Huddart Parker Ltd v The Ship Mill Hill

Federal Court of Australia|1987-02-24|Before: French J

PRACTICE AND PROCEDURE - Engineering construction dispute - application for stay of proceedings under s.86 of the Trade Practices Act 1974 pending determination of arbitration - application to restrain party from prosecuting arbitration - application to stay or dismiss claim - abuse of process = no reasonable cause of action frivolous and vexatious proceeding -

schedule of rates contract for road and earthworks for subdivision

precontractual representations - alleged misleading and deceptive conduct - tort and breach of contract also alleged against construction engineer - consulting engineers as

co-defendants = construction engineer claims short payment -

refers claim to arbitration - power of court to stay proceedings pending arbitration - inherent power - application to Federal Court of s.53 Commercial Arbitration Act 1985 (WA) - direct

application - application by operation of s.79 Judiciary Act 1903

principles regulating grant of stay - power to restrain party to arbitration ~- principles applicable - summary dismissal ~

Trade Practices Act 1974 ss. 52, 82 Commercial Arbitration Act 1985 (WA)s.53 Judiciary Act 1903 s.79

Federal Court of Australia Act 1976 s.23 Federal Court Rules 0.20, 0.11

Huddart Parker Ltd v The Ship Mill Hill (1950) 81 CLR 502 G.W.J. Blackman & Co. SA v Oliver Davey Glass Co. Pty Ltd (1966) VR 570

ote . 2. W.C. Thomas & Sons Pty Ltd v Bunge (Australia) Pty Ltd [1975] VR » Halifax Overseas Freighters Ltd v Rasno Export ("The Pine Hill") (1958) 2 Lioyds Rep. 146

Tasmanian Pulp and Forest Holdings Ltd v Woodhall Ltd (1971) Tas. SR 330 ~

St. Justins Properties Pty Ltd v Rule Holdings Pty Ltd (1980) 40

FLR 282 Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261

BOND CORPORATION PTY LIMITED v THIESS CONTRACTORS PTY LTD AND OVE ARUP PTY LTD, ARUP PARTNERS PTY LTD AND OVE ARUP CONSULT PTY LTD NO. WAG 114 of 1986

IN THE FEDERAL COURT OF WESTERN AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION

restrained until further order from prosecuting an arbitration between the First Respondent and_ the Applicant in accordance with the Notice of Reference to Arbitration served by the First Respondent on 12

The First Respondent have liberty to apply to vary or

The Pirst Respondent's motion dated 16 December 1986 be

Note: Settlement and entry of orders is dealt with in

IN THE FEDERAL COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) GENERAL DIVISION )

This case concerns time and cost overruns in the performance of a contract for the provision of road and associated

The aggrieved developer sues both the civil engineer responsible for the conduct of the works (the first respondent) and the consulting and supervising engineers responsible for their design, cost and time estimates, tender documentation and

The first respondent says that 1t has not been paid by the applicant for all the work that it has done and wishes to

Under the terms of its contract it has referred that

claim to arbitration and 1t wishes the arbitration to proceed.

The applicant wants all matters in issue between it and the respondents resolved in this court and invites the first respondent to pursue its claim by way of cross claim in these

To effect that objective it now moves for an order restraining the first respondent from prosecuting the arbitration

The first respondent on the other hand seeks a_ stay of

the proceedings in this court, insofar as they relate to it,

In the alternative it moves for an order staying or dismissing generally the claim against it on the grounds that no reasonable cause of action is disclosed by the statement of claim and that so far as they relate to the first respondent the proceedings are frivolous or vexatious and an abuse of the process

The motions involve factual considerations which are not completely straight forward and it is necessary to refer in some detail to the history of the dispute and the background to the

The applicant owns land at Millenden, 11 kilometres north of the town of Midland which lies about 30 kilometres east

residential subdivision under the name "Brigadoon Country Estate".

The applicant engaged the second respondents to act as consulting and supervising engineers for road, earth and drainage

In November 1984 the second respondents provided the applicant with a cost estimate for work on stage 1 of the project. The estimate was $1,285,700.00. This figure was given prior to certain changes to the works which, according to the second respondents, would have altered their estimated total cost to

Tender documents for a Schedule of Rates Contract were prepared by the second respondents in January 1985 and tenders

published by the Standards Association of Australia were to be

Practical completion of the works was to be achieved by

Four companies tendered and the results of their tenders

As is apparent the lowest figure, that provided by the

first respondent, considerably exceeded the second respondents'

In a letter dated 13 February 1986 informing the applicant of the tender results the second respondents explained the shortfall between their estimate and the lowest price tendered

(a) The very short construction period. (b) Weather.

150 lots rather than staging the work as had originally been envisaged.

(d) The fact that the predicted volume of excavation in soft and hard rock based on the completed design, geological reports and an inspection of pegged alignments exceeded their intitial estimates.

"It 1s our considered opinion that you will not achieve substantial savings or meet your sales program by recalling tenders. The works cannot be staged using smaller contractors working simultaneously because of clashes with access to and from the gravel pit sites. We would therefore recommend that negotiations be conducted with the two lowest tenderers in order to reduce the price from (sic) $1,786,000.00 approximately and that the lowest of the resulting prices' be accepted."

Some discussion followed between the first and second

respondents. The second respondents wrote to the first on 19 February listing a number of "cost saving suggestions" arising out of the discussions in relation to certain elements of the works and as a consequence of which they sought adjustment of the

The first respondent replied by letter the following

day, 20 February, attaching a schedule of revised rates for some 6

Three further items were quoted at a reduced rate ina

There is no evidence of further discussion before 22 February when the second respondent sent a letter to the applicant advising it that they had conducted negotiations with the two lowest tenderers. The letter asserted that the negotiated price of the first respondent was now $1,764,953.00. Leighton Contractors were said to have reduced their price by $201,600.00

As the state manager for the first respondent Mr Jukes said in his affidavit, the cost savings which had been suggested by the first respondent to the second respondents were of an insignificant order when compared to the reduction claimed in the

The text of the second respondents' letter does not seem fully to reflect the fact that the contract in issue was a

The first respondent according to Jukes was at this time aware that certain changes were planned to the scope of the works but did not know how the second respondents had arrived at the reduced "negotiated price" and the reduction and scope of works

Ultimately on 11 April 1985, when the performance of the contract had been under way for a month, the first respondent did

receive a breakdown of the new total from the second respondents.

In the breakdown were a number of significant scope changes and other reductions which in Jukes' view "were designed to

He was not concerned with what he described as "this manoeuvre" as the contract was a Schedule of Rates Contract. He

"While the scope of the works had been reduced from that for which the first respondent had tendered and the

price reduced proportionately on the basis of the first respondent's tendered rates, the first respondent knew that if the second respondent subsequently increased the scope of works the first respondent would be entitled to be paid in accordance with the terms of the contract."

This statement according to counsel for the applicant, showed on the part of Jukes a cynical disregard for the

With all due respect I cannot accept that submission. On the material presently before the court, Jukes was simply adverting to the fact that if there were an alteration to the scope of the works the first respondent would be protected because

it was operating under a Schedule of Rates Contract.

Returning to the chronology, the second respondents, by their letter of 22 February recommended to the applicant that the

first respondent be appointed to perform the works.

That recommendation was accepted. On 12 March 1985 the

second respondents wrote to the first respondent in the following

instructed us to accept your tender for the works on a revised schedule giving a contract sum of $1,722,453.00 for a construction period of 21 weeks.

The contract start date is 13 March, 1985. Contract documents and schedule are being purchased and will be available shortly."

The first respondent commenced work on the site on 13

A formal instrument of agreement dated 21 May 1985 was

executed by the applicant and the first respondent. Documents

deemed to form and be read and construed as part of the agreement

General Conditions of Contract AS2124-81 The Drawing Scheduled in the Tender Documents

Specifications and Tender documents No. 3141, including Addendum No. l.

Letters from the second respondent dated i9 February 1985 and 12 March 1985 and 11 March 1985.

First Respondent's tender dated 12 February 1985 and its later letters dated 20 February 1985 and 15 March 1985.

The first respondent's telexes dated 20 February 1985 and 27 February 1985.

It is sufficient for present purposes to refer to clause 49.1 of the General Conditions which sets out a procedure for settlement of disputes. The clause provides inter alia, that, "all disputes or differences arising out of the Contract or concerning the performance or non-performance by either party of his obligations under the contract whether before or after the

completion of the works shall be determined as follows".

The procedures then prescribed require notification of a dispute to the engineer designated as "Superintendent". Any party dissatisfied with the Superintendent's determination may give notice in writing to the other party requiring that "the

The clause then sets out steps to be taken to select an

"(d) A reference to arbitration under this clause 49 shall be deemed to be a reference to arbitration within the meaning of the laws' related to arbitration in force in the State or Territory named in the Annexure hereto and the arbitration proceedings shall be conducted in that State or Territory. The arbitrator shall have all the powers conferred by those laws and it shall be competent for him to enter upon the reference without any further or more formal submission than is contained in this clause. The arbitrator shall also have the power to award interest."

According to the applicant's state property manager, Mr Bruce Buckley, there were extensive delays and _ practical completion was not achieved until 27 March 1986, some 30 weeks

Mr Jukes said in his affidavit that at the outset the scope of the works the first respondent was directed to perform was quite different from that on which it had tendered. Increases and changes ordered by the Superintendent resulted 1n the need to reprogramme the works so that they extended into the winter

The costs substantially exceeded the tender figure. The applicant says that to date it has paid the first respondent the sum of $2,774,573.00. The first respondent has an outstanding

On 16 June 1986 the first respondent notified the superintendent of a dispute pursuant to clause 49 of the General Conditions. Being dissatisfied with the superintendent's response, it referred the matter to arbitration on 12 September 1986. The notice of reference to arbitration described the

"(a) Payment of a reasonable sum or upon a quantum meruit for work (including variations) carried out by the contractor; and/or

(b) Payment pursuant to the contract for work (including variations) carried out by the contractor; and/or

ll. (c) Payment of other moneys pursuant to the contract; and/or (d) Damages; and {e) Payment of interest and the superintendent's rejection thereof." Detailed particulars were contained in a five volume

applicant enclosing the notice and supporting material said:-

"The reference to arbitration is made without prejudice to our right to pursue our claims by means of litigation should we so decide."

Discussion ensued between' representatives of the applicant and the first respondent in which the applicant evidently sought to persuade the first respondent that all matters in dispute should be resolved either by way of an arbitration to which the second respondents could be joined as a party, or in judicial proceedings in which the applicant would join the second

November 1986 the applicant instituted these proceedings.

Against the first respondent the applicant pleads that at the time of submitting its tender to the second respondents in

February 1985 it made various representations relating inter alia,

to its management and procurement ability and experience, its knowledge of and experience in the relevant ground and weather conditions, its competence in relation to the planning and execution of the works with a minimum of interruption due to wet weather, the availability to it of plant and labour necessary to complete the works promptly and its capacity to carry out the

These representations which it is said were made in trade or commerce to induce the applicant to engage the first respondent to carry out the works, are alleged by the applicant to

have been untrue and to have caused it to suffer loss and damage.

A further representation attributed to the first respondent and said to be untrue was that it was capable of doing the work for its initial tender figure and the reduced figure of

By this conduct also, the applicant was said to have

The third area in which the first respondent is said to have been guilty of misrepresentation was in connection with the tender process. According to the statement of claim the first respondent and Leighton Contractors colluded in the preparation of artificially depressed tender figures representing an amount

substantially less than that which they intended to charge for

carrying out the works and substantially less than the price at which other suppliers of such services in Western Australia would

The first respondent and Leighton Contractors it was alleged, intended at the time the arrangement was made that by submitting such tender to the second respondents consideration would not be given to tenders submitted by other suppliers of such services because the prices offered by the first respondent and

Mr Buckley who was cross examined by counsel for the first respondent was asked whether he was aware of any facts to support the allegation of collusive tendering in an exchange which

Q. Mr Buckley, are you aware of any facts which support that allegation?

A. At present, Mr Davis, no, I do not, but I understand the process from here is a discovery of documents, right, which I would like to see take place.

Q. Are you aware of any fact which suggests that those documents would throw up any such facts?

Q. Are you aware of anyone else in your corporation who has any such facts in their possession?

A. Our corporation is investigating that at the moment.

Q. Are you aware of anyone else in your corporation which has such facts in his or her possession?

Later in re-examination albeit of a leading character, he said that the applicant's belief as to the existence of a collusive tender was influenced by the size of the tenders submitted, the discrepancy between the -lowest tenders and the rest

of the field and the eventual actual cost of the project.

Following from the allegation of collusive tendering the statement of claim alleges that the first respondent by submitting

(a) That it was a tender arrived at independently of any other tender;

(b) That it was a realistic tender for the works; (c) That it was a competitive tender for the carrying

out of the works having regard to the nature and extent of the same.

By these false representations the applicant was again

The three groups of misrepresentations alleged against the first respondent are said to constitute misleading and deceptive conduct on its part and are relied upon to support claims for damages under s.82 of the Trade Practices Act 1974. Although not expressly set out in the statement of claim, it is evident that the applicant seeks to characterise the conduct of

the first respondent as contravening s.52 of the Act.

of the field and the eventual actual cost of the project.

Following from the allegation of collusive tendering the statement of claim alleges that the first respondent by submitting

(a) That it was a tender arrived at independently of any other tender;

(b) That it was a realistic tender for the works; (c) That it was a competitive tender for the carrying

out of the works having regard to the nature and extent of the same.

By these false representations the applicant was again

The three groups of misrepresentations alleged against the first respondent are said to constitute misleading and deceptive conduct on its part and are relied upon to support

claims for damages under s.82 of the Trade Practices Act 1974.

Although not expressly set out in the statement of claim, it is evident that the applicant seeks to characterise the conduct of

the first respondent as contravening s.52 of the Act.

In addition the applicant alleges that the first respondent has breached various express and implied terms of the

(a) Exercise due care,ski1l and diligence in carrying out the works.

(b) Pursue completion of the words with all due expedition.

(d) Give proper consideration to and take into account in the carrying out of the works the weather conditions likely to prevail during the time when the works were to be carried out.

(f£) Make all proper enquiries as to the ground and weather conditions likely to prevail during the time when the works were to be carried out.

(g) protect the works from damage from rain and runoff.

(h) Ensure that sufficient plant and machinery was assigned to the works.

(i) Ensure that plant and labour assigned to the carrying out of the works was utilised to its maximum capacity.

(3) Co-operate with other contractors working on Brigadoon."

It is also contended that the first respondent was in breach of its common law duty to exercise reasonable care and skill in carrying out the works. Further, the statement of claim alleges in effect, that the first respondent fraudulently represented to the second respondent that it would be able to

As against the second respondents, the applicant alleges that they misrepresented their experience and expertise in design and supervision of land subdivisions, their ability to provide competent engineers with such experience, their ability to provide accurate estimates of subdivisional costs and their ability to provide accurate estimates of the costs of subdividing

These representations it is said were made in trade and commerce were false and caused the applicant to suffer damage. The applicant claims that as a result of its reliance upon the second respondent's advice it is likely to have to pay more than $5.4m in excess of the estimated total cost of the subdivisional

Further it is alleged, the second respondent represented to the applicant that the work could be carried out for about $1,786,000.00. At the time of the representation it was said the second respondents did not have and could not have any reasonable expectation that the works could be carried out for that amount. The representation 1s said to have constituted misleading and deceptive conduct. Again, the applicant pleads

that by reason of this advice it has suffered damage.

It was also contended against the second respondents that in breach of their contract with the applicant they failed to

exercise reasonable care, skill and judgment in the performance of

their duties as consulting and supervising engineers and in estimating the total cost to the applicant of subdividing the land. Extensive particulars of the alleged breach involving some

29 separate items are set out in the statement of claim.

It is also alleged the second respondents were in breach of their duty of care to the applicant in relation to the

performance of their duties and the provision of cost estimates.

By way of relief the applicant claims against them damages pursuant to Part VI of the Trade Practices Act, damages for breach of contract and for negligence and a declaration that they are liable to indemnify the applicant in respect of any

moneys which may be found due and owing to the first respondent.

The first respondent contends as set out in the affidavit of its general manager, Mr B.J. Campain, that the applicant is not acting in good faith in instituting its proceedings against the first respondent in this court. According to Mr Campain the only purpose for which the applicant has commenced proceedings is to bring about a situation whereby the first respondent will, for reasons of economy and efficiency, chose to abandon its contractual right to arbitrate its claims against the applicant alone and pursue its claims by cross

claiming in the proceedings, thereby enabling the applicant to

seek an indemnity from the second respondents. He says that while that situation might well result in economies for the applicant, the fact remains that the first respondent would, in non consensual curial proceedings have to incur additional delays and costs and in effect be deprived of its contractual entitlement to have its disputes resolved in a one on one arbitration with the

In support of the allegation that the claim brought by the applicant against the first respondent is not genuine, extensive reference is made in the affidavit to negotiations and discussions and some correspondence between representatives of the applicant and the first respondent over the period from December

The first respondent points to the following elements of

Its acknowledgement during the period that the first respondent was not responsible for the problems being experienced on the works.

Its apparent acceptance that the second respondents were to blame for the problem.

Its reluctance to settle the first respondent's claims for fear of jeopardising its position as against the second respondent.

The desire on the part of the applicant to involve the first respondent aS a party in any litigation with the second respondents.

The failure by the applicant to make any complaint of a breach of the Trade Practices Act by the first respondent until 10 October 1986.

The failure by the applicant to make any complaint of breach of contract, negligence or alleged fraud on the part of the first respondent until its

letter of 14 November 1986 which enclosed a copy of a proposed statement of claim.

Counsel for the first respondent submitted that the applicant had instituted these proceedings against the first

That purpose was, as counsel formulated it, to compel the first respondent to litigate in this court the contractual claim it has against the applicant contrary to its contractual

The purpose 1s said to be improper as, it is alleged, the applicant has no reasonable expectation of succeeding in its

claim for damages under the Trade Practices Act or otherwise.

In answer to these contentions, Mr Buckley in a supplementary affidavit, says that prior to the meeting held on 10 October 1986 the applicant was not in possession of any

substantial information about dealings between the respondents.

Arising from discussions with representatives of the second respondents shortly before the meeting on 10 October, the applicant warned the first respondent that unless the dispute as a whole could be resolved in tripartite proceedings either by way of litigation or arbitration, then the applicant would bring

After the meeting, according to Buckley the applicant was provided by the second respondents with records of various communications, representations and transactions which had taken

place before and after the contract was entered into.

Buckley says that the applicant has, in connection with these proceedings taken advice of two counsel including senior

The applicant admits that it would prefer to have the dispute between the parties resolved in one forum and by one method of dispute resolution and, said Buckley, he tried to persuade the respondents to such a course on a number of

Turning to the statement of claim filed by the applicant, it must be said there are some curious features about

Jukes' affidavit was not contradicted in its description of the first respondent as "a nationally prominent' civil engineering construction company with annual turnover in excess of $200,000,000". The company has, it is said, operated in the

Whatever the rights and wrongs of its execution of the

Brigadoon works, it is indeed a dramatic allegation which contends

in effect that the company has neither the management nor procurement capability nor the experience to undertake these

The first respondent's capacity to undertake the works is of course an issue that 18 logically distinct from its

performance of the contract in this particular case.

Further, to make good its claim that the first respondent misrepresented its capacity to do the work for the sums of $2,169,250 and $1,722,453 respectively, the applicant faces the considerable difficulty that the first respondent was tendering on

a Schedule of Rates Contract not on a lump sum basis.

It is in respect of this second group of representations

that the applicant accuses the first respondent of fraud.

This 1s a serious accusation indeed. On the evidence before the Court at present there appears to be a complete answer

Whatever initial impressions may emerge from the papers however it is not appropriate that on conflicting evidence, largely on affidavit and not substantially tested by cross

examination, I should draw any inference of mala fides on the part

Certainly the applicant desires to have all matters in

If the applicant were manufacturing a sham dispute with the first respondent where none existed solely in order to get the first respondent into the court, then that would constitute an

In Packer v Meagher (1984) 3 NSWLR 486 it was held that an action will be an abuse of process when a plaintiff uses the process of the court to effect an object not within the scope of the process or for a purpose other than that for which the action is properly designed or to serve some collateral advantage

To find in this case an abuse of process it would be necessary first to conclude that the applicant's claim against the first respondent is without merit. That is not to say that every

case of abuse of process arising from an improper purposes would

In my opinion, while the claim against the first respondent, on the material presently before the court, has a number of obstacles in its way, it is not possible to say that it

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