. The trusses show clear sign of being painted over with Christmas paint or any other paint. These goods, goods of package [sic] number 2, have not been accepted and will not be accepted. They can now be dumped into the Yellow River. Goods of package 2 accepted by Wayne will be paid at 50%' (exhibit 4, page 2324_20);
(h) Mr S Kuhn to Aileen of Yitai on 10 December 2008 observing, 'I am sick and tired of having to fight you and then our client here in Australia to get paid because of the bad quality of Chinese fabrication. Please show [Wayne Tripplett] the containers which are ready for shipping with the correct marking list and packing plan. If this does not occur today, then we will take this to be an admission that the quality is not good enough to reach the standards required in the agreement and I will cancel shipment and as new agreement states, we will throw it into the Yellow Sea. I am fed up with being treated with dishonesty after we have treated you with honesty throughout' (exhibit 4, page 2324_22).
580 Bearing upon a likely suboptimal performance of conveyors in the crushing and screening plant and the design of the conveyors to meet 'flooded conditions', is exhibit 25, the expert report of Mr Kendall, pars 2.4.4 and 3.5.1.14 (ts 551 and following).
581 Overall, this very substantial body of documentary evidence strongly indicates the existence of likely deficiencies in design, as well as in the workmanship of fabricated materials presently stored, unassembled and untested.
582 Quality concerns are not alleviated by a Bureau Veritas inspection report of 3 December 2008 (exhibit 4, pages 2324_52 to 2324_55). There looks to have been some negotiation over the wording of this report, as between Austman and Bureau Veritas' representative, Mr Kumar. Little was said about this document during the course of the trial. Austman's brief reference to it is by its closing written submissions and then it only mentions the report in passing (page 41, par 157). (See also Mr Kumar's communication to Austman of 13 December 2008, exhibit 4, page 2324_48 and Bureau Veritas' inspection report for 14 unit conveyors by supplier Wuxi YiTai Heavy Machinery Co Ltd of 3 December 2008, exhibit 4, pages 2324_62 to 2324_65 and the conclusion at 7, '1. Visual inspection on structure welding is acceptable. 2. Some welding defect should be repaired before delivery'.)
583 It will be recalled again that Mr Jonathon Brown's expert report specifically excluded any examination of the quality of the workmanship of the end product.
584 In the end, I have not been persuaded on the balance of probabilities that MGM would have received a benefit from unassembled fabricated components at the level of $947,322 as assessed by Mr Brown. Thus it is removed from the computation seen under the tenth conclusion stated previously.
585 Twelfth and last, some problematic issues arise concerning Austman's conduct from 30 June 2008 (when it was asserting that it had not yet perfected a binding contract with MGM), then again, after Austman's purported termination of an (assumed) D&C Contract on 12 November 2008.
586 Why did Austman at both these times (mid2008 and midNovember 2008) not call a halt to the offshore fabrication work? It may be one thing if Austman could show it had been locked into completing contractual obligations under earlier subcontracts with Chinese fabricators. But Austman only signed off on a replacement contract with Yitai on 4 July 2008.
587 I am not prepared to draw an inference from the bare existence of offshore subcontracts governed by Chinese law that it was not open to Austman, at least from midJuly 2008, to direct its subcontractors to cease work at these times. Given Austman's stance that no D&C Contract existed or was enforceable with MGM, Austman from midJuly 2008, on its case, was essentially commissioning and allowing fabrication work to be performed offshore, absent (it was saying) any finalised head contract with MGM, but in anticipation that a contract with MGM may be perfected at some future time, or possibly only that it could, by the Pilley McKellar advice of 16 July 2008, still pursue a quantum meruit. From that premise, Austman, on my assessment, would have essentially proceeded at its own risk in continuing the further offshore work (unless it can show it was locked into offshore commitments it could not extricate itself from).
588 Austman's communication of 12 November 2008 to the effect that Austman had decided to cease all work and would take steps to mitigate its losses, suggests to me that an immediate offshore cessation of work was open to it as an option, at least from then.
589 Even after 12 November 2008, the evidence is that more fabricating work continued to be carried out offshore. Further, Austman was still instructing its subcontractors to carry out that further work. On this basis Austman looks to me to have been gambling that MGM would eventually 'blink' and accept the offshore materials. The gamble proved ultimately to be wrongly taken.
590 What transpired as to Austman not stopping the ongoing offshore fabrication work in November 2008 was never satisfactorily explained. I am also not prepared to infer, absent better evidence, that offshore fabrication after 16 July 2008 needed to continue under Austman's arrangements with Chinese subcontractors. Nor have I been persuaded that it was reasonable for those subcontractors to finish work then underway, in order to achieve best realisable value for a particular batch of fabricated steel plant components. That may have been the case. But I should not be required to speculate over it. There is the equally plausible possibility it would have been more reasonable for Austman to immediately call a halt to expenditures on any further offshore fabrication work from the end of June 2008, and most certainly after 12 November 2008, once Austman had given its notice of termination to MGM.
591 Again, this is not the routine case of an unfinished building site structure where every extra brick, girder or concrete pour that is left behind unfinished can be assessed as delivering a tangible end benefit to a landowner, thereby providing a basis for some fair compensation to the builder for the incomplete works.
592 In the end, Austman's claims fail. MGM also succeeds on its counterclaim to recoup its wasted expenditure, arising out of progress claim payments made to Austman, of $842,283. MGM ultimately obtained no benefit from those progress payments, in light of the D&C Contract not reaching completion, by reason of the repudiation of Austman and the ensuing termination by MGM of the D&C Contract on 28 November 2008. Austman must also pay interest on $842,283 at the rate of 6% from 29 November 2008.
593 As to the costs of trial, MGM, as the successful party, should prima facie receive its costs of the action and of its counterclaim, to be taxed and, given the magnitude of this trial, all scale ceilings removed for the taxation. Costs follow the event.
594 The parties should now confer and settle a minute of agreed final orders reflecting the outcomes of these reasons. They should submit, if possible, an agreed minute of orders within 14 days. Absent agreement MGM should submit its minute of proposed orders giving effect to these reasons within 21 days. Should any difficulties arise over the terms of final orders, I will resolve such issues on the papers, by receipt of the parties' sequential written submissions, with MGM to submit its written submissions with its minute of proposed orders and with Austman to respond no later than 14 days thereafter.
(2008) 36 WAR 97
(2001) 53 NSWLR 153
(1929) 43 CLR 310
(2007) 233 CLR 115
(2000) 22 WAR 101
(2009) 40 WAR 191
(1968) 118 CLR 429
(2000) 203 CLR 579
(1991) 172 CLR 293
(1988) 164 CLR 387
(2012) 286 ALR 12
(1991) 174 CLR 64
(1923) 33 CLR 199
(1989) 168 CLR 385
(2009) 24 VR 510
(1989) 141 CLR 594
(1978) 138 CLR 423
(1987) 162 CLR 221
(1946) 72 CLR 386
(1988) 18 NSWLR 540
(1933) 48 CLR 457
(1951) 84 CLR 377
(1986) 40 NSWLR 622