Heavy Plant Leasing Pty Ltd (In Liquidation) v McConnell Dowell Constructors

How the case was run

1. The competing position of the parties in relation to the elements comprising MacDow's claim for damages was set out in a table prepared by the parties called "Table of Quantum", to which I referred at [J418].
2. The part of that Table relating to MacDow's claim for Cost to Complete is attached to these reasons.
3. At [J450] I said: "MacDow contends that the Cost to Complete was some $42.9 million. HPL contends that MacDow has not established any reliable figure as the Cost to Complete and that I should allow no sum to MacDow on this account. Alternatively, assuming that submission is not accepted, HPL contends that the Cost to Complete was some $39.8 million."
4. The competing figures of $42.9 million and $39.8 million were taken from the Table of Quantum.
5. HPL's contention, which I recorded at [J450], that I should allow no sum to MacDow for Cost to Complete was based on what I referred to in the judgment as the "not proven" point.
6. That point arose from a contention made at the last minute by HPL's quantity surveying expert, Mr Bolt.
7. Thus, at [J477] and [J478] I said: "Nonetheless, in conclave with Mr Roberts, Mr Bolt contended, for the first time, that the material adduced by MacDow in support of its Cost to Complete Claim did not take account of six factors, to which I will return, and stated that 'here is insufficient information, contained on the invoices [from MacDow's subcontractors], to accurately assess the impact of [those] factors' on MacDow's Cost to Complete.
8. HPL embraced that opinion and submitted: '… Mr Bolt's primary position is that MacDow has not proven its costs to complete and therefore should get $0 for its [Cost to Complete]. This is HPL's primary position.'"
9. At [J479] I said: "Ultimately, HPL put its position on this point on three bases: (1) first, that MacDow had not discharged its onus of proof in demonstrating that the costs entered into the costs codes to which Mr Foxwell referred were in respect of HPL's scope of work under the Contract and thus properly caught by MacDow's entitlements under cl 26.5 of the Contract, or otherwise were caused by HPL's alleged breach; (2) second, that MacDow had not eliminated from its claim, costs caused by the allegedly substantial delay and disruption attributable to the matters the subject of MacDow's complaint to Fluor of 5 August 2013 (to which I will return); and (3) third, MacDow's claim did not take into account the 'substantial sums in respect of its additional costs' recovered from Fluor."
10. The basis referred to at [J479(1)] was Mr Bolt's point that I summarised at [J477]. I did not accept that point. [11]
11. I also did not accept the basis set out at [J479(2)]. [12]
12. It is the basis set out at [J479(3)] that arises for consideration here.
13. I dealt with this question at [J497]-[J508], including in [J507] that I have set out at [10] above.
14. Before turning to that question, it is necessary to see the context in which I made the remarks at [J507].
15. In addition to preparing the Table of Quantum, the parties prepared, at my request, a "Redfern Schedule" setting out, in summary, their contentions in relation to each matter in dispute. I populated the Redfern Schedule with my decision in relation to each matter and attached a copy to the judgment at [J420].
16. The Redfern Schedule was prepared so as to be read in conjunction with the Table of Quantum, and by reference to the same line items.
17. The presently relevant line items were: "2 - Cost to Complete post 18 March 2013 2.1 Subcontractors, Plant & Material 2.1.1 Subcontractors 2.1.2 Materials / Consumables 2.1.3 Plant 2.2 Overheads & Management"
18. A copy of the relevant part of the Redfern Schedule is attached to these reasons.
19. It can be seen that, in both the Table of Quantum and the Redfern Schedule, Item 2 was a summary of MacDow's overall Cost to Complete claim. Sub-items 2.1, 2.1.1, 2.1.2, 2.1.3 and 2.2 comprised the five elements making up MacDow's total Cost to Complete claim.
20. In the panel in the Redfern Schedule corresponding to line item 2 in the Table of Quantum, MacDow specified quantum of $43,558,849.90 (slightly more than the figure in the Table of Quantum: $42,933,781.77).
21. On the other hand, HPL stated its "primary position" was quantum of $0.00 and, as an "alternative position", $38,634,858.46 (slightly less than its position as stated in the Table of Quantum of $39,850,522.09).
22. In support of its "primary position", HPL stated: "HPL's primary position is that MacDow has not proven the quantum of its costs to complete the works and therefore MacDow is not entitled to any amount ($0.00). This is a significant legal issue and is dealt with more fully in HPL's written submissions."
23. This was HPL's "not proven" point arising from the evidence of Mr Bolt.
24. In this part of the Redfern Schedule, HPL also said: "Further, MacDow has made no attempt to identify which part of the costs it claims against HPL are referrable to amounts which MacDow recovered from Fluor."
25. This statement related to the payment of $17.5 million from Fluor to MacDow, being the basis referred to at [J479(2)].
26. However, in HPL's population of the panels in the Redfern Schedule referable to the five elements of MacDow's Cost to Complete claim, HPL only referred to the payment from Fluor in panel 2.2.2, that dealt with Overheads and Management.
27. At that point in the Redfern Schedule, HPL stated: "MacDow sought recovery of its overheads and management costs from Fluor and was paid a global settlement which included, on a global basis, a payment for that claim. For that reason, MacDow is entitled to $0.00 for its overheads."
28. Thus, it was only in respect of the Overheads and Management component of MacDow's Cost to Complete claim that, in the Redfern Schedule, HPL contended that the payment from Fluor ought be brought to account.
29. At Item 2.2.2 of the Redfern Schedule, HPL said that, by reason of the matters set out above, the amount recoverable by MacDow for Overheads and Management was $0.00, alternatively $1,215,663.63, the latter figure being the figure specified by it in the Table of Quantum as being its position in relation to MacDow's Overheads and Management claim.
30. This makes clear to me that, contrary to the position now being put by HPL, it was not at trial contending that the payment received from Fluor, the $17.5 million, should be deducted in whole from the total of MacDow's Cost to Complete claim. Otherwise, in the panel of the Redfern Schedule dealing in summary with MacDow's Cost to Complete claim, HPL would have posited a second "alternative position", namely that $17.5 million should be deducted from MacDow's Cost to Complete claim.
31. This makes clear that HPL did not contend, during the hearing, as it now seeks to contend, that the $17.5 million received from Fluor should be deducted from the total of MacDow's Cost to Complete claim.
32. Consistently with this, no suggestion was made by HPL in either its written or oral submissions at trial that this should be so.
33. In that regard, HPL pointed to this paragraph from its written quantum submissions dated 26 October 2022: "As to the second matter, MacDow made a claim to 'resolve all delay and disruption considerations'. It was paid a 'global settlement' of $45.5m [13] in 'full and final settlement' of its claim. Other than assert an entitlement to $108m by way of letter, MacDow has led no evidence in these proceedings of its proper costs of delay and disruption, and in particular that the 'global settlement' amount of $45.5m [14] did not fully compensate MacDow for the entirety of its delay and disruption. In circumstances where MacDow has received a very substantial payment to compensate it for delay and disruption, there is no basis for MacDow to obtain double-recovery from HPL." (Emphasis in original.)
34. That submission appears to me to fall well short of the submission that the $17.5 million should be fully deducted from MacDow's Cost to Complete claim.
35. In oral submissions on 31 October 2022, it was put on behalf of HPL: "Our learned friends in their submissions make a few points about the significance of the claim and how they deal with it at page 82 of their submissions, paragraph 311. At 311, there's an acceptance that the Fluor claim includes amounts claimed by MacDow from HPL for its overhead costs and also on variation 29. The proposition is stated in 312 that the claim doesn't otherwise include costs which MacDow claims against HPL, and the premise of that statement is incorrect. And the premise for that statement is that there is an assumption that the 17 - or the $17.5 million figure is referable only to costs at or after 6th of January 2014. That proposition is stated at paragraph 320 of our learned friends' submissions. And taking your Honour through the documents as I have, in our submission, it's fairly clear that the $17.5 million figure was, in fact, for settlement of claims up to January 2014. That's the first proposition made by our friends, which we reject."
36. Again, this submission falls well short of the submission HPL now seeks to make.
37. It is in that context that I made the statement at [J497] that I have set out at [9] above.
38. That in turn led me to make the statement at [J507] to which I have referred.
39. My enquiry related only to the issue that was at play in the proceedings concerning the $17.5 million; that is the extent to which it should result in deduction from that element of MacDow's Cost to Complete claim that related to Overheads and Management: [15] that being the case that HPL ran at trial.
40. In those circumstances, my conclusion is that it is not open for HPL now to contend that the whole of the $17.5 million should be deducted from MacDow's claim.
41. In any event, and looking at the matter generally, it seems improbable that, as a matter of fact, all of the $17.5 million paid by Fluor to MacDow was attributable to the work done by HPL on the Project. The original value of the Head Contract between Fluor and MacDow was anticipated to be approximately $367.8 million. Of those works, the value of the HPL subcontract was anticipated, before its scope was reduced, to be approximately $81.3 million. HPL's original scope therefore represented about 22% of the total value of the original Head Contract Works. The value of the Head Contract between MacDow and Fluor was varied. It was ultimately some $545.4 million, compared to the value of HPL's works which were, as varied, some $60.86 million. On that basis, the value of HPL's scope of work represented in the order of 11% of the total value of the Head Contract Works. HPL was only one of many subcontractors engaged by MacDow on a very large project. In those circumstances, it seems improbable that all of the $17.5 million paid by Fluor to MacDow in response to MacDow's claims in relation to the whole project related only to HPL's scope, which ultimately represented about 11% of the value of the Project.

What, if any, part of the $17.5 million can be attributed to MacDow's Overheads and Management claim?

1. MacDow accepts that components of its Overheads and Management claim against HPL were contained in the claim it made on Fluor on 5 August 2013.
2. That claim had nine elements.
3. Only four of those nine elements related to work done by MacDow that was within HPL's scope of works.
4. Of those four elements, two related to variations, one of which HPL did not press, [16] and the other which I did not accept. [17]
5. Of the remaining claims made by MacDow against Fluor, being its claim for "Contractor Site Indirects" and "Recurring Site Running Costs", MacDow has conducted a detailed analysis that reveals that the total potential overlap between the claim made by MacDow on Fluor and MacDow's Overheads and Management claim against HPL is $742,968.86. [18]
6. HPL did not dispute the accuracy of that analysis, save to submit that whereas MacDow adopted, as the relevant daily rate, the rates it charged HPL for the relevant costs, the correct rates are the much higher rates that MacDow charged Fluor for the same costs. HPL contends that this is so because MacDow claimed those higher rates in its claim against Fluor and was "compensated on the basis of the higher rates in the Fluor-MacDow contract".
7. But the question here is whether MacDow has received payment from Fluor that duplicates the damages it seeks from HPL. That requires a comparison between the indirect costs, in the form of overheads, that it sought to recover from Fluor, with the costs that it now seeks to recover from HPL. That requires use of the rates MacDow charged HPL, notwithstanding the fact that MacDow charged higher rates in its claim against Fluor.
8. An example illustrates the point. In its claim against HPL, MacDow claimed transportation costs (supervisor vehicles, buses and so on) at the daily rate of $954.79. MacDow charged Fluor a daily rate for the same item of $25,741.09, obviously reflecting the transportation costs incurred by MacDow over the whole of the Project. It would not be appropriate to calculate the cost of potential duplication between the payment received by MacDow from Fluor and the claim made by MacDow on HPL on this basis.
9. It follows that the quantum of the potential overlap between the claim made by MacDow on Fluor and MacDow's claim against HPL for Overheads and Management is correct: $742,968.86.
10. On the face of it, that amount should be set off against MacDow's claim against HPL.
11. MacDow argues that this does not follow because it has discharged its evidentiary onus of showing that no part of the $17.5 million relates to the Contractor Site Indirects and Recurring Site Running Costs.
12. On 27 November 2013, Fluor's solicitors, Corrs Chambers Westgarth, conducted an analysis of MacDow's claim. The parties referred to an aspect of this as the "Traffic Light Analysis". This was because Corrs allocated a colour, red, orange or green, to each element of MacDow's claim; indicating whether MacDow had a "probable" entitlement to the costs claimed (counterintuitively signified by red shading), a "possible" entitlement (signified by orange shading) or an "unlikely" entitlement (signified by green shading).
13. Corrs allocated a green shading ("unlikely" entitlement) to the two relevant aspects of MacDow's claim, Contractor Site Indirects and Recurring Site Running Costs.
14. Thus, MacDow submitted, it was unlikely that any part of the figure of $17.5 million that Fluor ultimately agreed to pay MacDow related to these two claims.
15. The difficulty with this submission is that Corrs also allocated green shading to all but two of the claims made by MacDow, indicated an orange shading to those two and did not allocate a red shading ("probable" entitlement) to any of MacDow's claims.
16. The settlement was ultimately recorded in the 5 February 2014 Settlement Deed, to which I referred at [J498].
17. In that document, "Settled Claims" was defined to include all liabilities that Fluor might have to MacDow "including but not limited to the facts or circumstances" referred to in MacDow's 5 August 2013 claim.
18. Corrs' advice to Fluor suggested that Fluor saw the $17.5 million as a compromise to cover many possibilities, not limited to the claims made by MacDow in its 5 August 2013 letter.
19. Thus, Corrs advised: "We recognise that the key driver for Fluor is to ensure the delivery of the Works the subject of the Contract at the earliest possible date. We realise that, in this context, escalation of the [claims in the 5 August 2013 letter], and any other claims which might be brought by McConnell Dowell, has the significant risk of impacting on the progress of the Works with the consequence that their completion may not be achieved by the current forecast date."
20. In those circumstances, I am not satisfied that any conclusion can be drawn from the "Traffic Light Analysis".
21. Alternatively, as it had foreshadowed at trial, and as I recorded at [J507], MacDow submitted on this application that: "… it is appropriate to estimate the proportion of the settlement sum which was paid in respect of MacDow's Overheads Entitlement by pro-rating the global settlement amount against the global amount claimed. MacDow proposed and continues to propose using a percentage of 25.4% based on the global figures of $36.5 million paid against a claim of $145 million. Whilst this method may be criticised as being somewhat 'rough and ready' it does provide a rational basis to apportion the moneys received between the 'concurrent claim' and the other 'non-concurrent' claims. MacDow submits that in circumstances where MacDow received 25.4 cents for every dollar it claimed this approach would be preferable to finding that Fluor paid MacDow the entirety of the overlap amount of $742,968.86."
22. I agree that this proposed method is "rough and ready". But it is worse than that. The proposed method is entirely speculative and would not provide a sound basis from which to draw any conclusion as to the proportion of the settlement sum of $17.5 million that should be attributed to MacDow's Overheads and Management claim against HPL.
23. MacDow pointed to the decision of Hammerschlag J (as his Honour then was) in Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd [19] in this regard. However, as HPL has pointed out, in that case Hammerschlag J did not propose any such process of apportionment or agree that such an apportionment of a global settlement sum could or should be applied. [20]
24. My attention has not been drawn to any legal principle which would permit the adoption of the pro rata approach for which MacDow contended. [21]

Conclusion

1. MacDow has not sustained its evidentiary onus of showing that the $17.5 million payment from Fluor was not received by it in compensation of the Overheads and Management claim it makes against HPL.
2. Accordingly, my conclusion in relation to the question I posed at [J507] is that the manner in which the $17.5 million payment by Fluor to MacDow must be taken into account in determining MacDow's Cost to Complete is to set it off completely against what would otherwise be MacDow's entitlement to payment for Overheads and Management. I understand that figure is agreed to be $1,215,663.63.

Annexure A - Table of Quantum - Cost to Complete Annexure B - Redfern Schedule Items 2 - 2.2.2

Endnotes

1. Heavy Plant Leasing Pty Ltd (In Liquidation) v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2022] NSWSC 1775.
2. (1848) 154 ER 363.
3. [J414]-[J415].
4. [J484].
5. [J497].
6. [J507].
7. Townsend v Stone Toms & Partners (1984) 27 BLR 26 at 38 (Oliver LJ), cited with approval in Boncristiano and Another v Lohmann and Others [1998] 4 VR 82; [1998] VSC 228 at 89 [25] (Winneke P, Charles and Batt JJA agreeing); Miletich v Merchie [2012] FCA 1013 at [123]-[125] (Gray J); Ewin v Vergara (No 3) [2013] FCA 1311 at [690] (Bromberg J); The Owners Corporation Strata Plan 70579 v Midwest Constructions Pty Ltd & Ors [2012] NSWSC 644 at [59]-[60] (Sackar J).
8. Ewin v Vergara (No 3) (supra) at [687] (Bromberg J); SAS Trustee Corporation v Budd [2005] NSWCA 366 at [49]-[50] (Mason P; Handley and McColl JJA agreeing); Boncristiano v Lohmann (supra) at 89-90 (Winneke P, Charles and Batt JJA agreeing); Mills v Walsh [2022] NSWCA 255 at [36] (White JA).
9. BCI Finances Pty Ltd (in liq) v Binnetter (No 4) (2016) 348 ALR 227; [2016] FCA 1351 at [125] (Gleeson J); Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25 at [60] (Leeming JA).
10. [J695].
11. See [J527]-[J530].
12. See [J484]-[J496].
13. It is now accepted that the relevant figure was $17.5 million.
14. Ibid.
15. And also in relation to HPL's claim for Variation 29, which I ultimately rejected: at [J616]-[J632].
16. Variation 59B.
17. Variation 29: see [J616]-[J632].
18. $647,666.91 in respect of the Contractor Site Indirects claim, and $95,301.95 in respect of the Recurring Site Running Costs claim.
19. [2018] NSWSC 1304.
20. At [221]-[225].
21. Cf Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [197]-[200] (Leeming JA, with whom Ward JA (as her Honour then was) and Emmett JA agreed). 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: 14 June 2023