Baulderstone v QIC

Judgment - EX TEMPORE (revised 13 March 2012) 1HIS HONOUR: The plaintiff (BPL) as contractor made an agreement with the defendant (QIC) as principal for the redevelopment of the Westpoint Shopping Centre at Blacktown. The work comprised a number of stages and was extremely comprehensive. 2The contract provided for BPL to be paid in various ways. There were lump sums to be payable for profit, preliminaries and other matters. There was provision for the cost of construction works, subject to a "warranted maximum price" specified in the contract but subject in turn to adjustments as a result of "WMP variations" or, in the jargon of the parties, WMPVs. 3The parties fell into dispute. BPL served what it claimed was a show cause notice alleging that QIC had committed substantial breaches of the contract. The breaches alleged included an assertion that QIC had failed, in breach of clause 23.1 of the contract, to endeavour to ensure that the principal's representative had acted independently and reasonably in various respects. Those respects related, among other things, to granting extensions of time (EOTs), to certifying progress claims, to certifying practical completion and to making valuations of work done. 4QIC denied that it had breached the contract, let alone in a substantial way, and served its own show cause notice. The result of all this was that BPL suspended, or purported to suspend, the works and in response QIC served further show cause notices. 5It is common ground that the contract has come to an end. The question is whether it was terminated by BPL either pursuant to a contractual right to do so or for repudiation by QIC; or whether it was terminated by QIC either pursuant to a contractual right to do so or for repudiation by BPL. 6There are other disputes in relation to the basis and nature of termination. The issues that are raised by the extensive "pleadings" in this case are prodigious in their variety and extent. For example, one of the claims made by QIC is that the work was defective or incomplete, in about 3,000 separate identified respects. It is said that the extent of defective and incomplete work was such that, at common law, QIC would have been entitled to terminate in any event regardless of the interplay of the various contractual steps to which I have referred. 7Again, there are over 600 WMPVs that are said to have been wrongly certified. 8BPL, if it is correct in asserting that it was entitled to and did terminate the contract, claims payment on a quantum meruit basis for the true value of work done by it, less payments made. Alternatively, it claims damages on repudiation. Alternatively again, it claims damages for breach of clause 23.1. The amounts involved range, before interest, from in excess of $90 million to in excess of $100 million. 9QIC likewise claims damages. The claims include the cost of making good defects and the cost incurred by it to complete the work. 10There is an enormous volume of evidence, both lay and expert, in relation to the numerous issues in the case. The evidence continues to mount as the parties complete preparation of their evidentiary cases on the various separate aspects of the claim. 11I am concerned today with alternative proposals for the way in which the Court might attack the process of resolution of the disputes. It is, in principle, common ground that all questions relating to defective work should be referred out. It is also common ground, in principle, that there should be (subject to the reference out of the defects issues) a separate and prior determination of what might be called the termination issues. 12As to the reference out, there are relatively minor disputes. One relates to the full ambit or extent of the questions to be referred. Another relates to the identity of the referee. Another relates to the question of whether the referee should be bound by the rules of evidence. The fourth (which I think is not really in dispute at all) relates to a limitation on the expert evidence to be relied upon. 13In relation to the way in which the termination issues are to be decided, the parties are some distance apart as to how this should be achieved. BPL suggests that all termination issues should be determined by the Court in a separate and prior hearing. If that happens, it is prepared to restrict the extent of the underlying claims, relating to WMPVs, EOTs and other matters, on which it will stand or fall on its termination case. 14QIC agrees that the Court should look at some of the underlying questions. It says that it should look at a very small number of disputed claims. The objective of this approach is to have the Court decide what in any view are questions of law as to the proper construction and application of relevant provisions of the contract, so that the parties can proceed on a defined basis to have the issues of fact decided in accordance with the proper construction of the relevant provisions. QIC contemplates that, once the Court has spoken, the underlying questions of fact can be referred out. 15There was a third issue raised, as to the appointment of a facilitator who might sit with the experts in conclave to assist them to deal with the differences between them. That is substantially now agreed. 16I start with the question of reference out of the defects case. 17As to the ambit of the questions to be referred: the dispute was minor in nature. One party (and I have to say I cannot now recall which) suggested that various miscellaneous questions, not related to defects or incomplete work but nonetheless being questions of fact that will be dealt with by the evidence to be considered by the referee, should be included. It appears to be common ground that the evidence to be taken by the referee would be relevant to those questions and that to have the referee deal with them would not involve any great extension of the reference. On that basis, I think, the questions to be referred out should include all issues and not just the more limited set that has been proposed by one of the parties. 18The parties are agreed that the referee should be asked to report, as a matter of priority, on the items of defective and incomplete work that QIC relies upon in relation to the termination question. 19The identity of the referee was a difficult question. BPL proposed Mr David Blunt of Queens Counsel, an eminent English practitioner. Mr Blunt has had very substantial experience as counsel, as arbitrator, as a Deputy Judge of the Technology and Construction Court (when that Court was staffed by Circuit Court Judges) and as a Deputy Judge of the High Court of Justice. There can be no doubt as to his capacity to undertake the process. 20QIC proposed the Hon J M N Rolfe of Queens Counsel. Mr Rolfe is of course a former Judge of this Court who sat in the Commercial List and what is now the Technology and Construction List. Again, his qualifications and experience fit him eminently for the role. 21BPL suggested, as an alternative, the Hon R L Hunter of Queens Counsel. The same remarks can be made about Mr Hunter as I made about Mr Rolfe. 22It is a very difficult question, in the sense that any selection between three people so eminently qualified is likely to put the Court in the invidious position of appearing to say that one is better than the others. That is not something that I wish to be drawn from what I am about to say. 23With all respect to Mr Blunt and those who propose him, I think that the preferable choice of a referee is one who has had substantial experience in the process of references out from this Court in this State. Thus, whilst as I have said I have no doubt that Mr Blunt could carry out the role in a completely impartial and entirely appropriate fashion, I think that what might be called local knowledge is a distinct advantage. 24Thus, I think, the choice comes down to Mr Rolfe or Mr Hunter. 25As I observed in the course of argument yesterday, the Court cannot but take into account what it knows of all the persons involved. In the present case, I have had experience as counsel appearing with or against the two gentlemen when they were at the Bar, as counsel appearing before them when they were Judges of this Court, as counsel appearing before them as referees and, in more recent years, as a Judge of this Court referring matters to them and considering questions relating to the adoption of their reports. I think that, over the years, I have gained a reasonably clear understanding of the way in which each works and of the kind of dispute that each is, in particular as opposed to general, equipped to deal with. 26Taking into account what is likely to be the nature of the process in relation to defects, and the way in which a referee is likely to approach it, I have come to the conclusion, for reasons which I cannot really justify other than by uttering the outcome, that the appropriate referee would be Mr Rolfe. Having said that, if there were any problem with Mr Rolfe's undertaking the reference, I would have full confidence that Mr Hunter could do the job. 27As to the application of the rules of evidence: one of the prime virtues of the reference process is that the referee is not bound by the rules of evidence and can inform himself (as it will be in this case) in such way as he thinks appropriate. To my mind, to require a referee to be bound by the rules of evidence is to undo one of the major benefits of the process. 28Mr Rowland, for BPL, submitted that it would be unjust to his client to have some of the termination issues decided, as he put it, with the full rigour of the law of evidence applicable to the fact finding process, but not all. If I may say so, I think that that submission both overstates the value of the law of evidence in relation to the fact finding process and understates the thoroughness which the referee is likely to take to the task. I have no doubt that a referee, even though not bound by the rules of evidence, will approach the task on the basis of looking for the relevant probative and persuasive evidence, and acting on that and on that alone. 29In the outcome, I do not think that there is any basis for hindering the referee by imposing on the reference process the procedural and technical burdens of the rules of evidence. 30I would add, in any event, that I would assume that the parties have prepared their evidence on the basis that the rules of evidence might apply, and that at least in substance questions of admissibility are unlikely to be significant. I would add, further, that if the principal objections taken are to relevance (which in my experience is usually the case), it matters not whether the referee is or is not bound by the rules, because a decision on relevance is generally undertaken at the end of the process, when the issues can be assessed and it can be seen where, if at all, the particular piece of evidence fits. 31As to the question of expert evidence: it appeared to be common ground that no party should be entitled to rely on expert evidence except to the extent that the relevant provisions of the rules have been complied with. On that basis, I need say no more. 32I turn to the second question: the way in which the termination issues should be dealt with. 33Any examination of the termination issues will require the Court or the referee to look at those of the underlying disputes that BPL relies upon to support its termination case. Those disputes relate to the principal's representative's assessment of WMPVs; EOTS and delay costs; conditions clarifications and details (CCDs); certification of payment claims; and practical completion of stages 1.1 and 1.2. 34As I have indicated, BPL is prepared to limit the number of underlying issues that it will rely on if the determination can proceed in Court. The effect is that it will limit the factual case to about 103 of what I think are the more than 600 underlying claims, and as I have said, stand or fall on those alone. 35However the process proceeds, the WMPVs, EOTs and CCDs relied upon will need to be examined, in particular to see whether BPL was entitled to the payment claimed, or whether the principal's representative's assessment of the claim was appropriate. It will readily be seen that there will be links between the various issues. For example, in relation to an EOT, there will be a claim as to whether there should be an extension of the date for practical completion and an adjustment of the warranted maximum price. 36There are other connections between the various issues which do not need to be elaborated. 37There is a lot of attraction in the approach propounded by QIC. The attraction is that, as a matter of theory, the Court could decide the proper construction and application of relevant contractual provisions and then leave it to some hapless referee to deal with the various underlying claims on that basis. Of course, it is likely that there would be an application for leave to appeal from the Court's decision on those questions, and likely (bearing in mind the potential significance of an incorrect conclusion) that the Court of Appeal would look at the matter. However, that is I think common to any way in which the question of separate determination is resolved. 38The problem with QIC's approach seems to me to be that it does not really amount to the framing of separate questions which, by their answers, will lead to a determination on the question of construction. Rather, it looks to the Court pronouncing on the approach that should have been taken to a particular WMPV, EOT or CCD and, in the course of deciding that issue, setting out what it regards as the appropriate construction of the relevant contractual provisions. 39In other words, there will be no pronouncement on a question, or by way of declaration, as to the proper construction of the provisions that underlie the disputes. 40It also seems to me that the QIC approach is likely to lead to a very substantial delay in resolving the termination dispute. That is because it contemplates an initial hearing in Court, a reference out (which may well be of substantially more disputes than would be involved in a hearing in Court, on the BPL proposal) and then an adoption hearing. 41There are likewise problems with the approach advocated by BPL. One obvious one is that there will be a very lengthy hearing in Court. Another is the likelihood of overlap of witnesses and facts with any subsequent stage of the hearing. 42The balancing exercise is a particularly difficult one. It is comforting that the parties agree, in principle, that termination questions should be resolved first. Thus the Court is not required to consider that threshold question, except of course to the extent that if the Court thought it were inappropriate for that to happen at all, it should express that view regardless of the parties' approach. But I do not think that. 43The termination questions lie at the heart of the dispute. Subject to whatever happens in the Court of Appeal or higher, the resolution of those questions will dictate in large measure the approach that is taken to the resolution of the remaining disputes. 44The question is of such central significance, and the amounts of money involved are so substantial, that on balance, and notwithstanding that I am sentencing myself for an indefinite duration, I think that the question of termination is one that should be dealt with in Court. In coming to that conclusion, I take into account that a decision in Court on the whole of the material on which BPL relies (and on which QIC relies) is likely to lead to a consistency in approach to the evidence, and to the resolution of questions of construction of relevant provisions of the contract with a full understanding of context and with a clear appreciation of (for example) any possibility of absurdity of outcome of one approach rather than another. 45I take into account also that the outcome of a hearing in Court of the separate questions relating to termination is likely to attract leave to appeal, and to facilitate early appellate resolution, on the basis of what the parties say is all relevant evidence, of the question of entitlement to terminate. 46That leaves the question of how the termination issues should be defined. In principle, I think, those issues should extend to all contractual issues that are governed by the question of termination. By reference to the parties' schedule of issues, that would include all of issues 1 to 6 (which relate to termination expressly) and so much of issue 7 (which relates to the consequences of termination) as involve questions of liability, but excluding from issue 7 all questions of quantification. 47If that is done, and to the extent that the outcome remains clear after the appellate process has played its part, the parties will know where they stand on the remaining extremely numerous issues that fall for resolution. 48The schedule of issues gives a brief description of the questions and identifies the particular paragraphs of the pleadings from which those questions arise. In my view, it would be appropriate to leave it to the parties to define the issues for separate and prior determination by reference to the schedule of issues, but bringing to bear on the question their far more detailed knowledge of the issues than the knowledge that at present I have. 49I should also make it clear that I do not intend, by what I have said, to foreclose any further application in relation to the proper way of conducting or staging the separate hearing. It may well appear, as the parties prepare their cases for that hearing, that there are advantageous ways in which the separate hearing could be structured, or that there is an appropriate path to track through to resolve the issues that arise in it. That may involve (and I express no view on this) consideration at a relatively early stage of a sample of disputed claims in each category. On the other hand, it may turn out to be that such an approach is not practicable. 50All I wish to say is that if, in the course of preparation, a party is able to identify a better approach to resolution of the termination questions, it is at liberty to make application in that regard. 51I turn, finally, to the question of the facilitator of the expert conclaves. The proposals were Mr Hunter or Mr I D Faulkner of Senior Counsel. Mr Hunter's nomination was withdrawn so that he could be put forward as a referee. I am not sure whether, having regard to the conclusion to which I have come on that point, he is again put forward as a facilitator. If he is, my preference would be to ask him to undertake that role. I say that again because in my view his extensive experience as counsel, as a Judge and as a referee peculiarly fits him to undertake the task of facilitation. But if Mr Faulkner is the agreed nominee of the parties then I have no difficulty in going along with that because again, knowing what I do of his background, experience and capacities, I accept that he would be eminently suitable to carry out the task. 52The result, I think, is that the parties should bring in short minutes of order to give effect to what I have said.