The Facts
101 I will set out the facts in chronological order and identify my findings of fact in relation to the disputed facts as I do so. It will be convenient to refer to some of the facts in more detail when I address the particular causes of action.
102 In 2010, Basetec was engaged by Leighton to provide GRP pipe and fittings for a project at Christies Beach. The value of the contract was approximately $250,000. Mr Paul Figallo said that he had not studied commercial contracts and this was his first involvement with what he called a "Commercial Project Contract". The project involved variations which were handled informally and the cost of the project increased to approximately $400,000.
103 As I have said, GRP pipe and fittings was relevant to at least three aspects of the Project, being the GRP interconnecting pipe, which is the subject of the Works Contract, the GRP pipe associated with the PAUs, and the GRP pipe associated with the IX process. Mr Paul Figallo first met Mr Flounders in connection with the Project on 20 May 2012.
104 C & GE was incorporated in 2000 and it is a steel manufacturing company and licensed builder. C & GE designs and manufactures materials handling equipment, structural steel, tanks and building works. At the time of trial, it employed 24 staff comprising metal trade workers, a draftsman, a factory manager and one staff administrator. Between approximately June 2012 and August 2014, C & GE was involved in work on the Project.
105 On 7 August 2012, C & GE entered into a written contract with Leighton for the supply of the PAUs. Mr How described PAUs as structural steel and pre-assembled pipe rack units and he said that they comprise glass resin pipe, which he called GRP, plus structural supporting elements such as flanges and backing rings. Mr Torpy described the PAUs as running down the centre of the Water Treatment Facilities and as holding a series of different pipes on steel racks. The PAUs were delivered to site and bolted down. As C & GE did not manufacture GRP pipe, it needed to engage a subcontractor to manufacture the GRP pipe in connection with the PAUs. Prior to 7 August 2012, C & GE approached three companies to provide a price for the GRP pipe. That had been done after Mr Flounders advised Mr How of the three companies which had been approved as potential suppliers of GRP pipe in connection with the PAUs on the Project. One of those companies was Basetec and it provided its tender for the GRP pipe in connection with the PAUs to C & GE on 8 June 2012. RPC was one of the other companies and Mr How favoured its tender. However, Basetec's tender had the advantage of a shorter delivery time of two weeks.
106 During the course of the negotiations, C & GE received a copy of the proposed supply contract from Leighton and sent a copy of the contract to Basetec on or about 22 June 2012.
107 As I have said, C & GE were successful in obtaining the contract in relation to the PAUs and Basetec was the preferred supplier of the GRP pipe. On 18 July 2012, C & GE sent a notice of award to Basetec with respect to the PAUs for Condabri. The value of the contract was $1,394,127.19.
108 Mr How gave evidence of his dealings with Basetec in connection with the contract for the supply of GRP pipe in association with the PAUs. He referred to difficulties with the quality of the pipe delivered by Basetec and revisions in relation to the PAUs for Reedy Creek. Ultimately, there were difficulties about variations concerning Reedy Creek and a dispute arose between Basetec and C & GE which is the subject of proceedings in the Supreme Court of Queensland. In the result, Basetec did not deliver any GRP pipe to C & GE in relation to the works at Reedy Creek. This evidence is at odds with Mr Paul Figallo's statement that the Project in relation to the PAUs for Condabri and Reedy Creek was "very straight forward". Leaving aside the "rights and wrongs" of the dispute, it is not correct to say that the Project was very straightforward.
109 On 19 September 2012, Leighton issued a request for a quotation with respect to the interconnecting pipe associated with Condabri and Reedy Creek to C & GE (Mr Matthew Folpp), EDE Engineering and Fusion. Mr Folpp was the project manager at C & GE. On 26 September 2012, Mr Paul Figallo received an email from Mr Folpp with respect to the request for a quotation for "WC-050 - Fabrication and Supply of Interconnecting Pipe Spools and GRP Site Jointing". That email attached Leighton's email to C & GE dated 19 September 2012 requesting a quotation from C & GE. In Mr Folpp's email to Basetec, Mr Folpp said that he required "a price back by the COB on the 3/10/2012". There were 92 tender drawings relevant to the work. It appears that sometime later, Leighton sent a request for a quotation to RPC. Leighton had a poor response in terms of tenderers wanting to supply GRP pipe, PVC and stainless steel pipe, and it decided that the GRP pipe would be a separate scope of work.
110 On 8 October 2012, Basetec provided a tender to C & GE for the GRP interconnecting pipe for Condabri. Basetec's price for the fabrication and supply of interconnecting pipe spools and GRP site jointing with respect to Condabri was $996,450 plus GST. At a time prior to 22 October 2012, C & GE submitted a tender to Leighton which involved Basetec supplying the GRP interconnecting pipe component.
111 Mr Paul Figallo was involved in approving estimates of the costs of work which estimates are provided to clients by Basetec. Mr Paul Figallo said, and I accept at a general level, that in costing Basetec's original tender to C & GE for the supply of GRP interconnecting pipe and fittings for the Project, he addressed the following matters:
(1) The cost to Basetec of labour for the work, the estimated duration of the work, and then the application of standard charge out rates.
(2) The direct costs of the manufactured goods and component.
(3) The costs of international freight.
(4) The direct expenses of the work.
(5) The direct overheads.
(6) Miscellaneous costs.
112 Mr Paul Figallo said that he did not consider the Leighton pro-forma or standard contract when he was preparing his initial tender of $996,450 to C & GE for the GRP interconnecting pipe project. Basetec's tender to C & GE showed a price for each drawing and those prices had been prepared by Mr Cheong of Basetec.
113 On 17 October 2012, RPC provided a tender to Leighton for the GRP interconnecting pipe spools and GRP site jointing at Condabri and Reedy Creek, and RPC's price was $512,711.07 for Condabri, and $492,527.10 for Reedy Creek.
114 On or about 24 October 2012, Mr Paul Figallo received a telephone call from Mr Flounders. Mr Paul Figallo's account of this conversation was that Mr Flounders told him that Basetec's price was too high. Mr Paul Figallo was surprised by this statement as Basetec had not provided a tender directly to Leighton and he was unsure as to the reasons Leighton had been given the price put forward by Basetec. Mr Flounders told Mr Paul Figallo that RPC, who had also tendered for the GRP interconnecting pipe through C & GE, was also tendering directly to Leighton. Mr Flounders said in evidence that he did not specifically recall the details of the conversation. He did ask Basetec to provide a price for the GRP interconnecting works direct to Leighton. He said that he did not recall and does not think that he would have told Mr Paul Figallo that RPC had provided a tender for the interconnecting package. He does recall telling Mr Paul Figallo that the C & GE price was too high, perhaps because it involved a margin on a margin. Mr Flounders' recollection is that Mr Paul Figallo was enthusiastic about the possibility of tendering direct to Leighton and he did not say anything about feeling uncomfortable about doing that. I am disposed to accept the account of Mr Flounders, particularly as I accept Mr Torpy's account over that of Mr Paul Figallo about the discussions that took place the following day.
115 Mr Paul Figallo said that on 25 October 2012, Mr Torpy contacted him by telephone. Mr Torpy said words to the effect that he was doing a cost comparison of the tenders and that he would send Mr Paul Figallo a list of topics for a teleconference between Mr Flounders and Mr Paul Figallo. Mr Paul Figallo said that Basetec had provided a tender through C & GE and asked why Leighton wanted to have a conversation with him instead of C & GE. Mr Paul Figallo said that Mr Torpy did not respond and, in effect, dismissed the question. He told Mr Torpy that he "should follow up" with C & GE. Later on the same day, Mr Torpy sent Mr Paul Figallo an email which attached an Excel file which included an evaluation by Leighton of the tenders for the GRP interconnecting pipe made by C & GE and RPC respectively. Mr Paul Figallo said that the spreadsheet in the file included a costs comparison of the tenders. RPC's price and Leighton's assessment of its tender was "hidden", but that part of the spreadsheet could be opened quite easily. Mr Paul Figallo opened that part of the spreadsheet which revealed RPC's price and Leighton's evaluation of RPC's tender. He said that he was asked to attend a teleconference for a clarification meeting about the differences, both technically and commercially between the two tenders. He said that he was asked during the course of the teleconference to explain to Leighton the reasons the RPC price was non-conforming and, therefore, much cheaper than the tender made by C & GE. He was asked at the teleconference to tender directly to Leighton. Mr Paul Figallo said that he was uncomfortable with this as C & GE was his client and he was still working with them on the package in connection with the PAUs. He said that he was very hesitant to comply with the request to tender directly to Leighton and that he told Mr Flounders that he was uncomfortable. Mr Flounders asked Mr Paul Figallo to tender saying that he was not happy with the price put forward by C & GE.
116 Mr Flounders said that he does not recall Mr Paul Figallo ever telling him that he was uncomfortable about providing a tender directly to Leighton. Mr Flounders said that, in fact, Mr Paul Figallo seemed excited about the opportunity to provide a tender directly to Leighton. Mr Flounders said that he is certain he never said to Mr Paul Figallo that he would provide Basetec with a copy of RPC's tender. He did not provide Basetec with a copy of any other tender and his knowledge at the time was that Basetec was not in a position to review RPC's tender. Mr Flounders said that he has subsequently become aware as part of these proceedings that a document sent to Basetec by Mr Torpy inadvertently contained information about RPC's tender. He said that he did not know that at the time and that that was something he would never intentionally cause to be done.
117 Mr Torpy said that meetings with C & GE and RPC were arranged to take place separately in Leighton's offices in Fortitude Valley in Brisbane on 25 October 2012. He had prepared a spreadsheet addressing aspects of the respective bids of C & GE and RPC and he called this document a Technical Bid Evaluation ("TBE"). He planned to use the TBE as, in effect, an agenda for the meetings. Mr Torpy met C & GE and RPC separately. Basetec attended the meeting involving C & GE as its technical representative and Mr Folpp was also present. In addition to Mr Torpy, Mr Flounders and Mr Boris Ninkovic of Leighton were present and perhaps, Mr Frank Porter. Arrangements had been made for Mr Paul Figallo to attend by telephone and, before the meeting, Mr Torpy sent him a copy of the TBE. Mr Torpy said that he never said to Mr Paul Figallo that he was doing a cost comparison of the tenders. That was not the task he was undertaking and it was not his role. Mr Torpy said that he does not think RPC was ever mentioned at the meeting involving C & GE and Basetec, and that he cannot see any reason why RPC would have been mentioned. He said that, although he had "hidden" the non-C & GE details in the TBE he sent to Mr Paul Figallo, he had failed to delete some columns from the spreadsheet which contained his technical evaluation of the RPC tender. It was possible to "unhide" the hidden columns. Mr Torpy accepted that this was a mistake on his part. He said that after the teleconference on 25 October 2012, he received a telephone call from Mr Paul Figallo concerning the TBE which he had sent to him. Mr Paul Figallo asked Mr Torpy whether he realised that the spreadsheet had other pricing information on it and that he (Mr Paul Figallo) did not need to see that. Mr Torpy said that at the time of that telephone conversation he thought that Mr Paul Figallo was referring to the final price mark-up that C & GE had added to Basetec's price and that he was intimating that C & GE had added a larger mark-up to Basetec's price than he expected. Mr Torpy did not realise that he had made a mistake in connection with the hidden columns in the TBE until this was pointed out to him by Mr Hill during a telephone conversation in or about April 2014.
118 Both RPC and Basetec had "submitted" non-conforming tenders and both were asked to provide revised information.
119 There is an issue of credit concerning the meeting on 25 October 2012. Leighton submits that the RPC tender was not discussed at the meeting involving C & GE and Basetec, and that Mr Paul Figallo has fabricated his evidence concerning the meeting in order to justify the fact that he had "unhidden" that part of the spreadsheet which addressed RPC's tender. In other words, it submitted that, having opened that part of the spreadsheet which showed details of RPC's tender, Mr Paul Figallo then tried to justify his conduct by inventing a story to the effect that Leighton was unconcerned about Basetec knowing of the details of RPC's tender. He said that at the teleconference, he was asked to provide his opinion as to the reasons RPC's bid was non-conforming and, therefore, its tender price was much cheaper than that of C & GE which included the Basetec price. This dispute is not relevant to a substantive issue in the case. It is relevant (so Leighton submits) to my assessment of Mr Paul Figallo's credit and reliability.
120 I prefer Mr Torpy's evidence that he did not say to Mr Paul Figallo that he was doing a cost comparison of the tenders and that there was no discussion about RPC or its price or whether its offer conformed with the specifications during the teleconference. Mr Torpy was a straightforward witness and his evidence seems to me to be consistent with his role in the TBE process, at least the primary purpose of the meeting, and the fact that the information was hidden in the first place. Mr Paul Figallo admitted in cross-examination that he had opened the hidden part of the spreadsheet and that he did not actually say at the meeting on 25 October 2012 that he had seen the details of the RPC offer. As I have said, Mr Paul Figallo's evidence is to be approached with caution.
121 On 26 October 2012, RPC provided a further or revised tender for the GRP interconnecting pipe and fittings and the price for Condabri was $655,142.05, and the price for Reedy Creek was $632,481.54.
122 Mr Paul Figallo said that on 26 October 2012, Mr Flounders contacted him by telephone and said words to the effect that he wanted Basetec to provide a better price and that it was a great opportunity for Basetec as APLNG "wants the same subcontractor all the way through". Mr Flounders agrees that he spoke to Mr Paul Figallo on 26 October 2012. He does not recall telling Mr Paul Figallo that "Origin wants the same subcontractor all the way through". Mr Flounders acknowledged that the technical specifications provided with the tender package (Q-LNG01-50-TS-0007) stated that all of the pipe and fittings for the Project would be fabricated by one manufacturer and supplied by one supplier. However, he was aware that Mr Lewis had previously sought and obtained a relaxation from Origin with respect to that specification. It is clear from the documents that Leighton sought a relaxation of the requirement by letter dated 26 July 2012, and that it was granted by Origin, subject to conditions, on 6 September 2012. Mr Flounders said that he had discussed the need for this with Mr Lewis to prevent price gouging. I accept what Mr Flounders said about this topic. He was not shaken in cross-examination.
123 On 29 October 2012, Mr Flounders sent an email to Mr Paul Figallo asking him whether Basetec would be supplying "a direct price" for the interconnecting pipe. Mr Flounders also asked Basetec for information about its relationship with Hexagon.
124 On 29 October 2012, Basetec sent a quotation to Leighton for Condabri only in the amount of $921,716 plus GST and specified rates for site work.
125 Mr Paul Figallo gave evidence that on 1 November 2012, he attended a meeting in Brisbane at the offices of C & GE. He said that he was invited to attend the meeting by Mr Flounders and that the purpose of the meeting was to discuss the GRP interconnecting pipe project. In addition to Mr Flounders and himself, Mr Alex Nixon of Basetec and Mr Folpp of C & GE were present. Mr Paul Figallo said that at the meeting, Mr Flounders said that notwithstanding its quotation to Leighton, Basetec should reduce its price to match a revised RPC tender because if Basetec was successful in obtaining the contract, Leighton would retain Basetec for the balance of the APLNG Interconnecting Project. If, on the other hand, Basetec did not match RPC's tender price, then Mr Flounders would approach APLNG and do what he could to have Basetec removed as an approved supplier of GRP pipe to the APLNG Project. Mr Flounders allegedly said that Mr Paul Figallo should do as he asked because the APLNG Interconnecting Project was a good project to get on to as APLNG required that all GRP pipe for the APLNG Interconnecting Project be manufactured by one manufacturer and supplied by that one supplier. Mr Paul Figallo said that Mr Flounders said that the APLNG Interconnecting Project would provide work for years and that the project was proceeding in a series of stages, each of which was to be tendered and approved separately as packages or on a schedule of rates. The project would provide the successful tenderer with $20 million to $25 million worth of very profitable work over an effectively open ended contract. Mr Paul Figallo said that Mr Flounders also said that Basetec would be offered a contract to supply the IX pipe package which Mr Paul Figallo understood to be a reference to another part of the Water Treatment Facility called the Ion Exchange. Mr Paul Figallo said that at the meeting, he said words to the effect that Basetec would review its price for the GRP interconnecting pipe and provide another price. Mr Flounders said that Leighton had approached RPC and requested that RPC provide a conforming tender and thereby a new price. Mr Flounders said that RPC had complied with the request and provided a conforming tender to Leighton. Mr Flounders said that RPC would be given the interconnecting package if Basetec did not reduce its tender price further. Mr Paul Figallo said that Basetec wanted the Project and was delivering successfully on the PAU project and was disappointed that Mr Flounders was threatening him with giving the work to RPC. He said that the meeting concluded on the basis that he would go away and do what he was asked to and then be awarded the work.
126 Mr Flounders' evidence about the meeting on 1 November 2012 was that Mr Tony Carbone from Leighton was also present at the meeting. Mr Flounders said that he had a private conversation with Mr Paul Figallo and he recalls saying to Mr Paul Figallo words to the effect that the projects relating to coal seam gas were all very large projects and expected to have long life times. He recalls saying to Mr Paul Figallo that if Basetec "got in" with Leighton on this contract, then who knows where it could take Basetec in relation to future works connected to the coal seam gas industry. He also told Mr Paul Figallo that other contractors on the Project were receiving work as part of the wider APLNG Project, that work was likely to recur, and that the GRP interconnecting pipe project could be a stepping stone for Basetec to win additional work. He also recalls saying to Mr Paul Figallo that if Basetec was successful on the interconnecting pipe tender then they would probably get the IX pipe package. This was because Mr Flounders considered it to be efficient to have one contractor carrying out the GRP pipe aspects of the work related to the PAUs, interconnecting works and the IX works. Other than the above, Mr Flounders denied the statements attributed to him by Mr Paul Figallo.
127 Mr Paul Figallo was cross-examined about his account of what Mr Flounders said at the meeting on 1 November 2012. It was suggested to him that his account mirrored almost word for word the allegations in Basetec's Statement of Claim. That is true, but it does not take the matter very far because, as Mr Paul Figallo said, he gave the instructions for the preparation of the Statement of Claim. He did acknowledge that he had had some assistance from his legal team in preparing his affidavit, but he did not acknowledge that the words used in his affidavit did not in substance reflect his evidence. Mr Flounders was briefly cross-examined about his account of what he said at the meeting.
128 I prefer Mr Flounders' account of what he said to Mr Paul Figallo at the meeting on 1 November 2012. I think it is the more likely of the two versions and I do not think it likely that Mr Flounders would have threatened to have Basetec removed as an approved supplier. I make findings in accordance with Mr Flounders' account of the discussions at the meeting.
129 It is important to note that the statements allegedly made by Mr Flounders at the meeting on 1 November 2012 (or the statements he made as I have found) are not alleged by Basetec to have been false or to constitute misleading or deceptive conduct. As I understand Basetec's Further Amended Statement of Claim ("FASOC"), the statements do not of themselves give rise to a cause of action. They are part of the events leading up to the notice of award and the Works Contract. On the statements as I have found them to be (i.e., Mr Flounders' account), I have no doubt they were made by Mr Flounders with a view to encouraging Basetec to put in the lowest quote it possibly could.
130 Later on 1 November 2012, Mr Flounders spoke with Mr Paul Figallo on the telephone. Mr Paul Figallo said that Mr Flounders told him that RPC had offered pipe supports to the value of $25,000 per site and that he wanted Basetec to match this offer. He also told Mr Paul Figallo that if Basetec would do the work for $716,800 for each site, inclusive of the cost of pipe supports for both sites to a total value of $50,000, then he would give Basetec the Project.
131 Mr Flounders recalls having a telephone conversation with Mr Paul Figallo on 1 November 2012 and discussing pipe supports and telling Mr Paul Figallo that Basetec's tender was a percentage higher than RPC's tender. He could not recall the percentage he specified. In cross-examination, he said that he did not think that he stated a percentage. I found Mr Flounders' evidence about whether he nominated a percentage to be confusing and I accept Mr Paul Figallo's account of the telephone conversation.
132 On 2 November 2012, Basetec provided a quotation for the fabrication and supply of interconnecting pipe spools and GRP site jointing for Condabri of $716,800 plus GST. Mr Paul Figallo said that were Basetec to provide the GRP pipe at $716,800 it would not make any profit or receive any contribution to its overheads. It would, however, make a profit with respect to site jointing works. He said that in deciding to make a tender for $716,800 he was influenced by the belief that APLNG wanted the same subcontractor all the way through and that a great deal of further profitable work was likely. He might have believed these matters, but, as I have said, Mr Flounders' statements are not pleaded as actionable misrepresentations or misleading or deceptive conduct. Furthermore, he said that he would not have reduced Basetec's tender price had he known of the existence of the revised and new drawings. I will return to this evidence when considering the allegation that Leighton engaged in misleading or deceptive conduct.
133 On or around 5 November 2012, Mr Flounders spoke to Mr Paul Figallo on the telephone and asked Basetec to submit a quotation for both Condabri and Reedy Creek. On 6 November 2012, Basetec provided a quotation for both Condabri and Reedy Creek and in each case the quotation was for $716,800 plus GST, and the completion of site joints on a schedule of rates set out in the quotation.
134 On 8 November 2012, Leighton sent a message to Basetec whereby it reissued to it the original request for quotation which had been issued to C & GE.
135 There is a dispute between Mr Paul Figallo and Mr Flounders about whether Mr Flounders advised Mr Paul Figallo on or about 1 November 2012 and then at Hexagon's factory in Malaysia on or about 8 November 2012, that new drawings were being received by Leighton and inquiring as to whether Basetec could take on additional work. Mr Flounders said that he did tell Mr Paul Figallo these things and that, in response, Mr Paul Figallo said that Basetec could take on more work. Mr Paul Figallo denied that Mr Flounders had told him these things and, in addition, he said he had not read or understood Leighton's standard form supply contract.
136 For reasons I give in dealing with the cause of action based on misleading or deceptive conduct, I accept the evidence of Mr Flounders (at [376]).
137 On 13 November 2012, Basetec provided Leighton with a price for pipe supports. Basetec advised Leighton that it had "allowed to cover a maximum of $50,000 value of Pipe supports in our offer".
138 On 23 November 2012, Mr Torpy gave his recommendation to Mr Lewis as to which tender or offer should be accepted. Mr Flounders had approved the recommendation. There was little difference in terms of technical compliance, but there was concern about the quantified technical and project risk associated with selecting a different pipe manufacturer to those manufacturers and suppliers already under contract in connection with the PAUs.
139 On 23 November 2012, Mr Frank Porter of Leighton sent Basetec an email attaching a notice of award for the contract described as "WC-050 Interconnecting Pipe Work; Basetec Q1461-WC-050". In his email, Mr Porter said that he would prepare and issue the full set of contract documents by Wednesday of the following week. The notice of award is a letter from Leighton dated 23 November 2012 to Mr Paul Figallo of Basetec. It is signed by Mr Lewis and it contains provision for the execution of the document by Basetec. It provides as follows:
This Notice of Award shall constitute the Contractors [sic] authorisation to proceed with the fabrication, supply and site jointing of the Goods in accordance with the Tender documents with the exception of the exception of [sic] the Talinga Transfer Pump Spools which are on hold and subject to change. The issue of this Notice of Award also creates a binding agreement between Leighton and the Contractor.
…
Except as expressly provided in this letter of commitment, the work under this Notice of Award shall be performed in accordance with the relevant terms and conditions of Leighton's standard form Supply Contract, including the special conditions, subject to mutual agreement between Leighton and Basetec Services Pty Ltd
….
Until the formal Contract Document is agreed and executed by both parties this Notice of Award will evidence the Contract.
140 The notice of award provides that the contract value is $1,463,600 plus site jointing which is to be carried out on a schedule of rates basis.
141 Basetec started work on the original scope of works as defined in the tender package immediately upon receipt of the notice of award and instructed Hexagon to commence preparations for the manufacturing process. Mr Paul Figallo, as general manager and as project director for the job (his father was the other project director), gave directions to various employees of Basetec about the roles they were to perform in relation to the original scope of works.
142 In the week or so after the notice of award, Basetec started to carry out a technical review of the drawings and specifications for errors and non-conformances. It also started to create a project delivery program and manufacturing priority program in consultation with Hexagon. Finally, it reviewed international shipping schedules and started to prepare an international freight forwarding schedule.
143 On 26 November 2012, Basetec, through Mr Charles Figallo as managing director, executed the acceptance of the notice of award. Basetec added the following rider to the document:
- Please note that pricing for Reedy Creek was based on multiplier of 100% for all plant areas/systems for Condabri. Pricing will be reviewed as necessary when drawings become available.
144 There was a project meeting in Leighton's offices in Brisbane on 29 November 2012. The meeting was attended by Mr Flounders, Mr Torpy and Mr Carbone of Leighton, and Mr Paul Figallo and Mr Koutsounis of Basetec. Mr Paul Figallo said that during this meeting, Mr Flounders advised him and others present at the meeting that there was a new scope of works. Mr Flounders denied saying that there was a new scope of works. He said that there were new drawings which, if Basetec performed the works in the drawings, would be treated as a variation. I accept the evidence of Mr Flounders. It is consistent with what Mr Torpy wrote on 30 November 2012.
145 After the meeting, Mr Paul Figallo received an email from Mr Torpy and the email enclosed 11 revised drawings for Condabri and an instruction to Basetec to fabricate the pipe and fittings in accordance with the revised drawings. I will refer to these drawings as Basetec did in its pleadings as the Revised Drawings. Mr Torpy's email states as follows:
The file attached to this email contains updated revisions of drawings for the Condabri Interconnecting Pipe contract. Please fabricate to these advise if you believe any scope adjustments are required.
(Emphasis added.)
146 On 30 November 2012, Mr Torpy sent an email to Mr Paul Figallo in the following terms:
Following our discussion at yesterday's meeting, here is a copy of the set of new drawings for Condabri Interconnecting Pipe. The intention is to purchase these items as a variation to the initial interconnecting pipe contract if the terms of the quote are assessed as satisfactory.
Please quote your best price and delivery for these items. Please send your quote to Frank and myself and also CC Neil Flounders.
(Emphasis added.)
147 There were 66 new drawings. I will refer to these drawings as Basetec did in its pleadings as the Additional Drawings.
148 Mr Torpy said that he deliberately sent the Revised Drawings and Additional Drawings separately and that his understanding was that there was no obligation on Basetec to do the work identified in the drawings.
149 Mr Paul Figallo claims the 11 Revised Drawings changed the scope of works.
150 Leighton had the power under the Works Contract to seek a quotation or valuation from Basetec in relation to the variations before Basetec proceeded with the variations. The quotation or valuation would be considered by Leighton which would then decide whether to give a direction in relation to the variations. This is what Mr Torpy seems to have had in mind when he wrote his email of 30 November 2012. However, it never happened. Some months later, Basetec provided details of its costs for the variation and Leighton did not agree with the proposed costs. However, there is no suggestion that Leighton did not authorise Basetec to carry out the variations.
151 Mr Paul Figallo said that the Additional Drawings "significantly increased" the scope of works in relation to Condabri and he inferred Reedy Creek. He provided an analogy of the conversion of a single storey house to a high rise building.
152 Mr Paul Figallo described the work Basetec was required to carry out and his description basically accords with the company's usual practice which I have summarised (at [19] above).
153 On or about 1 December 2012, Mr Lewis attended a meeting with a Mr Mark Beighton in the offices of Origin in Brisbane. He said that Mr Beighton was Origin's project manager. Mr Lewis cannot recall whether Mr Flounders was present at the meeting. He said that even if Mr Flounders was not present at the meeting, it was his practice to inform Mr Flounders of the details of relevant meetings very soon after they occurred. At the meeting, Mr Beighton said to Mr Lewis words to the following effect:
The gas well are [sic] producing more water than anticipated and we need to put water into the brine ponds earlier than anticipated. We need to use the GRP to transfer the water to these ponds, and hold the water in the ponds temporarily, until an alternative solution is found.
We are calling this connection "first water". It is a soft milestone - you will not be penalised if you don't achieve it.
154 Mr Lewis could not recall what the milestone date was, but he does recall Mr Beighton informing him of a delivery date sometime in March 2013 for the First Water scope. Mr Lewis said that because the date was later changed to 28 March 2013, his recollection is that the date must have been earlier than that in March 2013.
155 Mr Lewis said that the First Water milestone was never the subject of a direction to Leighton under the Head Contract and it followed from that, that Leighton was not exposed to penalties in relation to the milestone. Mr Lewis said that nevertheless he was keen to deliver the milestone to APLNG, because Leighton's role on the project was to facilitate delivery of the Project and, as best they could, to meet the requests of the client. He said that like any other service provider, Leighton was interested in keeping the client happy. He said that Mr Beighton made it clear to him that the GRP pipe was a crucial part of First Water. Mr Lewis said that the First Water scope was largely original scope with some marginal changes as a result of the Revised Drawings. His recollection was that it was not overly complicated and he considered that Origin's request could be accommodated fairly easily in light of the proposed delivery schedule for GRP pipe and fittings at that time. For these reasons, he endeavoured to make it happen.
156 I broadly accept Mr Lewis' evidence concerning First Water, although it must be read with the further findings I make in connection with the meeting in Batam on 8 February 2013 (at [234]-[238]). In particular, I accept that the milestone for First Water at that stage was a date earlier in March 2013 than 28 March 2013. I think Mr Lewis is wrong about the First Water GRP pipe being part of the original scope of works. Although the evidence is not as clear as it should be, it seems that the First Water GRP pipe, or at least the bulk of it, was part of the Additional Drawings. It is possible, but remains unclear, that the First Water GRP pipe drawings were within the tender package, but not part of the 92 relevant drawings.
157 By 4 December 2012, Mr Paul Figallo had formed the view that the scope of works for the GRP interconnecting pipe and fittings was now so large that Basetec could not complete the works within the time-frame set out in the Works Contract. There is a dispute about the contents of an alleged telephone conversation between Mr Paul Figallo and Mr Flounders on 4 December 2012. Mr Paul Figallo said that he spoke to Mr Flounders on the telephone on 4 December 2012 and that he told him that the works could not be completed within the time-frame set out in the contract and that the works were too big for Basetec. Mr Flounders allegedly said "you better get this damn thing delivered because if you don't the penalties for not delivering are huge". Mr Flounders said he never said to Mr Paul Figallo that "the penalties for not delivering are huge". He also said that Basetec never suggested that they could not do the work, only that the question was the appropriate or proper time-frame.
158 I find that there was a telephone conversation at about this time and that the effect of it was Mr Paul Figallo said that Basetec would not be capable of producing such a large scope of work within such a short time-frame. Both parties were concerned about the time-frame. Mr Flounders suggested another supplier of GRP pipe. I do not think that Mr Flounders said anything about penalties.
159 It is convenient at this point to refer to a document prepared by Basetec and which it described as a Drawings Register. This document contained a program for the manufacture, transport, shipment and delivery of GRP pipe and fittings. It records for each pipe or fitting shown in an isometric drawing, a manufacture, transportation, shipment and delivery date. At the outset, the pipe was to be manufactured overseas by Hexagon in Malaysia, and after RPC became involved, by RPC in Batam, Indonesia. The GRP pipe and fittings were to be shipped to Australia. The GRP pipe and fittings were put into categories by reference to different shipments. Initially, there were to be five shipments, but later that became six shipments.
160 Basetec from time to time revised the Drawings Register so that in the end, there were six versions identified as 0 to Revision 5. The parties to the Works Contract came to view the works as the shipments, rather than an original scope of works and a varied scope of works. Version 0 was prepared on 4 December 2012 and all the GRP pipe and fittings were to be shipped to Australia and the last Brisbane arrival date shown on Version 0 is 16 August 2013. On the other hand, Revision 5 was produced on 18 March 2013 and sent to Leighton on the same day. By reference to that document the following may be noted:
(1) Hexagon manufactured Shipments 1 and 3. Shipment 1 comprised pipes which were predominantly within the original scope of works.
(2) RPC manufactured Shipments 2, 4, 5 and 6 and the First Water pipes (which were large diameter pipes) were comprised in Shipment 2. As it happens, all of the pipes comprising Shipment 2 were manufactured in Australia.
(3) Shipment 3 is old or original scope of works.
(4) Shipments 4 and 5 are partly original and partly varied scope of works.
(5) Shipment 6 is varied scope of works.
161 Mr Paul Figallo said, and I accept, that Version 0 was created for the first time to manage the changes and revisions to the drawings and ensure that Basetec was working on the correct revisions. Basetec also used the Drawings Register to track its projected time for the Project. Mr Paul Figallo said that it was usually the client who produced documents of this nature and that usually Basetec was given what he called "issued for construction" drawings once and asked to build.
162 On 5 December 2012, Mr Paul Figallo commenced discussions with Mr Tony Caristo, who is the managing director of RPC, about the possibility of Basetec entering into a joint venture with RPC for the GRP interconnecting pipe and fittings. Mr Groch, who worked closely with Mr Caristo, was party to a telephone conversation between Mr Caristo, Mr Paul Figallo and himself in early December 2012 when Mr Paul Figallo said that there had been a large variation for the supply of GRP pipe under Basetec's contract with Leighton, and that Basetec would like to work with RPC. I accept this evidence of Mr Groch.
163 Mr Paul Figallo gave evidence of two meetings on consecutive days at Leighton's offices in Brisbane. The first meeting occurred on 6 December 2012 and involved Mr Paul Figallo, Mr Koutsounis and Mr Flounders. Mr Paul Figallo informed Mr Flounders that Basetec was unable to meet the increased scope of works with its available resources. Mr Flounders told Mr Paul Figallo to go away and make it happen and to find a way for delivering the work. He told Mr Paul Figallo of the consequences of not delivering and that there were "great penalties" associated with a failure to deliver.
164 The second meeting occurred on 7 December 2012 and involved Mr Paul Figallo, Mr Koutsounis and Mr Flounders. Mr Flounders said that he had seen Basetec's Drawings Register Version 0 and said that Basetec should make the Condabri works happen "whatever the cost may be". He said that the change in the scope of the works was a variation and that Basetec could put in its price. He told Mr Paul Figallo to deliver the work "no matter what". He said that the work had to be delivered as a priority and that there were immense consequences if it was not delivered. Mr Paul Figallo said that he would go away and work on it.
165 Mr Flounders said that he could not recall meetings on consecutive days. He said that he could not recall Basetec telling him that it could not meet the increased scope from its own resources. He does recall Mr Paul Figallo saying something to the effect that Basetec may not be able to achieve delivery within the time-frame from its own resources. He recalls that he suggested that Mr Paul Figallo could look at subcontracting some of the work to another supplier. He cannot recall ever discussing the amount or nature of the penalties under the contract. He did not tell Mr Paul Figallo to make it happen "whatever the cost may be".
166 After Mr Paul Figallo's cross-examination, it was clear that a meeting did not take place on 7 December 2012 and that there was one meeting at about this time and that took place on 6 December 2012. I refer to my discussion of Leighton's application to withdraw an admission in Appendix A to these reasons.
167 Mr Koutsounis sent an email to Mr Flounders on 7 December 2012 providing details of Basetec's schedule and raising options in order to progress manufacture in an orderly fashion, including a third shift in the factory. Mr Koutsounis concludes his email with the following:
Please rest assured we fully understand your constraints and are exploring all options to deliver these works in the shortest possible timeframe.
I think it likely that at the meeting on 6 December 2012, Mr Paul Figallo and Mr Flounders discussed the time constraints in delivering the works. I think that they discussed the difficulties facing Basetec and that the possibility of introducing another supplier was discussed. I think Mr Flounders would have told Mr Paul Figallo to come up with a solution and that he said that Basetec could claim a variation under the Works Contract. I do not accept that Mr Flounders said that Basetec was to meet the time-frame whatever the cost. Mr Paul Figallo might have inferred that, but I do not think that Mr Flounders said that. Nor am I satisfied that the question of penalties was raised.
168 On 10 December 2012, Mr Torpy sent an email to Basetec specifying the dates for the delivery of eight categories of pipe and fittings shown in new pipe spool drawings.
169 On 14 December 2012, Mr Caristo of RPC sent an email to Mr Paul Figallo with a copy to, among others, Mr Groch, which under the subject heading of "APLNG interconnecting pipe and ion exchange works" reads in part as follows:
Further to our discussion of yesterday and as discussed RPC will be interested (and in principal [sic] agree to) forming a Joint Operation in managing and executing the above project in similar terms as outlined for the Inpex project.
As I understand it, the contract is for approx. $1.5m for Condabri and Reedy Creek Interconnecting pipe and a further $800 for the Ion exchange package. In addition to the above I understand that the scope has increased by approx. a further 300 drgs of spools plus the site works.
A detail [sic] proposal will follow shortly.
At that time, Mr Paul Figallo made it clear to RPC that he wanted any joint venture to cover all future works in connection with the APLNG Project, not just the "interconnecting package".
170 There was a meeting in Leighton's office in Brisbane between Mr Paul Figallo, Mr Koutsounis, Mr Flounders and Mr Lewis on 17 December 2012.
171 Basetec's FASOC sets out a number of allegations of statements made at the meeting by Mr Lewis or Mr Flounders on the one hand, and Mr Paul Figallo on the other. It contains allegations of acts Mr Paul Figallo carried out as a result of what Mr Lewis and Mr Flounders said at the meeting. I mention these matters because it is not clear what Basetec says follows should I accept Mr Paul Figallo's account of the meeting. Basetec pleads that the statements were a direction to accelerate the works under the Works Contract pursuant to clause 28.10, albeit not in writing as required by clause 28.12. I do not think that it was such a direction, but even if it was, it is not clear to me what follows from that circumstance as I do not understand Basetec to identify and claim particular costs caused by the requirement to meet the First Water milestone. It seems that the statements are part of Basetec's allegation of foregone opportunities in the context of its misleading or deceptive conduct case which I address below. It may also be that the statements are part of a context (i.e., substantial variations; First Water requirement) illustrating both the pressure and time constraints imposed on Basetec by the Works Contract and Leighton's conduct.
172 Mr Paul Figallo's account of the meeting on 17 December 2012 was as follows. Mr Flounders said that there was a new delivery milestone called "First Water" which was due on 28 March 2013 and which was "not negotiable" and would be "heavily penalised". Mr Flounders said that the new deadline, which was not part of the contract, had to be met and it was crucial to make sure the water was flowing at the time. If the water could not flow, it meant that the gas company could not produce gas and that meant the penalties for Leighton which would be "greater than life itself". The requirement was for First Water to be running at the end of March 2013. Mr Flounders said words to the effect that the focus on the works was now on the time for delivery. He said words to the effect that the size of the Water Treatment Facilities project would double, including the interconnecting, PAU and IX Valve projects. He said that if Basetec was able to deliver First Water on 28 March 2013 and otherwise deliver the works within substantially the same time-frames as the tender package, then "money will be no object" and that the client would pay whatever the cost of the accelerated work may be. He said words to the effect that it did not matter even if Basetec had to air freight GRP materials if that is what it took to achieve delivery in accordance with the accelerated time-frame. He said words to the effect that Leighton did not care how Basetec achieved the outcome as long as it achieved delivery within the accelerated time-frame. Mr Paul Figallo gave evidence that in response he said that Basetec had the capacity to manufacture at a reasonable cost in China. Mr Flounders said that APLNG would not accept pipe manufactured in China. Mr Paul Figallo said that another option was to engage 50 staff in Brisbane who would assemble the pipe. Mr Flounders accepted that this was an option. Mr Paul Figallo said words to the effect that Basetec could not achieve the accelerated time-frame out of its own resources as contemplated by its tender and words to the effect that Basetec would use its best endeavours to achieve the accelerated time-frame. Mr Paul Figallo said words to the effect that Basetec would investigate other solutions, including "possible joint venture arrangements with RPC" in order to have sufficient resources to do so and he said words to the effect that if Basetec did enter into a joint venture, it would ask Leighton to "novate" the contract to the joint venture. Mr Flounders said words to the effect that "that would be fine".
173 Mr Paul Figallo said that Mr Flounders' statements led him to believe that Leighton did not care about the costs associated with the works as long as the works were completed. He believed that Leighton welcomed options put forward by Basetec to complete the works efficiently, that the variation price would not be an issue, and that Basetec was free to allocate the appropriate resources to the Project.
174 Mr Flounders' account of the meeting on 17 December 2012 was as follows. He recalls attending a meeting with Mr Paul Figallo and Mr Koutsounis on 17 December 2012, but he could not recall anybody else from Leighton attending the meeting. He considered the meeting to be a general catch up and planning meeting. He was aware that Basetec had been in possession of the Revised Drawings and Additional Drawings since the end of November and he wanted to check how Basetec was progressing to that point. He does not recall discussing the topic of First Water at the meeting.
175 I digress at this point to identify Mr Flounders' evidence about First Water. He said, and it is not in dispute, that the GRP pipe which were necessary for First Water was designated in Shipment 2. The GRP pipe was part of the drawings provided to Basetec on 29 and 30 November 2012. He said that it was his understanding that First Water was a soft milestone and that the delivery date was 2 March 2013. Mr Flounders said that, although he could not remember "the specifics", he thinks that he became aware of the First Water milestone in early or mid-January 2013. On or about 17 January 2013, he was sent a copy of Mr Ninkovic's email to Mr Paul Figallo wherein Mr Ninkovic indicated on Revision 2 of the Drawings Register the spools required for First Water. Most of the drawings were original scope, although some Revised Drawings relating to First Water had been issued on 29 November 2012. I have already referred to the uncertainty about whether the GRP pipe comprising First Water was part of the original scope of works or part of the Additional Drawings. As I have said, I think that the latter is the appropriate finding.
176 Returning to the meeting on 17 December 2012, Mr Flounders recalls telling Mr Paul Figallo and Mr Koutsounis that the focus should now be on delivery. He said that he meant by this that Basetec had had the original scope and the new and revised drawings for some time already and he expected that it would have made progress towards arranging the manufacturing and settling delivery time-frames for the GRP pipe. He did not tell Mr Paul Figallo or anyone from Basetec that the size of the Water Treatment Facility would double and he did not tell Mr Paul Figallo that if Basetec could meet delivery time-frames, then money would be no object. Mr Flounders said that he would not have told a contractor that so long as they met the time-frame, money would be no object and that he considers that making such a statement would be "completely reckless". Mr Flounders did not discuss sending GRP pipe or fittings by air freight with Mr Paul Figallo or anyone else from Basetec. He did not tell Mr Paul Figallo that he did not care how Basetec achieved the outcome as long as it met the "accelerated time frame". He never told Basetec that there was an "accelerated time frame for delivery".
177 Mr Flounders recalls that at some point Mr Paul Figallo did raise the possibility of manufacturing the product in China. However, he does not believe that he did this during the meeting on 17 December 2012 because at that stage he was relatively happy with the delivery schedule and nothing was said at the meeting which would have warranted such an option. Mr Paul Figallo did raise the possibility of manufacturing the product in China at some stage and Mr Flounders told him that it was extremely unlikely that Origin would approve of a Chinese subcontractor to manufacture the product. Mr Flounders said that he did not discuss the possibility of engaging 50 staff in Brisbane to assemble the pipe and he said that he would not have accepted that as a possibility. He said that there was simply no need to have 50 men assembling the pipe. He does not believe that Basetec had the facilities in Brisbane that would have allowed it to engage 50 staff in Brisbane. Mr Flounders does not recall discussing the possibility of a joint venture with RPC at this point. He does recall having a discussion with Mr Paul Figallo to the effect that Basetec could consider bringing in another subcontractor to help it complete the works. He recalls that Mr Paul Figallo said that he could not "hit the dates" and that Mr Flounders said words to the effect of "there is more than one GRP supplier out there, go and see what you can do". Mr Flounders said that he did not think that Basetec would approach RPC because they were competitors and "Paul had been bad mouthing RPC prior to this time".
178 Mr Lewis said that he did not have a clear and specific recollection of the meeting. I think he accepted that First Water was discussed and that he or Mr Flounders said that there was a new delivery milestone of First Water and that, even though it was a soft milestone and would not be penalised, Leighton would like to achieve it. The focus now was on delivery of the First Water GRP pipe by a certain date and Mr Paul Figallo was asked whether that would be a problem. In response, Mr Paul Figallo said that it would not be a problem. Mr Lewis said that neither he nor Mr Flounders said that the size of the Water Treatment Facilities would double. Mr Lewis denied saying that money would be no object or that APLNG/Origin would pay whatever the cost of the "accelerated work". Mr Lewis said that Leighton did not receive a direction from APLNG/Origin to accelerate the works and did not itself issue a direction to Basetec under clause 28.10 of the Works Contract to accelerate the works. Mr Lewis said that there was no discussion about air freighting GRP pipe or fittings if needed. Mr Lewis said that he never said anything that could constitute a direction to accelerate the works and that there was no discussion that Basetec could not meet delivery dates or could not do particular work. He does not recall any discussion about a joint venture with RPC.
179 Mr Koutsounis was at the meeting on 17 December 2012. Mr Koutsounis no longer provides services to Basetec. Mr Paul Figallo contacted him with a view to asking him to give evidence in the case. Mr Koutsounis told Mr Paul Figallo that he was busy on another project and that he was unable to provide an affidavit of evidence. In the absence of any evidence of a conflict between Basetec and Mr Koutsounis, I think that he is a witness one might reasonably have expected Basetec to call. His absence is not adequately explained. He could have been served with a subpoena. I infer that his evidence about the events of the meeting on 17 December 2012 would not have assisted Basetec's case.
180 There are difficulties in accepting either Mr Paul Figallo's account of the meeting on 17 December 2012 or that of Mr Flounders and Mr Lewis. As to the former, I do not accept that there was a reference to 28 March 2013 in connection with First Water. That date was not agreed until sometime later. I am satisfied that APLNG/Origin did not agree to that date until February 2013. I refer to the discussion below in connection with Mr Flounders' email of 12 February 2013. Further support for this conclusion is the fact that Mr Ninkovic's email and revised Drawings Register of 17 January 2013 shows a delivery date for the First Water pipes of 1 March 2013. Furthermore, I do not accept that Mr Lewis or Mr Flounders said that money would be no object or that Origin would pay whatever the cost of the accelerated time-frame may be. It seems to me that this is an exaggeration which I do not think Mr Lewis would have said or would have allowed Mr Flounders to say. At the same time, I find it impossible to accept that First Water was not discussed. I do not accept that Mr Flounders only heard about First Water in early to mid-January 2013. Mr Lewis found out about it on 1 December 2012 and I cannot accept that he would not have passed the information on to Mr Flounders shortly thereafter.
181 I think Leighton were keen to achieve the First Water milestone, but I am not satisfied that its failure to do so would activate penalties, and I do not think Mr Flounders said that the penalties would be greater than life itself. Nor do I think that Mr Flounders said that money would be no object. I think that Mr Lewis and Mr Flounders would have been pressing Basetec to achieve the First Water milestone, but I think the statements attributed to Mr Founders by Mr Paul Figallo are an exaggeration.
182 In light of the evidence and these conclusions, I am prepared to go no further than to make the following findings with respect to the meeting on 17 December 2012. First Water and its ramifications were discussed at the meeting. I do not think that it was referred to as an acceleration, although I acknowledge that there is evidence that Leighton later referred to the First Water requirement as an acceleration. For example, there is correspondence from Leighton to Origin or APLNG in April 2013 referring to First Water as an acceleration and that Leighton was considering the consequences thereof. However, I accept Mr Hill's evidence that Leighton did not make any acceleration claims in relation to the Project. First Water might have been referred to as a soft milestone, but I think even if it was, Mr Lewis and Mr Flounders made it clear that they were keen to meet the client's request. I think Mr Paul Figallo did mention the possibility of Basetec involving RPC in the Works Contract. That conclusion is supported by correspondence Basetec sent to RPC shortly after the meeting.
183 On the same day as the meeting (i.e., 17 December 2012), Mr Paul Figallo sent two emails to Mr Caristo of RPC. In the first, he said that he was notifying Leighton of "our JV intentions" and that Basetec was "very keen to get this JV going". He followed that with a second email in which he said that he had "just now spoken" to Leighton and that it was "supportive of us working together in a JV on this project". He also advised Mr Caristo that Basetec was currently being issued with more drawings.
184 On 18 December 2012, Mr Paul Figallo sent an email to Mr Flounders which attached Revision 1 of Basetec's Drawings Register. In the email, Mr Paul Figallo said to Mr Flounders:
As discussed Basetec and RPC have agreed and implemented a joint venture arrangement for the Icthys LNG project and we intend to expand this agreement to also cover your APLNG project.
185 The Drawings Register showed that the last shipment was scheduled to arrive in Brisbane on 1 June 2013, which was approximately 11 weeks earlier than the date shown in Version 0. On the same day, Mr Caristo sent to Basetec an outline of the proposed joint operation between Basetec and RPC. He said:
As discussed please the [sic] brief outline of the proposed Joint Operation for the Leighton APLNG work for the Design, supply, manufacture, spooling and site jointing of the GRP pipe and fittings. We understand this will commence with the Interconnecting pipe and the Ion Exchange and then expand into other packages.
186 On 19 December 2012, and following the provision by RPC of the joint operation proposal to Basetec, Mr Groch sent an email to Mr Paul Figallo with a list of matters to be attended to in order to progress the joint operation. Mr Groch said that the key items on that list included Basetec providing a copy of the Works Contract to RPC, and securing the assignment of the Works Contract from Basetec to the Basetec and RPC "joint operation".
187 On 21 December 2012, Basetec received a purchase order from Intercon Engineering Pty Ltd for the supply of GRP pipe in connection with the IX process. On the same day, according to Mr Paul Figallo, Mr Flounders spoke to him in Brisbane and said words to the effect that all IX interconnecting plant piping forming part of Shipments 1 and 3 should be produced by Hexagon and that RPC can supply the rest of the pipe in respect of the GRP interconnecting works at Condabri. Mr Flounders said that he did not give any direction as to the entity which should make particular sections of GRP pipe and fittings. I find that there was a discussion about which entity would manufacture the GRP pipe described in the various shipments, but that the result of that discussion was an agreed position about that matter, rather than a direction by Leighton to Basetec. I note the email from Mr Paul Figallo to Mr Groch dated 21 December 2012 wherein he advised that Mr Flounders requested that Hexagon build Shipments 1 and 3, and that RPC "can build the second shipment and others thereafter". On the same day, Basetec executed the Works Contract with an amendment which involved the striking out of the liquidated damages clause and returned it to Leighton.
188 On 27 December 2012, Basetec prepared Revision 2 of its Drawings Register and it showed deliveries from 17 February 2013 to 15 May 2013. According to Mr Paul Figallo, this Revision of the Drawings Register was not provided to Leighton.
189 On 2 January 2013, Basetec prepared Revision 3 of its Drawings Register. Like Revision 2, it had the last shipment arriving in Brisbane on 15 May 2013.
190 On 14 January 2013, Mr Lewis wrote to APLNG giving the company notice in accordance with clauses of the Head Contract of "a potential delay and/or variation cost in respect to the continuing design changes to interconnecting pipe work". I have already referred to this letter.
191 On 16 January 2013, Mr Lewis visited Hexagon's factory in Malaysia. The purpose of his visit was so that he could form an understanding of Hexagon's facility and consider its adequacy from a quality assurance perspective. Mr Lewis said that he felt that Leighton had been misled by Basetec about its relationship with Hexagon as Basetec had, in the tender process for the GRP interconnecting pipe project, represented to Leighton that Hexagon was a subsidiary or other part of Basetec. Mr Lewis said that he recalled that it emerged following the notice of award that Hexagon was, in fact, no more than a subcontractor to Basetec.
192 On 17 January 2013, Leighton, through Mr Ninkovic, for the first time identified the specific requirements of First Water to Basetec in two emails from Mr Ninkovic to Mr Paul Figallo. As I have said, the pipe and fittings for First Water formed part of Shipment 2.
193 On 31 January 2013, Basetec sent invoice 301-41 dated 30 January 2013 to Leighton for $292,720 excluding GST for "APLNG Water Treatment Facilitties [sic] - GRP Interconnecting Pipe Spools - 20% Deposit Payment".
194 On 31 January 2013, Basetec asked Leighton to novate the Works Contract to Basetec and RPC operating through what was described as a joint operation company. On the same day, Mr Flounders sent an email to Mr Koutsounis in which he advised Basetec that Leighton was not prepared to novate the Works Contract to Basetec and RPC as joint venture partners, but that it would accept an arrangement whereby Basetec would subcontract part of the works to RPC. Basetec's case as advanced through Mr Paul Figallo is that it then entered into a "back-to-back" arrangement with RPC without any formal written subcontract and that RPC was to be paid for the work when Leighton paid Basetec for that work. Mr Paul Figallo said that he spoke to Mr Caristo of RPC on or about 31 January 2013 and they agreed that, with respect to the work done to that date and any future work, RPC would be in a subcontracting arrangement with Basetec. There would be a "back-to-back" arrangement and when Basetec received payment from Leighton, it would pass on a portion to RPC "to keep them going". The arrangements, whether contractual or otherwise, between Basetec and RPC are addressed later in these reasons.
195 Mr Paul Figallo said that between 2 January 2013 and 31 January 2013, Basetec continued to progress the works. It managed RPC's work and provided RPC with its intellectual property such as design and data calculations, quality manuals, inspection and test plans, and Drawings Registers.
196 Mr Paul Figallo said that by 31 January 2013, Basetec had done the following:
(1) Reviewed the drawings and specifications;
(2) Considered the performance requirements of the pipes;
(3) Prepared detailed construction drawings based on the drawings;
(4) Received international shipping schedules and established an international freight forwarding schedule;
(5) Instructed Hexagon and RPC to manufacture the pipes;
(6) Prepared detailed quality assurance documents in accordance with the project specification; and
(7) Managed the process, including the preparation of draft production schedules.
At the general level at which that evidence is pitched, I accept it.
197 Mr Paul Figallo said that some of the early work Basetec did, such as a review of the drawings, was as relevant to Reedy Creek as it was to Condabri in that the drawings for each were identical or nearly identical.
198 Throughout January 2013, RPC were working on some of the original scope of works and had commenced the works comprising the variation. It was doing this in anticipation of the execution of a joint operating agreement. As the month progressed, RPC became concerned about the fact that such an agreement had not yet been executed. On 7 February 2013, RPC was advised that Leighton would not agree to an assignment of the Works Contract. Despite this setback, RPC was optimistic that an internal joint operating arrangement could be agreed between Basetec and RPC. On this basis, RPC was prepared to continue the work involved in the varied scope of works.
199 There was a meeting at RPC's manufacturing facility in Batam, Indonesia on 8 February 2013. Basetec's case is that the following persons were present at the meeting: Mr Charles Figallo and Mr Paul Figallo on behalf of Basetec; Mr Lewis, Mr Flounders and Mr Carbone on behalf of Leighton; Mr George Berger, Mr Gary Reid and Mr Darren Bishop on behalf of RPC.
200 Basetec's case is that at this meeting, it was agreed that the pipes which comprised Shipment 2 would be manufactured in Australia, that the fittings for First Water would be manufactured in Batam, Indonesia and sent by air freight to Australia, and that the spooling of the pipes comprising Shipment 2 and the fittings would be carried out at RPC's Newcastle facility. Leighton's case is that, whilst a number of options for ensuring that the required schedule was met were discussed at the meeting, it did not agree to either manufacturing taking place in Australia or the air freighting of fittings from Batam, Indonesia to Australia. The significance of this issue relates to two matters. First, Basetec claims that its direct costs in relation to V001 in an assessment under clause 33.7 of the Works Contract are $1,995,838.30 and that figure includes an amount of $767,505.43 as an Australian manufacturing premium, and $34,500 being the cost of air freight from Batam, Indonesia to Australia. Basetec claims the contractual percentage of 10% on that amount as well as other amounts on the basis that Basetec incurred the liability of $1,995,838.30 to RPC. Ultimately, Leighton paid RPC and Basetec does not seek to recover the amount it allegedly owed to RPC. However, it does seek to recover 10% of $1,995,838.30. The issue has far greater financial significance in the case of the cross-claim. Leighton seeks to recover the amount of $802,005.43 on the basis that those costs are not amounts it could ever be held reasonably liable for, either as an amount properly paid or payable to a subcontractor (clause 33.7(d)) or as a reasonable cost of goods reasonably ordered by Basetec (clause 43.1(e)).
201 Mr Paul Figallo gave evidence that at the meeting on 8 February 2013, he tabled Basetec's Drawings Register Revision 3 and that that document was discussed. He said that Mr Flounders said words to the effect that the pipes which were part of Shipment 2 should be manufactured in Australia and that the fittings to be manufactured should be manufactured in Batam. Mr Flounders said words to the effect that the First Water fittings should be air freighted from Batam to Australia with the remainder of the goods to be sent by container, and that the spooling of the pipes and fittings should be undertaken at the RPC facility in Newcastle. Mr Flounders said words to the effect that the First Water spools were to be installed on site by 28 March 2013. Mr Paul Figallo said that he said words to the effect that Basetec would do its best to meet the deadline.
202 It seems that Mr Berger of RPC prepared some minutes of the meeting. The minutes are not signed. The unsigned minutes refer to the meeting having taken place on 8 January 2013 when, in fact, the meeting took place on 8 February 2013. I will come back to the unsigned minutes in due course.
203 An affidavit of Mr Charles Figallo was tendered as part of Basetec's case and he was not required for cross-examination. His affidavit did not include any evidence relating to the meeting on 8 February 2013 even though, on Basetec's case, he was present at the meeting. The reason Mr Charles Figallo did not address the issue in circumstances where he might reasonably have been expected to do so is unexplained. In those circumstances, I am entitled to infer, and do infer, that his evidence would not have assisted Basetec.
204 Mr Lewis said that he recalled Mr Paul Figallo saying to Mr Flounders that Basetec could not meet the delivery schedule and that Mr Flounders responded by complaining that he had not heard of this before the meeting. Mr Lewis considered that it was obvious from Mr Paul Figallo's comments that Basetec had fallen behind in production, both in respect of the First Water scope and the rest of the contract scope. Mr Lewis said that he was deeply concerned about this. He said that there was then a discussion about possible options. He described the discussion as "workshopping" and that matters were written on a whiteboard in the meeting room. He said that he used his mobile phone to take a photograph of the whiteboard, but that he no longer has the mobile phone and he has not been able to locate the photograph. Mr Lewis said that, although a number of options were discussed, both he and Mr Flounders made it clear to those present at the meeting that Leighton would have to secure the approval of Leighton's client before it could agree to the payment of any extraordinary expenses. Mr Lewis said that Mr Flounders did not give any directions or indicate Leighton's agreement to the various matters identified by Mr Paul Figallo. He recalls discussions about the possibility of manufacturing certain items in Australia, discussions about fittings, and about whether certain fittings could be manufactured in Australia or Batam. There were also discussions about the First Water milestone. Mr Lewis recalls the topic of air freight being discussed, but he said that he and Mr Flounders almost immediately discounted the idea. He said that it would be "an absolute last ditch solution" if signed off as an extra by the client.
205 Mr Flounders said that Mr Paul Figallo handed him a revised delivery schedule and that he noticed from the schedule that the delivery date for Shipment 2 had slipped from 2 March 2013 to 28 March 2013. Mr Flounders said that this was the first time he had heard from Mr Paul Figallo of a slippage in the schedule and that he complained to Mr Paul Figallo about that fact. There were then discussions about how to solve the problem. Mr Flounders described the discussions as a "spitballing" session. There was a discussion about air freighting goods produced in Batam to Australia. Mr Flounders told Mr Paul Figallo that he would ask the client whether they wanted to pay the additional costs and that he would advise Mr Paul Figallo about air freight and manufacturing out of Australia. Mr Flounders said that at no time did he or anyone else from Leighton commit to any change to the existing agreement. He did not indicate or direct Basetec to undertake the manufacturing of pipe in Australia or to air freight fittings from Batam to Australia. Mr Flounders said that no firm decisions were made at the meeting.
206 Mr Flounders was shown the unsigned minutes of the meeting. He did not consider that those minutes were an accurate record of what was discussed at the meeting. His main point of disagreement with the unsigned minutes was with the suggestion that agreement was reached at the meeting with respect to manufacturing in Australia or the air freighting of goods from Batam to Australia. He said that he did not give any directions or indicate the agreement of Leighton to the matters deposed to by Mr Paul Figallo.
207 Mr Groch was not at the meeting. On 21 February 2013, he was provided with a copy of the unsigned minutes of the meeting by Mr Berger. As he was not at the meeting, he said that he was unable to say whether the minutes were accurate or not.
208 The unsigned minutes refer to a site visit by Leighton "to inspect RPC manufacturing facilities for the GRP pipe spools at Condabri Central and Reedy Creek". The minutes record the fact that Leighton advised that expectations were for a first shipment from Batam by 21 February 2013 and that Leighton was disappointed that that would not be honoured as previously committed with Basetec. The minutes record the tight delivery requirements for the First Water spool in Shipment 2 and the fact that, as a result, the shop hydro testing was waived. The minutes record a discussion about the delivery schedule and the following appears under that heading:
It was agreed that pipes for shipment 2 will be manufactured in Australia. All fittings will be manufactured in Batam and 1st water fittings airfreighted. Balance of goods to be sent by container.
Fittings will be manufactured for 1st water shipment 2 in Batam and air freighted to Newcastle. Pipes to connect with a 14th Feb departure from Singapore. Subsequent to meeting (emphasis added), first available sailing from Singapore was 21 Feb 13.
Spooling of pipes and fittings to be undertaken at the RPC facility in Newcastle …
Leighton subsequently advised (emphasis added) that the 1st water spools are to be installed at site by 28th March 2012 [sic].
Leighton to confirm subsequent installation dates for the remaining spools from shipment 2.
209 The passages I have emphasised suggest that Mr Berger (assuming Mr Berger prepared the unsigned minutes) had the benefit of subsequent information in doing so.
210 It seems that Mr Reid prepared some notes of the discussions at the meeting on 8 February 2013. He forwarded these notes to Mr Groch on 10 February 2013. Mr Reid's notes record the fact that Leighton was advised that the first shipment was expected for 21 February 2013, and that Mr Flounders became extremely upset when told this. Mr Flounders said that the first priority area of spools was in by the first week of March. Mr Bishop advised that RPC had just received the resin which it needed. Various problems were discussed, including the fittings being air freighted from Batam to Australia. There was a suggestion that RPC could make the pipe in Newcastle and truck it to Brisbane and then spool with air freighted fittings from Batam. Mr Reid's notes record that after considerable debate, there was a commitment to the shipment of five pipes out of Newcastle to Brisbane, the shipment of five pipes out of Batam next week (15 February) if a vessel was available, and air freighting fittings to Brisbane. Mr Paul Figallo insisted that Basetec could do the spooling, but RPC was keen to do the spooling. Mr Reid's notes record that Mr Flounders was very upset and believed that he had been misled on lead times. Mr Flounders advised that he had made commitments to the client on the basis of the information he had received from Basetec. Mr Reid's notes record that, in his opinion, the only way to achieve the timeline was to wind pipe in Australia and air freight the fittings. He records the fact that RPC needs to consider spooling in Newcastle even if it means using RPC site crew.
211 As will become clear, subsequent events, including correspondence between the parties, throw light on the discussions which occurred at the meeting and I turn to consider those subsequent events before making findings about the meeting.
212 Mr Lewis said that after the meeting, he and Mr Flounders had a conversation with Mr Beighton who, it will be recalled, was representing Leighton's client, and that Mr Beighton indicated that he was not prepared to pay for air freight and that the First Water milestone could be pushed back to 28 March 2013.
213 On 12 February 2013, Mr Flounders sent an email to Mr Paul Figallo which was in the following terms:
Paul
We have just finished a conversation with the client in regards to the first water, he has accepted a final date of the 28/03/13 as completed installation.
On this basis you need to contact RPC and get them back on the original schedule with all items made overseas and deliveries to site on the 3 week of March
I tried to contact you early [sic] on the phone but you were engaged.
I do apologise for the inconvenience
Regards
Neil
214 Mr Paul Figallo responded early on the following day in the following terms:
Hi Neil,
Thankyou for this time extension.
I will speak with RPC and relook at the approach with them.
We will submit you a revised schedule as indicated.
Also for your information shipment 1 pipework for interconnecting is scheduled to arrive next week into Brisbane and we will be arranging to send this straight into site.
Regards
Paul Figallo
215 Mr Paul Figallo sent a copy of Mr Flounders' email to Mr Berger, Mr Groch and Mr Bishop at RPC. His email read as follows:
Hi Guys,
Read below email for your information. This constant changing of plans has happen [sic] to Basetec throughout the whole job.
George can you please make your schedule reflect the changes and Neil has asked me to have all of Shipment 2 pipework by the 28th March. We should still send the shipment 2 pipework out in 2 separate lots. Buffer and Feed valves are priority and then the rest.
This date is absolute. If we don't think we can make all shipment 2 in Indonesia then let me know and please come up with the best approach.
Backing rings have also been ordered in Australia, this is another problem. But we can reuse these on other piping later if you want to order new ones in Indonesia.
Regards
Paul Figallo
216 Mr Paul Figallo said that immediately after sending this email, he received a telephone call from Mr Groch who said words to the effect that it was too late now to change the manufacturing that had been started in Australia. Mr Groch said that everything had been arranged and was underway and that if that changed Basetec could forget about First Water. Mr Groch said that he had received instructions that RPC had commenced manufacturing in Australia and that a one week extension was not enough to change that. Mr Paul Figallo said that manufacturing by RPC had substantially progressed by 13 February 2013. He said that Mr Groch's reference to a one week extension was a reference to the delivery date shifting from 21 March 2013 to 28 March 2013.
217 Mr Groch did not give any evidence-in-chief in relation to this telephone conversation. He was asked about a conversation of this nature in cross-examination. He said that he had no recollection as to whether he contacted Mr Paul Figallo in relation to Mr Flounders' email of 12 February 2013. He did not recall a conversation like the one put to him involving him indicating to Mr Paul Figallo that if Mr Flounders wanted to revert to some different timetable and manufacture overseas, that would present difficulties for RPC meeting the timetable.
218 Mr Paul Figallo said that after he had spoken to Mr Groch, he contacted Mr Flounders by telephone and told him that it was too late to shift the manufacturing back to overseas when RPC had already commenced the work and progressed it substantially. He notified Mr Flounders of the effect of his telephone conversation with Mr Groch. According to Mr Paul Figallo, Mr Flounders said words to the effect of:
Okay, just don't let he [sic] schedule slip.
219 On 20 February 2013, Mr Berger wrote to Mr Flounders under the letterhead of Basetec (for reasons which were not explained) in the following terms:
Subject: J320 - GRP Pipes and Fittings for Condabri Central and Reedy Creek.
Further to your site visit to the RPC Indonesia manufacturing facilities in Batam on the 8th of February 2013, we wish to confirm the following actions with regard to expediting the delivery of the GRP spools urgently required for First Water as well as the balance of the Shipment 2 balance for the Condabri Central:
a) GRP Pipes to be manufactured at the RPC Newcastle facility.
b) All Fittings to be manufactured at the RPC Indonesia facility.
c) Fittings to be airfreighted from RPC Batam to RPC Newcastle.
d) Steel Backing rings for Shipment 2 spools to be manufactured at the RPC Seven Hills workshop.
e) Spooling of the pipes and fittings to be undertaken at the RPC facilities, Newcastle.
…
220 On 21 February 2013, Mr Flounders sent an email to Mr Paul Figallo in the following terms:
Paul
I thought the relaxation of the timeframe for first water GRP meant that you returned to the original manufacturing procedure which was everything made in Indonesia as per previous email below
[Mr Flounders' email of 12 February 2013 is set out]
Please call and discuss
Regards
Neil
221 Mr Paul Figallo said that he spoke to Mr Flounders about the email after he received it, but he could not recall what was said. He is certain that there was no change to the agreement to manufacture in Australia. He said that it would not be possible to meet Leighton's deadline of 28 March 2013 if manufacturing occurred overseas.
222 On the same day (i.e., 21 February 2013), Mr Groch sent the unsigned minutes to Mr Paul Figallo.
223 In early March 2013, RPC was providing Basetec with information as to its costs, and in the correspondence it refers to the increase in PN14 pipes and the cost to manufacture pipes and assemble pipe spools for Shipment 2 in its Newcastle facility with the fittings for Shipment 2 manufactured in Batam. In his email dated 5 March 2013, Mr Groch states that the Australian manufacture for First Water was discussed and agreed with Leighton when Mr Flounders and Mr Lewis visited Batam on 8 January 2013. Mr Groch said that the cost could be reduced by manufacturing the balance of the pipes for Shipment 2, including the PN14 pipes and spools and the spool, in Batam. He advised that RPC had manufactured approximately 90% of the Shipment 2 fittings and that the First Water fittings less nine elbows had been dispatched by air freight to Newcastle. On 5 March 2013, Mr Paul Figallo wrote to Mr Groch saying that under Leighton's directions, RPC should continue with its schedule "with supplying Shipment 2, with works in Australia".
224 On 5 March 2013, Basetec submitted its claim in relation to the first variation (V001) to Leighton. In the letter Basetec sent to Leighton, the following appears:
In order to mitigate the increased fabrication time associated with the additional scope of work Basetec intend to follow the following fabrication methodology:
• For shipment 2 RPC will fabricate concurrently in both their Indonesian and Australian facilities.
• For shipment 2 GRP components manufactured in Indonesia will be air freighted to RPC's Australian facility where final spooling will be completed.
• The fabrication of the GRP pipework for shipment 2 has been split in order to facilitate your nominated "First Water" milestone
• Shipments 4, 5 and 6 will be completed in full at RPC's Indonesian facility.
225 Mr Flounders said that he could not remember responding directly to the letter on or about 5 March 2013.
226 Mr Flounders denied saying to Mr Paul Figallo on 13 February 2013 that it was okay to manufacture in Australia providing there was no slippage in the schedule.
227 As I understood it, Basetec submitted that dealings between Leighton and APLNG under the Head Contract in relation to the First Water deadline were an important contextual matter in determining the content of the discussions in Batam on 8 February 2013. Basetec invited the Court to find that the First Water deadline was an acceleration under the Head Contract or a change in scheduling which amounted to a variation under the Head Contract. Furthermore, Basetec seemed to invite the Court to find that Leighton received compensation from APLNG because it submitted that it was "quite possible" that the cost of Australian manufacture and air freight was included in a variation claim made by Leighton under the Head Contract. If that is so, Basetec submitted that it was not open to Leighton to contend that the cost of Australian manufacture and air freight is not a cost properly incurred under the Works Contract. In the alternative, Basetec submitted that even if the evidence does not support findings in these terms, it does support a finding that the First Water deadline was considered extremely important by Leighton and that is an important contextual matter when considering the findings which should be made about the discussions at the meeting on 8 February 2013. The submission is that the evidence supports a finding that Leighton regarded accommodating APLNG with respect to the First Water deadline as a matter of priority and, in those circumstances, it is likely that Leighton agreed to Australian manufacture and air freight.
228 I turn to consider the evidence concerning the First Water deadline.
229 On 15 February 2013, Leighton wrote to APLNG and advised that it confirmed its commitment to meet revised First Water deliverable dates, including First Water for Brine Pond 1 by 28 March 2013. On 28 February 2013, APLNG prepared a Contractual Document Clarification ("CDC") in which it said that the contractor (i.e., Leighton) shall provide accelerated construction services to enable APLNG to receive First Water "as per agreed schedule". Basetec seems to submit that on 28 February 2013, Leighton made a variation claim by reason of the acceleration of construction. I do not think the evidence supports such a finding. On 17 April 2013, Leighton wrote a letter to APLNG in which it made a number of statements concerning the effect of APLNG's request for it to prioritise the completion of Brine Ponds 1 and 2, including First Water. Leighton's letter includes the following statement:
Furthermore, the Contractor, as instructed by the Company under the First Water Services Scope (Ref 1 above) [the CDC] and in contemplation of the Project Charter dedicated critical project resources from Separable Portion 1, 2 and 7 to scope related to the Company's First Water Milestone, ensuring that this significant milestone was achieved for the success of the greater APLNG Project.
230 On 19 April 2013, Leighton wrote to APLNG advising it that the "Condabri Central - First Water In" scope as described in the CDC had been completed and inspected and that Leighton was in the process of evaluating the "affects" the First Water acceleration had had on "the Works" and that Leighton would advise APLNG in due course. Mr Lewis, who wrote this letter, was asked about it in cross-examination. He said that Leighton was contemplating making a claim, but he does not know whether it in fact did make a claim. He said that "many of these things" were settled after he left Leighton. APLNG responded to Leighton's letter dated 17 April 2013 by letter dated 29 April 2013 in which it said that if Leighton believed the CDC had given rise to differences to scope and timing under the Head Contract, then it should identify those differences "under the relevant clauses of the contract". On 9 May 2013, APLNG wrote to Leighton asking it to submit a detailed analysis of the effect of accommodating First Water "to determine the overall schedule impact to Separable Portion 1 and Separable Portion 2".
231 This evidence falls short of establishing that APLNG gave Leighton a direction under the Head Contract to accelerate the works to achieve the First Water milestone or that Leighton's works to achieve the First Water milestone were a variation under the Head Contract. Furthermore, Mr Hill said, and I accept, that Leighton did not make any acceleration claims under the Head Contract.
232 On the other hand, the correspondence between APLNG and Leighton does establish that Leighton committed itself to achieving the First Water milestone.
233 I return to the 8 February 2013 meeting and the issue of Australian manufacture and air freight.
234 Mr Paul Figallo's evidence was not entirely satisfactory. I have already referred to difficulties with his evidence in other areas. With respect to the meeting on 8 February 2013, I find, contrary to his evidence, that a First Water deadline of 28 March 2013 was not discussed at the meeting as he asserted. That date was first mentioned some days after the meeting. Furthermore, I find that Mr Paul Figallo did say that the schedule for the delivery of pipe had slipped. Nor was the evidence of Mr Lewis and Mr Flounders entirely satisfactory. I do not think Mr Lewis had a particularly good recollection of the discussions that took place at the meeting. I have and will refer to difficulties I have in accepting Mr Flounders' evidence in some other areas. With respect to events in February 2013, I have difficulty accepting Mr Flounders' explanation of the instruction he was intending to convey in his email dated 12 February 2013.
235 The unsigned minutes and, to a lesser extent, Mr Reid's notes support Basetec's case. RPC did go ahead with Australian manufacture and air freight and this was in a context where Leighton was determined to meet the First Water deadline and, in fact, shortly afterwards was to give a commitment to APLNG to do so. On the other hand, Mr Charles Figallo's failure to give evidence about the discussions was unexplained and the fact is that Mr Lewis did seek (and obtain) instructions about the First Water requirement from APLNG shortly after the meeting.
236 It seems to me that the decisive factor, having regard to the state of the evidence, is Mr Flounders' email dated 12 February 2013. I am unable to read the words, "you need to contact RPC and get them back on the original schedule with all items made overseas" in any other way than as supporting by implication a finding that an agreement was reached on 8 February 2013 that certain pipe or fittings would be manufactured in Australia. He then goes on to apologise for any inconvenience caused. The same point might be said of his email of 21 February 2013 where he referred to returning to the original manufacturing procedure which was everything made in Indonesia. I find that at the meeting in Batam on 8 February 2013, Leighton agreed to, or authorised, the manufacture of the pipe in Shipment 2 in Australia and the transportation of First Water fittings manufactured in Batam to Australia by air freight.
237 As far as whether that approval or authorisation was countermanded by Leighton after the meeting on 8 February 2013, the documentary evidence is that Mr Paul Figallo sought the views of RPC upon receiving Mr Flounders' email dated 12 February 2013 and there is no evidence to contradict Mr Paul Figallo's account of his telephone conversation with Mr Groch. Mr Groch was called by Leighton as a witness, but he did not address the topic in his evidence-in-chief. I have already referred to what he said in cross-examination. I accept Mr Paul Figallo's account of the conversation. I find that thereafter Basetec, and probably RPC, were set upon the course which had been agreed at the meeting on 8 February 2013. For its part, Leighton was focused on meeting the First Water deadline. I think Mr Flounders, whilst not conceding the issue of Australian manufacture and air freight, decided not to push the issue and that explains his apparent agreement when discussing the issue with Mr Paul Figallo on 13 February 2013, the fact that he raised it again in his email dated 21 February 2013, and the fact that he did not immediately challenge the statements Basetec made in its letter to Leighton dated 5 March 2013.
238 I find that Leighton did not effectively countermand the agreement or authorisation it gave to Basetec concerning Australian manufacture and air freight at the meeting on 8 February 2013.
239 On or about 15 February 2013 and/or 15 March 2013 (the evidence is unclear in this respect), Basetec delivered and Leighton accepted the pipes and fittings identified as Shipment 1. This comprised 16 drawings, six of which were part of the Additional Drawings.
240 On 25 February 2013, the Works Contract between Leighton and Basetec was executed by Leighton. Mr Lewis authorised the execution of the Works Contract on behalf of Leighton and it was signed by his deputy, Mr Hill, and by Mr Ben Lonsdale of Leighton. General Condition 2 of the Works Contract provided that its terms applied from the date of Leighton's written acceptance of Basetec's tender which in this case was 23 November 2012. In the alternative, at the latest it was on 26 November 2012 when Basetec executed the notice of award.
241 On 1 March 2013, Mr Groch of RPC sent Mr Paul Figallo and Mr Koutsounis an email providing a complete cost breakdown of RPC's costs for Shipments 2, 4, 5 and 6. The revised costing reflected the fact that Shipment 2 was largely to be manufactured and assembled in Australia.
242 On 4 March 2013, Basetec prepared Revision 4 of the Drawings Register and sent a copy of it by email to Mr Flounders on the same day. Revision 4 had the last shipment arriving in Brisbane at the end of June 2013. On the same day, there was a meeting in Leighton's offices in Brisbane between Mr Paul Figallo and Mr Flounders. Leighton had received the revised production schedule from Basetec which included 21 March 2013 for First Water.
243 Basetec prepared an assessment of $4,612,678 for the costs of V001, being the increased scope of works as a result of additional new GRP isometric drawings in relation to Condabri and, by letter dated 5 March 2013, it advised Leighton of its assessment.
244 Mr Flounders considered that the information provided by Basetec in connection with V001 did not allow Leighton to carry out an assessment of the variation, and on 8 March 2013, Mr Flounders wrote to Mr Koutsounis requesting a "detailed price breakdown" of the works and he referred to a price for isometric drawings and details of freight charges. In a separate email on the same day, Mr Flounders raised the revised production schedule which he had been given on 4 March 2013 and he said that he accepted the proposed dates for Shipments 4 and 5, but not for the other shipments.
245 On 12 March 2013, RPC submitted to Basetec a breakdown of the costs on a per drawing basis as had been requested by Mr Flounders.
246 On 13 March 2013, Basetec sent a production schedule dated 4 March 2013 to Mr Flounders. The schedule identified the dates by which each of the shipments shown in Revision 4 of Drawings Register would be produced, shipped and delivered. On the same day, Mr Koutsounis sent an email to Mr Flounders attaching details of price breakdowns for V001.
247 Basetec rendered invoice 301-52 to Leighton dated 15 March 2013 in the amount of $922,535.60 plus GST. The invoice was described as being for "APLNG Water Treatment Facilitties [sic] - GRP Interconnecting Pipe Spools - 20% Deposit Payment for Variation V001 ($4,612,678)". It seems that this invoice was later cancelled.
248 It is convenient at this point to refer to the developments in the relationship between Basetec and RPC. Problems in the relationship were starting to appear in the first part of March 2013 with Basetec raising concerns about RPC's costs in relation to Shipments 2, 4, 5 and 6, and the parties being unable to agree about the exact nature of the relationship which was to exist between them. RPC had progressed the works, but there was no purchase order, and Basetec had not agreed to pay RPC the amount which RPC had quoted for the performance of the works.
249 On 18 March 2013, Basetec prepared Revision 5 of the Drawings Register. Revision 5 was different from Revision 4 in that it incorporated changes to pipe specifications which had been notified by email dated 10 February 2013, First Water was specifically isolated and identified in the Register, the dates were updated for the deliveries and the sequence of deliveries changed in that First Water was prioritised.
250 Between 15 March 2013 and 20 March 2013, Mr Paul Figallo was seeking from Leighton payment of invoice 301-41 and an indication that it accepted V001. There were refusals by Basetec to release the pipe until there had been acceptance.
251 On 19 March 2013, Mr Koutsounis sent an email to Mr Flounders in which he advised him that the First Water pipes (which were part of the Additional Drawings) were ready for delivery and that Basetec was seeking a variation order from Leighton with respect to V001.
252 On 20 March 2013, Mr Flounders wrote to Mr Paul Figallo, with a copy to Mr Lewis and others, in the following terms:
In response to our conversation last night and the email below. Leighton Contractors acknowledge that Basetec's scope of work has increased and a variation to the contract needs to be raised in regards to additional / New Isometrics.
Leighton Contractors are reviewing Basetec variation 001, We require at least a week before we can table our response.
Based on the variation submitted Leighton are prepared to pay $250,000 upfront
I suggest we get together next Thursday to review this VO. I will confirm the time later
I trust the foregoing meets your requirements and the release of the pipe work can be approved
253 In his evidence, Mr Lewis described the payment of $250,000 as an advanced "good faith" payment in respect of V001.
254 On 20 March 2013, there was a telephone conversation between Mr Paul Figallo, Mr Charles Figallo and Mr Koutsounis who were present in Adelaide, and Mr Lewis and Mr Flounders who were present in Brisbane. Basetec sought to tender a recording of the conversation which was opposed by Leighton. The transcript of the telephone conversation was marked for identification, but the tender of the document was not pressed by Basetec.
255 Mr Lewis said that he might have said during this conversation that Basetec was "protected under the contract", but that he would have done so only as part of a broader discussion. He agrees that he did say during this period to Mr Paul Figallo and Mr Charles Figallo that if there was money due and substantiated, Basetec was entitled to and would be paid under the contract. He never said anything to Basetec to the effect that all costs and variations would be paid, or that Basetec would be paid in the sense that they could claim any amount they wanted. He said that he would never say that. He said that the message he continually gave to Mr Paul Figallo and Mr Charles Figallo during this period was that if Basetec followed the contractual procedures in respect of the progress claims and variation claims, it would be paid fairly for its work. He never said that Leighton would definitely pay the reasonable costs of the accelerated work, but he may have said that Leighton would definitely pay the reasonable costs of works. He never said anything about accelerated works and Leighton did not view any of the works as accelerated. He may have said that Basetec should continue to exercise all efforts to deliver the Project. He may have said that Leighton would address variations in a timely manner, but it is unlikely that he said that Leighton saw no problem with the variations. I found it difficult to accept Mr Lewis' evidence in cross-examination that there was no agreement that Leighton would pay the two amounts it in fact paid to Basetec on 21 March 2013, and I do not accept that evidence.
256 Mr Flounders said that he recalled saying words to the effect of "the price of the variation is high and that it requires justification". He vaguely recalls Mr Koutsounis saying words to the effect of "if you have another value in mind let us know and we can discuss it". He recalled saying that he needed to understand V001. He recalled Mr Paul Figallo saying something about wanting a commitment to pay the variation price. He recalled Mr Lewis saying words to the effect that Basetec was protected under the contract. I found it difficult to accept Mr Flounders' evidence that there was no connection between the agreement by Leighton to pay and the payments made on the one hand, and its desire to secure the release of the First Water GRP pipe and fittings one the other, and I do not accept that evidence.
257 On 21 March 2013, Leighton paid invoices 301-41 and 301-54 (less a 5% retention for security under clause 5 of the Contract) for $488,448. On the same day, Basetec paid RPC an amount of $217,937.80 as a deposit for the work it had done to that time. The email from Mr Koutsounis to Mr Groch states that the payment is made on account. The First Water pipes and fittings identified in Shipment 2 of Basetec's Drawings Register were delivered on 21 March 2013. The evidence as to when the balance of the pipes and fittings in Shipment 2 were delivered is conflicting. It appears that the bulk of the pipes and fittings were delivered in April and May 2013 and before Leighton's termination of the Works Contract. As will become clear when I come to consider Leighton's cross-claim, one of the pipes in Shipment 2 and referred to in the Additional Drawings, was not delivered to site until on or about 6 June 2013.
258 On 22 March 2013, Mr Torpy sent an email to Mr Flounders and he attached to the email new drawings which were for GRP pipe, but which were not covered by any contract at that time. It is convenient to refer to these works in the same way the parties did as the works in the 44 drawings contract. Mr Torpy suggested to Mr Flounders and Mr Peter Ross of Leighton in a subsequent email that Leighton approach Basetec and RPC to bid for the work. Mr Torpy only suggested that RPC bid for the work because they were already on the site completing separate works. On the same day, Mr Flounders sent an email to Mr Paul Figallo instructing Basetec to cease the manufacturing of the GRP pipe and fittings identified in Revision 5 of Basetec Drawings Register as new drawings. The email was in the following terms:
With reference to our conversation this morning in regards to completion to date. Please advise current status on original scoped items on both interconnecting pipe and PAU pipe work as well as the variations in question.
Rather than go through the same scenario in regards to payment of works completed. I hereby instruct Basetec to cease manufacturing of GRP pipe and fittings associated with the new Isometric drawings and as identified on your shipment spreadsheets New Drawings. I understand that the remaining shipment 2 items may be affected you will need to advise this.
As also discussed today we have another package of 45 Isometrics which need to be priced our procurement team will send over shortly
At our meeting on Thursday we will discuss the prices that Basetec has submitted and a way forward with the remaining works
This instruction does not affect the work which is still to be carried out under your original scope items
259 Mr Lewis said that the reason for that instruction at that point in time was that Leighton wished to ensure that Basetec did not fabricate materials that were not authorised. He said that there was uncertainty about what Basetec was charging, and Leighton was trying to understand why V001 was so costly. He said that he did not want Leighton to be "stung" on exorbitant costs of future works. Mr Flounders said a similar thing. He wanted Basetec to cease the variation works because Leighton was unable to agree a value with Basetec and he did not want Basetec to accrue costs against a variation which Leighton disagreed with and where the costs being sought were extremely high.
260 On 23 March 2013, Mr Paul Figallo sent an email to Mr Flounders which included the following passages:
Your correspondence of 22 March 2013 suggests that we should cease manufacture of some of the pipes and fittings associated with the variation but continue with others. This is inconsistent with your conduct to date and it is too late to selectively stop the work now. Our work force, suppliers, staff and overheads have already been engaged on the variation works and we cannot simply stop, these expenses have already been committed to the works.
In the circumstances we do not propose to cease work or change our manufacturing schedules at this time.
261 On 25 March 2013, Mr Flounders sent an email to Mr Koutsounis asking Mr Koutsounis for a cost breakdown for Shipment 3. Mr Koutsounis replied by email on the same day advising Mr Flounders that there were no net changes for the drawings allocated to Shipment 3 and, therefore, no increase in costs. Mr Flounders said that he understood this to mean that there was no aspect of variation V001 which applied to Shipment 3.
262 On 28 March 2013, there was a meeting which Mr Lewis, Mr Flounders, Mr Charles Figallo and Mr Paul Figallo attended. Prior to the meeting, Mr Flounders had received a "first principles" assessment of V001 and that assessment was in the amount of $1,206,500.58. Mr Flounders believes that he discussed this document with Mr Lewis prior to the meeting and his recollection is that he told Mr Lewis that he was happy to agree a value for V001 of around this figure at the meeting with Basetec. Mr Flounders told Mr Lewis that he could manage the cost within his budget. Mr Lewis told Mr Flounders that it was "okay" to agree V001 at around that figure. Mr Paul Figallo said that Leighton confirmed at the meeting the suspension referred to in the email of 22 March 2013. I accept that evidence. Mr Paul Figallo said that if Leighton's client accepted the variation, then so would Leighton. At the meeting, Mr Flounders explained the first principles calculation which had been done by Leighton and he advised Mr Paul Figallo of the figure. Mr Flounders recalls that a representative of Basetec said that Leighton's assessment of V001 was wrong. Mr Lewis' recollection is that at the meeting, he said words to the effect that Basetec was protected under the contract as long as it could substantiate and justify the amounts claimed. He did not simply say that Basetec would be paid. I think Mr Lewis' version of what he said at the meeting is the more likely and I make a finding in accordance with his evidence. Mr Lewis' recollection was that Mr Charles Figallo became agitated during the course of the meeting. Mr Flounders' recollection is that he said to Mr Paul Figallo words to the following effect:
Paul, why are you ripping us off? …
Paul forget the Contract and Variation and all that, just tell me why are you ripping us off Paul.
Mr Flounders said that Mr Paul Figallo replied by saying that he was not ripping Leighton off.
263 On 3 April 2013, Mr Torpy followed up Mr Ross about the work involved in the 44 drawings contract. On 11 April 2013, Mr Torpy again inquired of Mr Ross as to whether Basetec or RPC had provided a quotation for the new drawings. On 22 April 2013, Mr Torpy sent an email to Mr Ross and Mr Flounders regarding the quotations received from Basetec and RPC in respect of RFQ26/03 which comprised the drawings referred to in this paragraph. In his email, Mr Torpy summarised the quotations which were $762,510 by Basetec and $312,165 by RPC. Mr Torpy said:
I anticipate we will now switch GRP supply to RPC for the remainder of the project(?). I am preparing a scope of works to set up a contract with RPC.
Mr Torpy said that in making this statement he was referring to moving to have RPC supply any new or additional GRP piping that was required for the Project, rather than asking Basetec to do it as a variation to the contract.
264 On 3 April 2013, Mr Flounders sent an email to Mr Paul Figallo instructing Basetec to discontinue any works allocated to RPC and identified in Revision 5 of the Drawings Register as Shipments 4, 5 and 6, to summarise the quantum of work completed on Shipments 4, 5 and 6 and to provide a revised cost breakdown for variations on Shipments 1 to 6.
265 On 5 April 2013, Mr Paul Figallo responded to Leighton and he advised Leighton that Basetec had reduced the cost of V001 down from $4,613,678 to $4,384,481.72. Basetec rejected Leighton's valuation of V001 and said that it was "incomplete, incorrect and without any basis".
266 On 5 April 2013, Mr Paul Figallo sent an email to Mr Berger and Mr Groch of RPC asking RPC to "hold" the deliveries leaving Batam and all production as it then stood.
267 On or about 8 April 2013, Basetec sent invoice 301-59 to Leighton for the sum of $651,896.34 plus GST as a further deposit on V001 in addition to invoice 301-54. At about the same time, Basetec sent invoice 301-60 for the sum of $1,385,280.70 plus GST, being a progress claim under the Works Contract as varied by variation V001, being an amount in addition to the amounts in invoices 301-41, 301-54 and 301-55.
268 On 9 April 2013, Basetec sent a purchase order to RPC. The purchase order was for the original contract works and it was in the sum of $417,491.41. The order covered only the Condabri aspect of the works. RPC was not prepared to supply GRP pipe to Basetec on the terms set out in the purchase order and, as a result, Mr Groch did not sign the purchase order or approve anyone else from RPC to sign the purchase order.
269 On 9 April 2013, Mr Flounders sent to Mr Paul Figallo Leighton's revised valuation of V001 which was $2,259,632. On the same day, Basetec gave Leighton notice of a claim for costs arising from the directions given by Leighton on 22 March 2013 and 3 April 2013 respectively, being the costs of the suspensions. This came to be known as variation 3 or V003.
270 On 10 April 2013, Basetec wrote to Leighton and submitted a variation claim which came to be known as variation 2 or V002 in respect of additional pipe supports for $114,528 plus GST. The claim in the variation was included in invoice 301-73. Mr Flounders was of the view that the supply of pipe supports was part of the original tender price.
271 On 11 April 2013, a number of events occurred. Leighton served a notice under the contract on Basetec requiring it to provide a detailed breakdown of price variations by 15 April 2013. Leighton wrote to Basetec and lifted the suspensions Leighton had directed on 22 March 2013 and 3 April 2013. Mr Koutsounis sent an email to Mr Groch informing him that RPC could recommence all works and deliveries. There was a meeting at Leighton's office in Brisbane between Mr Paul Figallo, Mr Koutsounis, Mr Lewis, Mr Flounders, Mr Lonsdale and Mr Kitchin. Mr Paul Figallo said that it was agreed at the meeting that there would be part payment of 50% of Basetec's invoices 301-59 and 301-60, and that Basetec would raise a new invoice reflecting this amount. Mr Flounders said that he did not recall any agreement to make an advance payment to Basetec for some of the claims in V001. He said that he did not want to agree to pay anything based on a percentage or partial amount of V001 at that time because he did not want it to be said that in some way Leighton had accepted Basetec's valuation of V001. Mr Lewis did not recall the meeting. As I understand Mr Kitchin's evidence, he did not rule out the possibility of it being agreed that a payment be made, but was clear in his mind that it would be a payment on account. It is clear enough that at this time, Basetec were seeking a payment from Leighton and that Leighton was not adverse to making a payment providing the liability was justified by appropriate evidence. These matters would have been discussed at the meeting on 11 April 2013. In fact, Leighton wrote to Basetec on 30 April 2013 stating that the invoice Basetec sent to it on 11 April 2013 (invoice 301-63), had been authorised for payment, but apparently subject to Basetec providing the statutory declaration and other material identified in clause 35.5 of the Works Contract. I say "apparently", because Mr Kitchin's evidence (which I have no reason to doubt) was that the invoice was in the system for payment and that the reason it was not actually paid was because the relationship between Leighton and Basetec had broken down.
272 On 15 April 2013, Mr Flounders wrote to Mr Koutsounis asking Basetec for a breakdown of materials and labour in relation to V002. He did this because he knew that C & GE supplied the pipe supports to Basetec. He had obtained details of the cost of pipe supports from C & GE in case Leighton needed to have some made and he had been provided with the details by Mr How at C & GE. On around the same day, Basetec sent invoice 301-65 dated 15 April 2013 to Leighton for $301,330.90 plus GST for site works at Condabri.
273 On 16 April 2013, Mr Flounders wrote to Basetec concerning Basetec's performance on site. He was responding to queries raised by Mr David Figallo on 9 April 2013.
274 On 17 April 2013, Mr Paul Figallo sent an email to Mr Berger of RPC in which he said:
Please hold all deliveries in Batam and Broadmeadows but keep manufacturing. We will need to organise inspections first and Leightons need to finalise our variations and pay a progress claim to Basetec/RPC first before we send anything further out.
On the same day, the GRP pipe and fittings identified in Shipment 3 in the Drawings Register were delivered.
275 On 26 April 2013, Mr Lewis sent an email to Mr Flounders with a copy to Mr Kitchin in which he said the following:
I am starting to get tired of this, Kitch can you confirm we are filling our contractual arrangement with Basetec, if not what do we have to do to get back on track.
If or when we are, we need to terminate the contract ASAP. I don't think we can continue to do so [sic] business on the current arrangement.
276 On 26 April 2013, Mr Paul Figallo sent an email to Mr Lewis providing an update on the delivery status of various shipments of GRP pipe and stating that the "final date" for the resolution of V001 was 10 May 2013.
277 On 28 April 2013, Mr Charles Figallo sent an email to Mr Lewis in which he advised Mr Lewis that as of 29 April 2013, all of Basetec's men would be stopping work and leaving the site if necessary. The evidence of Basetec was that it resolved to take this action because it was not receiving any payments from Leighton. On the same day, Basetec wrote to Leighton and submitted the variation claim which came to be described as variation V003 for $215,647 plus GST in respect of costs incurred by reason of the suspensions directed by Leighton on 22 March 2013 and 3 April 2013 respectively.
278 On 29 April 2013, Mr Paul Figallo sent an email to Leighton to which he attached a notice to Leighton under clause 45.1 of the Works Contract (i.e., notice of a claim) in respect of payments due under the contract for work under the contract and site works on the agreed schedule of rates basis and V001, V002, and V003.
279 On 30 April 2013, Basetec removed its men from the site. Mr Paul Figallo said that the reason for this was the failure by Leighton to make payments owed to Basetec. He said that Basetec had been working under the Works Contract for over five months without a single progress payment being made by Leighton and that all Basetec had received was payments by way of deposits. I have already referred to the fact that on 30 April 2013, Basetec received a letter from Leighton approving for payment, subject to a retention, the amount of $1,099,648.57. This amount was never paid.
280 On 1 May 2013, Mr Paul Figallo sent an email to Mr Kitchin. In that email, Mr Paul Figallo requested payment or confirmation of payment of V001 and other invoices by certain dates and stated that Basetec's site crew would remain off site until resolution. On the same day, Leighton gave notice by letter under clause 30.3(c) of the Works Contract (i.e., Leighton's right of inspection and review) that it wished to inspect the work carried out under the Works Contract at RPC's Newcastle facility on 6 May 2013 and at its facility in Batam, Indonesia on 17 May 2013.
281 On 2 May 2013, Leighton sent the isometric drawings for the GRP interconnecting pipe at Reedy Creek to RPC with a request for a quotation. It seems that these drawings related to the equivalent of V001 for the Condabri site. This suggests that by that time, Leighton was already dealing with RPC with respect to the matters it might reasonably be expected would be covered by the Works Contract. Emails passed between Leighton and RPC showing that RPC was planning to get onto the site and that Mr Ninkovic of Leighton was of the view that RPC would be engaged instead of Basetec. I will analyse the facts about Leighton's contact with RPC in early May 2013 later in these reasons.
282 On 3 May 2013, RPC wrote a letter to Basetec in which it demanded that Basetec issue it with a purchase order for the Condabri GRP interconnecting pipe spools and the substantial variation works. The letter stated that RPC had completed the manufacture of Shipments 2, 4 and 5 and approximately 98% of Shipment 6. RPC requested a purchase order for $2,413,014. The letter stated the following:
Accordingly, RPC formally informs Basetec that RPC has been exposed to considerable commercial and financial risk. Despite RPC having completed $2,413,014 of work, Basetec has only placed a purchase order for $417,491. This situation is untenable and completely unacceptable to RPC.
RPC demanded that the purchase order be issued by 5 pm on Friday, 10 May 2013 and warned that if such a purchase order was not placed by that time, RPC would regard the failure by Basetec to do this as a repudiation of the "current arrangement/understanding" between RPC and Basetec. RPC warned Basetec that if a purchase order was not issued, then it would be left with no alternative but to refuse "to ensure the supply to Basetec of the GRP pipe spools".
283 On the same day, Mr Paul Figallo sent an email to Mr Kitchin with a copy to Mr Lewis in which he advised that if invoice 301-63 was paid on 3 May 2013, "we will be back on site straight away to keep the works going". On the same day, Leighton advised that it was proceeding to value V001 in accordance with clause 33.6(a)(iii) of the Works Contract.
284 On 6 May 2013, Mr Flounders inspected the GRP interconnecting pipe at RPC's Newcastle facility. He asked Mr Groch what RPC's position was with Basetec and whether it would consider selling the GRP interconnecting pipe directly to Leighton. Mr Flounders' recollection of the conversation (which I accept) is that Mr Groch told him that RPC did not have a contract with Basetec. Mr Groch told Mr Flounders that RPC had informed Basetec that if Basetec did not give RPC a purchase order for the GRP pipe by 3 May 2013, then RPC would look for an alternative means of releasing the pipe. Mr Groch said that RPC had not heard from Basetec by the deadline which it had imposed of 3 May 2013 and that RPC would consider selling the GRP interconnecting pipe directly to Leighton if a contract could be agreed. Mr Groch's version of these events is that he said to Mr Flounders words to the following effect:
If I don't get a purchase order from Basetec, then I'm not releasing that pipe to anybody.
On the same day, Mr Flounders sent an email to Mr Lewis advising him as follows:
Simon/Kitch
I have just finished a review of the GRP pipe with RPC in Newcastle and everything is available for shipment both Newcastle and Batam I spoke about Leightons taking over the equipment and they said they have advised Basetec that if they do not receive a PO by Friday 3/05/13 they will look for an alternative means to release the pipe.
Apparently Basetec has not replied and RPC has advised that they will release the pipe to ourselves once a contract is established
They will send through a detailed schedule highlighting the costs.
On this basis I [sic] think we should formally advise RPC of the undertaking straight away.
I will organise a trip to Batam next week to check on the delivery and sort out with Basetec via a trip to Malaysia to see what pipe/resins they have available this will give me the opportunity to advise RPC of the exact Reedy Creek Scope
Mr Lewis said that he understood this email to contain advice from Mr Flounders that Leighton should be purchasing the GRP interconnecting pipe from RPC.
Also on 6 May 2013, Mr Paul Figallo sent an email to Mr Kitchin to which he attached a letter from Basetec where it said that if invoice 301-63 was paid immediately, Basetec would recommence works on site. The letter also referred to Basetec awaiting action by Leighton before inspection and despatch to site of the GRP interconnecting pipe it was to supply under the Works Contract. In addition, there was a statutory declaration stating, in summary, that RPC had been paid all monies due and payable by Basetec. Mr Lewis said that he could not recall if he read this at the time, but he does recall being told subsequently that a statutory declaration had come in from Basetec under clause 35.5 of the Works Contract which said that its subcontractors had been paid. Mr Lewis did not recall actually seeing the statutory declaration.
285 On 9 May 2013, Leighton issued Basetec with a notice to remedy a breach of the Works Contract. The notice alleged that the demobilisation by Basetec on 29 April 2013 was a breach of the contract. Later that day, Basetec wrote to Leighton and confirmed that despite being entitled to suspend the works due to Leighton's breach, Basetec would in good faith remobilise its personnel to site on Monday, 13 May 2013.
286 On 10 May 2013, RPC sent an email to Leighton with an updated summary of RPC's original submission for "Condabri scope of value" of $2,413,014.36. On the same day, Mr Flounders spoke to Mr Groch on the telephone and said words to the following effect:
Can you please send me a copy of your original tender price, because I can't find it on my system. And can you also send me a costing of the additional work you have been performing in relation to the scope changes.
Mr Groch said that he would comply with that request.
On the same day, Leighton wrote to RPC instructing it to commence the supply process immediately.
287 On 13 May 2013, emails passed between Leighton and RPC concerning when RPC could mobilise its men on the site (see [449] below). On the same day, Basetec attempted to remobilise its men on the site. Mr Paul Figallo said that once Basetec's men had arrived at the site, Leighton advised them that no accommodation was available for them on that day and Leighton asked Basetec's personnel to leave the site. Mr Lewis said that the documents he had been shown established that the first attempt made by Basetec to arrange accommodation at the Condabri site for four people was at 10.28 am on the morning of 13 May 2013, being the day that Basetec proposed to remobilise. On the same day, Basetec sent invoice 301-72 dated 13 May 2013 to Leighton for $295,506.05 plus GST for site works at Condabri. Basetec also sent invoice 301-73 dated 13 May 2013 to Leighton for $3,012,919.68 plus GST being a sum which was a progress claim under the Works Contract as varied by V001, V002 and V003, but in addition to invoices 301-41, 301-54, 301-59 and 301-66.
288 On 16 May 2013, Mr Paul Figallo went to RPC's factory in Batam, Indonesia and prepared for the proposed inspection the following day.
289 There was a meeting at RPC's factory in Batam, Indonesia on 17 May 2013. Mr Paul Figallo said that he and Mr Navin Gunatilleke attended the factory at about 9.00 am which was one hour ahead of the scheduled meeting with Leighton. Mr Paul Figallo was surprised to see that Mr Lewis and Mr Flounders had arrived before he did. He approached Mr Lewis and Mr Flounders and asked them to sign the release notes for the inspection. They refused to do so. Mr Lewis and Mr Flounders remained in the warehouse for approximately five minutes and departed without completing the inspection saying that they had a flight to catch. Mr Paul Figallo asked RPC to explain what had happened and he was informed that Leighton had met with RPC the night before and arranged an earlier "secret" inspection. Mr Paul Figallo was angry and felt that he had been cheated. He said that he had never been treated in this manner by a client. He was particularly aggrieved because he had travelled overseas and not just "up the road at Basetec office". Mr Paul Figallo said that RPC explained to him what had occurred and Mr Groch advised that Leighton had met with RPC the night before in Batam, Indonesia.
290 Mr Lewis said that he went to Batam to determine that the GRP interconnecting pipe was actually at RPC's facility, that it was fit for the Project and that there was a demonstration of ownership. He said that he did not propose to, nor did he in fact, carry out a complete inspection of the pipe. He said that he and Mr Flounders arrived in Batam the night before. They "ran into" Mr Groch on the ferry on the way over to Batam and ultimately had dinner with him and his wider RPC team. Mr Lewis said that the dinner was social, and he did not recall there being any discussion about details of the business with respect to the Project. He said that he and Mr Flounders then travelled to RPC's facility early on the morning of 17 May 2013. No representative of Basetec was present on their arrival. Mr Lewis said that Mr Paul Figallo arrived at the RPC factory after he and Mr Flounders had arrived. He recalled that they were all in a meeting room and that Mr Paul Figallo said words to the effect that he was "annoyed that we were there". Mr Lewis told Mr Paul Figallo that Leighton was entitled under the Works Contract to inspect the premises of subcontractors and that he routinely inspected premises of subcontractors when he has concerns about the works. Mr Paul Figallo asked Mr Lewis to sign an inspection and test plan, but Mr Lewis told Mr Paul Figallo that "we are not here to do a quality inspection". Mr Lewis said that the extent of his inspection of the GRP pipe that day was to identify Leighton identification and drawing numbers that were printed on the sides of the GRP pipe. He said that he did not conduct a full inspection of the GRP pipe and again, reiterated that he and Mr Flounders were not there to carry out a quality inspection. Mr Lewis satisfied himself that the GRP pipe was actually there and he took photographs of the GRP pipe. He did not confirm that the GRP pipe and fittings were completed, wrapped, labelled as directed by Leighton free from any liens, charges, claims or any other encumbrances or confirm that arrangements were in place for delivery to site. Mr Lewis said that his discussion with Mr Paul Figallo was very brief and that it lasted for no more than five minutes. He said that his recollection was that they left because they had a plane to catch. He said that at some point Mr Groch excused himself from the room. He also recalled that by the time he and Mr Flounders left, Mr Paul Figallo was getting annoyed.
291 Mr Flounders said that he and Mr Lewis had dinner with Mr Groch on the evening of 16 May 2013. The next morning, he and Mr Lewis travelled to RPC's factory in Batam. Mr Flounders saw the GRP pipe wrapped in plastic. He said that it was not his intention to undertake a complete inspection and quality test for all of the pipe that RPC had manufactured. He said that he was more interested in just generally some of the GRP pipe to see if it looked right and see how much had been produced. Mr Flounders did not sign anything or say words to the effect that the product was complete, nor did he undertake inquiries as to whether the goods were free from charges or liens. Mr Flounders explained that Leighton only accepts goods when they arrive on site. Mr Flounders could not confirm that all of the product was there. Mr Flounders' recollection was that he and Mr Lewis asked Mr Groch whether or not he had a contract with Basetec for the supply of GRP pipe. Mr Groch indicated that he did not have a contract with Basetec. Mr Flounders said that at this point he was not sure whether the GRP pipe was in RPC's control or whether Basetec had title to it. He thinks it was at about this point that Mr Lewis asked Mr Groch if he could send him an email to confirm the position. Mr Flounders said that Mr Paul Figallo arrived at the factory at around 8.30 am and that upon arrival, he approached Mr Flounders and said words to the effect of:
You're not supposed to be here without us.
Mr Flounders said that Mr Paul Figallo seemed to be "pretty worked up". Mr Flounders said something to the following effect:
Paul I'm your client. I don't believe there is anywhere in the contract that I have to seek permission to do any of this.
Mr Flounders said that he and Mr Lewis left the factory and caught the ferry back to Singapore.
292 Mr Groch said that Mr Lewis and Mr Flounders arrived at the RPC factory in Batam at approximately 8.30 am on 17 May 2013. They asked for a "walk through" of the factory. Mr Groch and the factory manager at Batam, Mr Bishop, took them for a tour of the factory. Mr Flounders and Mr Lewis did not inspect the pipes and fittings. However, they observed that the work was complete and tagged to Origin. Sometime later, Mr Paul Figallo and Mr Gunatilleke arrived at the RPC factory. The receptionist invited them to wait in the boardroom. Mr Bishop met Mr Paul Figallo and Mr Gunatilleke in the boardroom. Mr Paul Figallo demanded that everyone return to the boardroom. When Mr Lewis, Mr Flounders and Mr Groch all arrived back in the boardroom, Mr Paul Figallo was visibly upset. Mr Groch advised him that it was an informal walk through of the factory and not a formal inspection. Mr Paul Figallo demanded that either Mr Lewis or Mr Flounders sign the inspection and test plan. Mr Flounders advised Mr Paul Figallo that an inspection was not conducted and that what occurred was a walk through of the factory. Mr Groch said that it was obvious that there were issues that Basetec and Leighton had to resolve and then he left the room. Mr Flounders and Mr Lewis exited the room shortly thereafter and Mr Groch walked them to their car. When Mr Groch returned to the boardroom, Mr Paul Figallo was still visibly upset. Mr Groch reiterated that he had just taken Mr Lewis and Mr Flounders for an informal tour and he apologised if this was the wrong thing to do. Mr Paul Figallo informed him that they were his clients and that he should not have taken them for a tour without him being present. Mr Groch asked Mr Paul Figallo when he was going to pay RPC for the pipe that had been manufactured so far and Mr Paul Figallo indicated that a purchase order would be issued in due course. Mr Paul Figallo and Mr Gunatilleke then left the RPC factory.
293 I find that there was a meeting in Batam, Indonesia on 17 May 2013 at RPC's manufacturing factory. Mr Lewis, Mr Flounders, Mr Paul Figallo and Mr Groch, among others, were present. Mr Lewis and Mr Flounders arrived at approximately 8.30 am, and Mr Paul Figallo arrived after 9.00 am, but well before the scheduled time of the meeting at 10.00 am. When Mr Paul Figallo arrived, Mr Lewis, Mr Flounders and Mr Groch were engaged in a tour of the factory. Mr Lewis and Mr Flounders spoke to Mr Paul Figallo briefly and then left the facility and, it seems, Batam.
294 I do not think Mr Lewis or Mr Flounders attended the meeting on 17 May 2013 with a view to furthering the Basetec Works Contract. I think that they wanted to inspect the GRP pipe and that they had in mind establishing a contractual relationship with RPC in respect of the balance of the GRP interconnecting pipe project. Whatever might have been the position when Leighton served the notice on 1 May 2013, I think that on and from 6 May 2013, Leighton contemplated that it would change from Basetec to RPC. In cross-examination, Mr Lewis agreed that on no fair reading of Mr Flounders' email of 6 May 2013, could it be said that Mr Flounders was suggesting that the inspection take place for the purposes of the Basetec Works Contract.
295 Mr Groch said that later on 17 May 2013, he had a telephone conversation with either Mr Lewis or Mr Flounders when the following occurred. Mr Groch said words to the following effect:
What is going on? It looks like your relationship with Basetec is in very bad shape and I am becoming concerned that no-one is going to purchase all of the pipe that we have manufactured.
I have been constantly frustrated by Basetec and I can't get a commitment to be paid.
In response, Mr Lewis or Mr Flounders said to Mr Groch words to the following effect:
Does RPC have a contract with Basetec?
Mr Groch replied with words to the following effect:
No. We keep sending them requests for purchase orders but they never agree to anything.
Mr Lewis or Mr Flounders then said words to the following effect:
How have you communicated these concerns to Basetec?
Mr Groch replied with words to the following effect:
I have sent Basetec a letter of demand.
I accept that a conversation in these terms took place.
296 On 17 May 2013, all the pipes and fittings identified in Shipments 4, 5 and 6 of Revision 5 of the Drawings Register had been completed and were available in Batam, Indonesia to be shipped to Australia.
297 On 20 May 2013, Leighton wrote to Basetec and purported to terminate the Works Contract for convenience pursuant to clause 43.1. On about the same day, Basetec sent invoice 301-75 dated 20 May 2013 to Leighton for $115,850 plus GST for site works at Condabri and its demobilisation from Condabri.
298 At about the same time, Mr Groch of RPC received a formal tender invitation from Mr Ross to supply a tender for the supply of GRP fittings and connecting works for the Project. At about the same time, he received an email from Mr Paul Figallo attaching two revised purchase orders and the first purchase order dated 18 May 2013 was for the amount of $417,491.41 and was said to cover the "original purchase", and the second purchase order was dated 26 April 2013 and was for the amount of $1,995,522.94 and was said to cover the "variation works".
299 On 21 May 2013, RPC made a formal tender submission to Leighton for WC-184. WC-184 covered the GRP interconnecting pipe scope that was originally awarded to Basetec less the cost of Shipments 1 and 3 (which had been manufactured by Hexagon), and, in addition, the costs of the variations and the air freight of "First Water". The tender price was for a figure of $2,495,714.36. On the same day, Mr Reardon returned to work at RPC. Mr Reardon gave evidence to the effect that he was contacted by RPC about a month before and told about Condabri about a week before.
300 On 22 May 2013, RPC received a letter from Piper Alderman who were then acting for Basetec. On 22 May 2013, Basetec's solicitors also wrote to Leighton and provided a tax invoice 301-76 dated 22 May 2013 which effectively compiled and reconciled all of the previous invoices Basetec had issued to Leighton and the payments received to that time with a net balance owing of $5,817,054.67 plus GST.
301 On 23 May 2013, Leighton issued a purchase order to RPC in the amount of $2,495,714.36.
302 On 3 June 2013, Leighton delivered a Payment Schedule to Basetec in the amount of $164,636.82, and on 8 July 2013, Leighton made a payment of this amount to Basetec.
303 On 25 June 2013, Leighton and RPC entered into a contract for RPC to deliver GRP pipe to the Project and to carry out site jointing works on site at Condabri and Reedy Creek. Mr Lewis said that this was unrelated to the scope of works in the Works Contract.
304 On 9 July 2013, Basetec wrote to Leighton and advised that it would only accept the payment made on 8 July 2013 as partial payment towards its claim and refused to accept it as full payment of its claim. On 25 July 2013, Basetec sent its response to Leighton's Payment Schedule dated 3 June 2013 together with supporting evidence. Basetec claimed that the total amount still owing to it by Leighton was $3,156,704.49 plus GST.
305 On 12 December 2013, Basetec delivered a dispute notice pursuant to s 46 of the Works Contract claiming an amount of $3,156,000 plus GST together with general damages.
306 A table summarising the invoices Basetec sent to Leighton (number, date of invoice and amount) and the works the individual invoices stated that they related to, appears below.
Number Date Amount Nature of Payment
1 301-41 30.1.13 $292,720 plus GST 20% of contract value of $1,463,600
2 301-54 20.3.13 $250,000 less 5% retention for security plus GST A deposit for V001
3 301-59 31.3.13 $651,896.34 plus GST Further deposit for V001 ($4,384,481.72 x 20% - $225,000)
4 301-60 8.4.13 $1,385,280.70 plus GST Progress claim under the Works Contract as varied by V001
5 301-63 11.4.13 $1,018,588.52 plus GST Agreed 50% of 301-59 and 301-60
6 301-65 15.4.13 $301,330.90 plus GST Site works at Condabri
7 301-72 13.5.13 $295,506.05 Site works at Condabri
8 301-73 13.5.13 $3,012,919.68 plus GST Progress claim on Works Contract and three variations
9 301-75 20.5.13 $115,850 plus GST Site works at Condabri and demobilisation from Condabri
10 301-76 22.5.13 $5,817,054.67 plus GST All previous invoices minus payments received