Downer EDI Rail Pty Ltd v John Holland Pty Ltd; Kellogg Brown & Root Pty Ltd v John Holland Pty Ltd

In 2015/120806: Colin Biggers & Paisley (Plaintiffs/Respondents) HWL Ebsworth Lawyers (First Defendant/Applicant) Squire Patton Boggs (Second Defendant) Bridges Lawyers (Third Defendant) Gillis Delaney Lawyers (Fourth Defendant)

In 2017/69950: Squire Patton Boggs (Plaintiff) HWL Ebsworth Lawyers (Defendant) File Number(s): SC 2015/120806; SC 2017/69950

Judgment

1. These proceedings concern damage to an underground water detention system and associated parts of a major rail maintenance facility in Auburn.
2. The land on which the facility has been constructed, and the maintenance facility itself, is owned by RailCorp NSW.
3. In 2006, the first plaintiff, Downer EDI Rail Pty Ltd, was (through the head contractor appointed by RailCorp, Reliance Rail Pty Limited) awarded the contract to construct the facility.
4. Downer subcontracted construction of the facility to the first defendant, John Holland Pty Ltd.
5. By further subcontracts, John Holland subcontracted design work for the facility to the second defendant, Kellogg Brown & Root Pty Ltd ("KBR"), and the supply of the onsite water detention system, known as "Atlantis Cells," to the third defendant, Atlantis Corporation Pty Ltd. Atlantis is now in administration.
6. As part of the storm water detention facilities, Atlantis Cells were installed underneath the car park and at other locations within the facility.
7. In February 2013, cracking and subsidence of the car park was observed. Investigations revealed failures in the stormwater detention facilities at the car park and at other locations in the facility, in particular, in areas adjacent to the primary maintenance building.
8. Rectification of the car park commenced in September 2014. Those works involved the replacement of the Atlantis Cells with a concrete water detention system.
9. On 23 April 2015, the head contractor for RailCorp, Reliance Rail, wrote to Downer claiming losses in respect of current and future defects in the stormwater detention system.
10. Downer, and a related company, EDI Rail PPP Maintenance Pty Limited (which had contracted with Reliance Rail to manage the maintenance centre) commenced these proceedings in August 2015 against John Holland, KBR and Atlantis. The amount claimed is in the order of $70 million.
11. On 24 February 2017, those proceedings were set down for hearing commencing 6 November 2017 for 4 weeks.
12. I am currently allocated to hear those proceedings.
13. John Holland brought a cross-claim in the proceedings against KBR.
14. KBR invoked its right, under the John Holland-KBR Subcontract, to have that dispute referred to arbitration.
15. The arbitration is proceeding before Mr R V Gyles AO QC.

The separate questions

1. By a Notice of Motion filed on 6 March 2017 in proceedings 2015/120806 (the proceedings listed for hearing in November), John Holland sought an order pursuant to Uniform Civil Procedures Rules 2005 (NSW) r 28.2 that two questions be determined separately from and before any other issues in the proceedings.
2. In substance, the first question is whether, on the proper construction of the Downer-John Holland Subcontract, John Holland has no liability to Downer for "pure economic loss".
3. That question arises from cl 56A.1(g) of the Downer-John Holland Subcontract which provides: "Notwithstanding any other provision of this Subcontract, neither party has any liability to the other party for any Claim or Loss within paragraph (b)(i) or paragraph (b)(ii) of the definition of 'Loss'."
4. "Loss" is defined in the Downer-John Holland Subcontract, relevantly, as follows: "(a) [S]ubject to paragraphs (b), (c) and (d), means any cost, expense, loss, damage or liability; (b) does not include any: (i) loss of revenue, loss of business, loss of income, loss of profit, loss of use, loss of data, loss of opportunity, business interruption and the like; and (ii) any indirect, consequential or pure economic loss of any kind whether or not included in paragraph (b)(i); unless and to the extent that such loss is recovered under any Insurance (or would have been recovered but for any conduct on the part of the Subcontractor or any of its Associates which under the Insurance entitles an insurer to avoid the relevant contract of insurance or to reduce its liability under the relevant contract of insurance…".
5. Mr Braham SC, who appeared with Mr Gray for John Holland, submitted that the effect of cl 56A.1 of the Subcontract is that John Holland was not liable to Downer for any loss other than that actually defined in sub-cl (b)(i) and (ii) of the definition of "Loss" (in substance, for pure economic loss) and that cl 56A.1(g) did not incorporate by reference any other part of the definition of "Loss"; and, in particular, did not incorporate by reference the proviso to sub-cl (b) of the definition of "Loss" (being the words commencing "unless and to the extent that…").
6. The second proposed question seeks to raise the concomitant issue of whether the loss claimed by Downer (as set forth in an identified paragraph of its List Statement) was of the kind described in cl 56A.1(g), and thus a loss for which Downer was not liable.
7. The particular questions posed for separate determination were as follows: "1. Does the phrase 'Claim or Loss within paragraph b(i) or paragraph (b)(ii) of the definition of 'Loss'' in clause 56A of the contract (Downer-John Holland Subcontract) between the first plaintiff (Downer EDI) and the first defendant (John Holland) refer only to: (a) loss of revenue, loss of business, loss of income, loss of profit, loss of use, loss of data, loss of opportunity, business interruption and the like; and (b) any indirect, consequential or pure economic loss of any kind whether or not included in paragraph (b)(i), and no other words within the definition of 'Loss' (i.e. does it exclude the words 'does not include any' preceding subparagraph (b)(i) of the definition or the words following subparagraph (b)(ii) of the definition commencing with 'unless and to the extent')? 2. Is the loss claimed by Downer in paragraph 26 of the Amended Technology and Construction List Statement 'indirect, consequential or pure economic loss of any kind' as that expression is used in clause 56A of the Downer-John Holland Subcontract and clauses b (i) and (ii) of the definition of 'Loss' (and not deciding for this purpose any question of fact relating to insurance or the possible application of the words following subparagraph (b)(ii) of the definition commencing with 'unless and to the extent…')?" [Emphasis in original]
8. The relevant provisions of the John Holland-KBR Subcontract are substantially the same (although not identical) to the provisions to which I have referred in the Downer-John Holland Subcontract.
9. By Summons filed on 6 March 2017 in proceedings 2017/69950, KBR sought leave, pursuant to s 27J of the Commercial Arbitration Act 2010 (NSW), to have questions substantially the same as those posed by John Holland, separately determined by the Court as preliminary questions in the arbitration.
10. That application was made with the consent of the arbitrator and of John Holland.

The hearing of the applications

1. The applications of John Holland and KBR for the separate determination of these questions were listed before me on 2 May 2017 on the basis that, if I decided to order the hearing of separate questions, I would proceed forthwith to determine those questions.
2. At the conclusion of argument, I announced my decision to refuse to make any orders for separate determination. I said I would give my reasons later.
3. These are those reasons.
4. Mr Braham and Mr Miller SC, who appeared with Mr Smith for KBR, both submitted that there were a number of advantages to an earlier and separate determination of the questions.
5. Mr Braham pointed to the fact that Downer's claim against John Holland was brought in contract, tort, and s 52 of the Trade Practices Act 1974 (Cth) ("TPA") and submitted that an affirmative answer to the questions posed would be an answer to Downer's claim in contract and tort, and perhaps also its claim under the TPA.
6. Mr Braham accepted that an affirmative answer to the proposed questions would not be an answer to the claim made by EDI Rail PPP Maintenance.
7. Mr Braham also pointed to allegations made by Downer in a very recently filed Reply which raises issues as to the nature of John Holland's obligations under the proviso to the definition of "Loss" to which I have referred. Mr Braham submitted that these allegations will require extensive investigation by John Holland and may require the joinder by John Holland of its insurer, but would not arise, and would not have to be dealt with by John Holland, were it to be determined now that the proviso did not form part of the definition of "Loss" for the purposes of cl 56A.1(g).
8. However, Mr Braham accepted that one could not confidently predict that early determination of the questions would have a significant impact on the likely duration of the hearing.
9. In that regard, Mr Rushton SC, who appeared with Mr McManus for Downer, submitted that an earlier determination of the separate questions, even if favourable to John Holland, would make little if any impact on the likely duration of the hearing as Downer's case will still need to be presented against KBR, and against Atlantis's insurer (against whom Downer makes a claim under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)).
10. However, Mr Braham submitted (and Mr Miller agreed) that a determination favourable to KBR of the corresponding questions it raises in the arbitration would, in effect, bring an end to the arbitration. That is because all that would remain would be John Holland's TPA claim against KBR which, being an apportionable claim will, in substance, be determined by resolution of the apportionable claim issues arising in Downer's TPA claim against John Holland and KBR in these proceedings.
11. Nonetheless, I was not persuaded that I should make the orders sought.
12. So far as concerns the first question, regarding the proper construction of the provisions to which I have referred, although both Mr Braham and Mr Miller submitted that the questions (under the respective contracts) were purely questions of construction not requiring reference to any material beyond the wording of the contracts, I am not confident that this is so.
13. I was not provided with a statement of agreed facts.
14. Further, Mr Rushton informed me that Downer may wish to adduce evidence which might be relevant to how the particular provisions should be construed (going to such matters, I understand, as the surrounding circumstances known to the parties, the commercial purpose or objects of the transaction and an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35])).
15. Mr Rushton accepted that he was not able to identify any evidence that Downer would seek to adduce in this regard.
16. However, the conclusion to which I came was that it was not incumbent on Downer, at this stage of the proceedings and in order to meet an application for separate determination of the proper construction of its contract with John Holland, to identify what evidence it would wish to adduce on the question of construction. In the normal course, such an issue would be considered once all the evidence in the hearing had been adduced. It is by no means fanciful to suppose that there may be evidence that Downer could adduce which would be relevant to the questions of construction.
17. Indeed, it appears likely that the full context in which the parties were operating when they entered these contracts will not be revealed until all of the evidence is adduced in the proceedings; especially that relating to the nature and scope of the undertaking. The totality of that evidence may well be of importance when considering how the contract should be construed.
18. In those circumstances, my conclusion was that it would be most unwise, and may lead to error, to endeavour to construe these potentially critical provisions of the contracts in isolation and, perhaps, devoid of vital context.
19. Mr Rushton raised a further point, which was that the questions posed by John Holland did not, in terms, deal with the question of whether cl 56A.1(g) of the Downer-John Holland Subcontract overrode another provision of the contract, namely, cl 35.1, which imposes on John Holland an obligation to indemnify Downer for loss it suffers consequent on damage or loss to any real or personal property (whether belonging to John Holland or, relevantly, RailCorp).
20. That issue might arise, implicitly, from the reference to cl 35.1 in par 26 of Downer's Amended Technology & Construction List Statement (which is referred to in the second question). But the issue is not raised, in terms.
21. For those reasons, I was not prepared to order a separate determination of the first question.
22. That being so, there is nothing to be gained by ordering a separate determination of the second question.
23. For those reasons, I came to the conclusion that I should not order separate determination of the two questions proposed by John Holland.
24. Having reached that conclusion, I decided that it would not be appropriate to determine separately, and now, the separate questions from the arbitration proposed by KBR's Summons.
25. It is common ground that the questions concerning the John Holland-KBR Subcontract which KBR seeks leave to have determined by the Court are, in substance, the same questions as John Holland proposed to be determined separately concerning the Downer-John Holland Subcontract.
26. It is obviously preferable that the one judge, be it me or another judge of the division, determine both matters (to avoid the possibility of inconsistent judicial findings on what is, in substance, the same question).
27. I am currently scheduled to hear Downer's claim against John Holland and KBR at the hearing fixed for 6 November 2017. In those circumstances, it would not be desirable for me to determine now, the questions posited by KBR (notwithstanding the fact that John Holland and the arbitrator agree that I should do so).
28. The preferable course is for all of those issues to be determined together.
29. Accordingly, I yesterday invited the parties to confer and agree on a procedure that could be adopted to ensure that this occurs in the course of the hearing commencing 6 November 2017.

The result

1. For those reasons, on 2 May 2017 (in proceedings 2015/120806), I ordered that John Holland's Notice of Motion of 6 March 2017 be dismissed with costs.
2. So far as concerns KBR's Summons (in proceedings 2017/69950), I indicated yesterday that I was inclined to grant KBR the leave it seeks pursuant to s 27J of the Commercial Arbitration Act, provided that the questions posed be determined concurrently with the hearing of proceedings 2015/120806 in November 2017.
3. KBR and John Holland have since agreed to the form of orders having this effect. I made those orders earlier today.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 May 2017