Kennedy Taylor (Vic) P/L v Crown Ltd [2001] VSC 343

5. The proceeding is a building case and has been managed in the Building Cases List since 18 December 1998. Kennedy Taylor is, or was prior to its liquidation, an electrical contractor. In 1997 it won a number of contracts for the provision of electrical services and material and equipment for various aspects of the Melbourne Casino Complex. This was a very substantial project and, according to the statement of claim, Kennedy Taylor entered into no less than 16 contracts for the provision of this work. According to the pleadings, the work was implemented by Crown as a multi-prime project. This meant that Crown did not engage a contractor, but itself directly contracted with the trades including Kennedy Taylor, the management of the trades, including the valuation of variations, being carried out by its agent, Hudson Conway Management Ltd ("Hudson Conway").

8. Such was the size, complexity and nature of the project that there were a very great number of variations claims made by Kennedy Taylor as the work progressed. Many, or most, of these variations were processed by Hudson Conway in the usual way and paid by Crown to Kennedy Taylor. This litigation concerns unpaid variation claims to a total value of $553,664.07.

11. Although Kennedy Taylor's claim is essentially one for variations, it was pleaded, rather confusingly, in a number of ways. The principal contracts, the subject of the claims, are those for the B2 gaming area ("the B2 Contract") and the LB1 tenancy areas ("the B1 Contract"). In each case Kennedy Taylor seeks the unpaid balance of the fair and reasonable value of its variation works and payment for acceleration of the work as varied. It is alleged, first, that the non-payment of this balance is a breach of contract[1]. In the case of the B2 Contract, it is further put that the number and nature of the variations ordered were such that they were beyond the variation power of Crown under the contract[2]; that Crown repudiated the contract and is liable for damages; and that Kennedy Taylor accepted the repudiation and is entitled to damages and to payment for the variation work on a quantum meruit basis[3]. Finally, the claim for the value of the variation work is put in restitution as an unjust enrichment of Crown[4]. Passing over the acceleration claims, Kennedy Taylor makes claims in contract for variations under 14 tenancy fitout contracts but there is overlap between these and the claims under the B1 Contract.

14. Crown puts these claims in issue and raises a number of affirmative defences. The proceeding was, therefore, complex and the trial likely to be long and expensive. It was estimated by the parties that it would last some 50 sitting days.

17. The proceeding came before me in the Building Cases List in May 2000 with the parties seeking a trial date. There was, however, an issue raised on the pleadings which might resolve the whole dispute from a commercial, if not a legal, point of view without requiring a time consuming examination of each of the variations. This issue was the contention of Crown, denied by Kennedy Taylor, that, on a number of dates in 1997, the representatives of the parties had negotiated and agreed many of the variation claims. This defence of accord would, if successful, dispose of Kennedy Taylor's claims or at least it would remove a significant obstacle in the way of that resolution by compromise. The parties by their counsel, therefore, agreed that this issue be determined by me as a preliminary question pursuant to Rule 47.04.

20. This defence of accord was raised in identical terms with respect to each of the contracts. As things stood in April 2000, the issue was exposed on the pleadings as follows, adopting Contract B2 as an exemplar:

Statement of Claim "11. Between early April 1997 and the date of completion of the Works on 29 July 1997, Hudson Conway issued a total of 97 instructions to carry out additional works ("the variations").

PARTICULARS

Full particulars of each of the instructions and the variations are set out in Annexure 1 hereto. Note that, as identified in Annexure 1, a small number of instructions were issued after completion of the Works. The Plaintiff carried out such Works subsequent to the date of completion." Defence (21 September 1999) "11. Save that it admits that between April 1997 and the date of completion of the Works, Hudson Conway issued instructions to the Plaintiff to carry out additional works, it denies each and every allegation contained in paragraph 11. 11.1 Further, the Defendant says that the parties agreed the price of many of the variations referred to in Annexure 1 to the Statement of Claim.

PARTICULARS

The agreement was oral and was constituted by conversations at the site offices of Hudson Conway between John Holland on behalf of Hudson Conway and Ron Begbie and James Craige of the Plaintiff. Particulars of the variations, the corresponding amounts agreed and the corresponding dates on which the agreement was reached are set out in Schedule 1 hereto."

24. Schedule 1 to the defence identified the variations which were the subject of this agreement, the amount agreed and the dates of the 58 agreements alleged. With respect to these dates it appears from the schedule that 53 of the agreements were made on 3 September 1997, two on 23 September 1997 and one each on 29 July 1997, 23 May 1997, 12 September 1997 and 22 September 1997. For one agreement the date is said to be unknown.

27. The order for trial of the preliminary questions was made by consent on 4 August 2000. The questions themselves had been agreed and proposed by counsel for the parties following discussions. As things turned out the questions attached to the order of 4 August did not represent the agreed form and the order was varied on 14 November 2000 to reflect the wish of the parties. There were in all 30 questions each in a similar form with respect to each of the contracts. Again, I take the questions with respect to Contract B2 as an exemplar. They are as follows:

"1(a) In relation to the B2 Contract did the Plaintiff and the Defendant agree upon the price of any and if so which of the variations listed in Schedule 1 to the Defence, as pleaded by the Defendant in paragraph 11.1 thereof? (b) If yes to (a) above for each of the variations in respect of which a price was agreed did the Plaintiff and the Defendant agree that the Defendant would pay and the Plaintiff would accept the amount referred to in the column of the Schedule referred to in (a) above headed `Agreed Amount' or some other and if so what amount?"

31. These questions were repeated with respect to each of the other contracts. Orders were made for the filing of a Court Book. A Court Book comprising no less than 15 volumes was duly filed. This was how the matter stood shortly before 29 November 2000 when the preliminary trial was to commence.

34. On 9 November 2000 the solicitors for Crown forwarded to the solicitors for Kennedy Taylor a proposed amended defence advising them that leave would be sought to amend the pleading on 14 November when the matter was listed for mention. By way of explanation the letter advised as follows:

"The proposed amendment is confined to pleading that all sums which our client contends have been agreed have also been paid by our client to your client and amends some of the Schedules. Where amendments have been made they have been appropriately marked up."

38. The new paragraph 11.1 was to be in the following terms:

"11.1 Further, the Defendant says that the parties agreed the price of many of the variations referred to in Annexure 1 to the Statement of Claim, and the Defendant paid to the Plaintiff and the Plaintiff accepted the agreed amounts set out in Schedule 1 hereof.

PARTICULARS

The agreements were partly oral, partly in writing and partly to be implied. Insofar as the same were oral they were constituted by conversations at the site offices of Hudson Conway or on the telephone between John Holland on behalf of Hudson Conway and Ron Begbie and/or James Craige of the Plaintiff. Insofar as the same were in writing they were constituted by notations, comments, initials, signatures and dates written by John Holland on behalf of Hudson Conway on documents entitled Report on Contractor's Variation Notice on diverse dates most of which appear on the said documents. Insofar as the same were implied such implication arose from the following: (a) the notification to the Plaintiff of the adjustment to the agreed contract price made by the Defendant in respect of the relevant variation in Contract Price Adjustment Advice forms and/or Contract Price Adjustment forms, (both of which are hereinafter referred to as CPA's) copies of which were sent to the Plaintiff in the course of the contract;" (b) progress payment claims made by the Plaintiff, and progress payment certificates and cheques made by the Defendant to the Plaintiff from time to time reflecting assessments of work completed to date and calculated upon the adjusted contract price (as recorded in the CPA's) as at the date of the progress payment which reflected adjustments contained in the CPA's referred to in (a) above; (c) the acceptance of progress claim certificates and the presentation for payment of the cheques referred to in (b) above without complaint; (d) the delivering of the Defendant by the Plaintiff of its final claim under the contract which was premised upon and reflective of an acceptance by the Plaintiff of the contract price adjustments, progress payment certificates and payments referred to above. The agreement was oral and was constituted by conversations at the site offices of Hudson Conway between John Holland on behalf of Hudson Conway and Ron Begbie and James Craige of the Plaintiff. Particulars of the variations, the corresponding amounts agreed and the corresponding dates on which agreements were was reached are set out in Schedule 1 hereto."

On 14 November by consent leave was granted to amend the defence substantially in accordance with the proposed draft. It was not suggested that this amendment affected the imminent trial of the preliminary questions.

43. First thing on 29 November 2000, Day 1 of the trial, counsel for Kennedy Taylor protested that witness statements provided on behalf of Crown appeared to deal with a number of matters which were not within the ambit of the agreed questions. Following some debate, counsel for Crown on Day 2 of the preliminary hearing, 30 November, produced a proposed re-amended defence in which the same paragraph 11.1 was further changed so that it appeared as follows:

"11.1 Further, the Defendant says that the parties agreed the price of many of the variations referred to in Annexure 1 to the Statement of Claim, and the Defendant paid to the Plaintiff and the Plaintiff accepted the agreed amounts set out in Schedule 1 hereof.

PARTICULARS

The agreements were partly oral, partly in writing and partly to be implied. Insofar as the same were oral they were constituted by conversations at the site offices of Hudson Conway or on the telephone between John Holland on behalf of Hudson Conway and Ron Begbie, Jim Paneras and/or James Craige of the Plaintiff. Insofar as the same were in writing they were constituted by notations, comments, initials, signatures and dates written by John Holland on behalf of Hudson Conway on documents entitled Report on Contractor's Variation Notice or Contract Price Adjustment Advice (both of which are hereinafter referred to as `assessment reports') on diverse dates most of which appear on the said documents. Insofar as the same were implied such implication arose from the following: (aa) the conduct of the Plaintiff in submitting a quotation, claim or invoice (which was paid in full by the Defendant) and the Plaintiff's conduct in accepting such payment without demur particulars of which are set out in Schedule 16 hereto (in relation to Schedule 1 items) or the conduct of the Plaintiff in submitting a claim in this proceeding (which had been paid in full by the Defendant) and the Plaintiff's conduct in accepting such payment without demur particulars of which are set out in Schedule 17 hereto (in relation to Schedule 1 items); (bb) the notations, comments, initials, signatures and dates written by John Holland on behalf of Hudson Conway on assessment reports on diverse dates most of which appear on the said documents made contemporaneously with or immediately subsequent to the oral agreement referred to above; (a) the notification to the Plaintiff of the adjustment to the agreed contract price made by the Defendant in respect of the relevant variation in Contract Price Adjustment Advice forms and/or Contract Price Adjustment forms, (both of which are hereinafter referred to as CPA's) copies of which were sent to the Plaintiff in the course of the contract; (b) progress payment claims made by the Plaintiff and progress payment certificates issued and cheques drawn by the Defendant in favour of the Plaintiff from time to time reflecting assessments of work completed to date and calculated upon the adjusted contract price (as recorded in the CPA's) as at the date of the progress payment which reflected adjustments contained in the CPA's referred to in (a) above; (c) the acceptance of progress claim certificates and the presentation for payment of the cheques referred to in (b) above without complaint; (d) the delivering to the Defendant by the Plaintiff of its final claim under the contract which was premised upon and reflective of an acceptance by the Plaintiff of the contract price adjustments, progress payment certificates and payments referred to above. The agreement was oral and was constituted by conversations at the site offices of Hudson Conway between John Holland on behalf of Hudson Conway and Ron Begbie and James Craige of the Plaintiff. Particulars of the variations, the corresponding amounts agreed and the corresponding dates on which agreements were was reached are set out in Schedule 1 hereto."

47. Again, the same plea was made to each of the claims for variations. Further, a new paragraph 133 raised an estoppel in the following terms:

"133. Further or in the alternative the Plaintiff is estopped by its conduct from denying that it entered into each of the agreements referred to in paragraphs 11.1, 30.1, 46, 51, 57, 64, 70, 76, 82, 88, 93, 100, 106, 111, 117 and 123 in respect of those items for which it accepted payment from the Defendant in the sum claimed which are referred to in the respective Schedules to the said paragraphs.

PARTICULARS

The conduct of the Plaintiff relied upon is as follows: (a) the submission by it of a quotation, claim or invoice in respect of those claims set out in Schedule 16 in a particular sum and its conduct in accepting payment of such sum from the Defendant without demur; (b) the submission by it of a quotation, claim or invoice in respect of those claims set out in Schedule 17, the making of a claim in these proceedings for each such claim in a particular sum and its conduct in having accepted payment of such sum from the Defendant without demur;"

51. This proposed amendment was further resisted by counsel on behalf of Kennedy Taylor and as a consequence, on 1 December 2000, the third day of the hearing counsel for Crown proffered yet another amended paragraph 11.1. This was in the following terms:

"11.1 Further, the Defendant says that the parties agreed the price of many of the variations referred to in Annexure 1 to the Statement of Claim, and the Defendant paid to the Plaintiff and the Plaintiff accepted the agreed amounts set out in Schedule 1 hereof.

PARTICULARS

The agreements were partly oral, partly in writing and partly to be implied. Insofar as the same were oral they were constituted by conversations at the site offices of Hudson Conway or on the telephone between John Holland on behalf of Hudson Conway and Ron Begbie, Jim Paneras and/or James Craige of the Plaintiff. Insofar as the same were in writing they were constituted by notations, comments, initials, signatures and dates written by John Holland on behalf of Hudson Conway on documents entitled Report on Contractor's Variation Notice or Contract Price Adjustment Advice (both of which are hereinafter referred to as `assessment reports') on diverse dates most of which appear on the said documents. Insofar as the same were implied such implication arose from the following: (aa) the conduct of the Plaintiff in submitting a quotation, claim or invoice which was paid in a lesser sum by the Defendant and the Plaintiff's conduct in accepting such payment without demur particulars of which are set out in Schedule 16 hereto (in relation to Schedule 1 items); (a) the notification to the Plaintiff of the adjustment to the agreed contract price made by the Defendant in respect of the relevant variation in Contract Price Adjustment Advice forms and/or Contract Price Adjustment forms, ( both of which are hereinafter referred to as CPA's) copies of which were sent to the Plaintiff in the course of the contract; (b) progress payment claims made by the Plaintiff and progress payment certificates issued and cheques drawn by the Defendant in favour of the Plaintiff from time to time reflecting assessments of work completed to date and calculated upon the adjusted contract price (as recorded in the CPA's) as at the date of the progress payment which reflected adjustments contained in the CPA's referred to in (a) above; (c) the acceptance of progress claim certificates and the presentation for payment of the cheques referred to in (b) above without complaint; (d) the delivering to the Defendant by the Plaintiff of its final claim under the contract which was premised upon and reflective of an acceptance by the Plaintiff of the contract price adjustments, progress payment certificates and payments referred to above. The agreement was oral and was constituted by conversations at the site offices of Hudson Conway between John Holland on behalf of Hudson Conway and Ron Begbie and James Craige of the Plaintiff. Particulars of the variations, the corresponding amounts agreed and the corresponding dates on which agreements were was reached are set out in Schedule 1 hereto."

55. Without going into the detail of the discussions which took place before me on these three days it was apparent that counsel for Crown at the trial of the preliminary issue wished to present a case which was very different from that which was contemplated in August 2000. In short, it now wished to include within the questions for preliminary trial the following contentions:

(a) After Kennedy Taylor submitted its variation claims the parties negotiated and settled them at meetings between Mr Holland on behalf of the agent of Crown and Mr Begbie and Mr Paneras and Mr Craige on behalf of Kennedy Taylor on specified dates in 1997.

(b) In the case of certain variations, the Crown witnesses had no recollection of agreeing the amount payable but agreement was to be inferred from the fact that the parties met and that Mr Holland, the Hudson Conway representative, noted a sum beside the variation on his list. This sum was paid and accepted by Kennedy Taylor.

(c) In the case of certain variation claims an analysis of them shows that they are duplications of other claims which have been agreed and paid.

(d) After Kennedy Taylor submitted its variation claims some were paid in full by Crown and the payments were accepted by Kennedy Taylor. Kennedy Taylor's present variation claims included enlarged claims which had previously been paid in this way. These enlarged claims should be dismissed because the earlier payment and acceptance determined this matter.

(e) After Kennedy Taylor submitted variation claims some were assessed by Crown or its consultants and the amount so assessed, being less than the amount claimed, was paid by Crown and accepted by Kennedy Taylor. Kennedy Taylor's present claims included claims which had previously been part paid in this way. Again, it is said that the payment and acceptance determined the entitlement of Kennedy Taylor.

(f) In August 1997 Mr Holland on behalf of Crown and Mr Begbie on behalf of Kennedy Taylor agreed that variations should be paid at rates set out in a certain price measurement document plus a 75% loading to compensate Kennedy Taylor for the difficulty of the work. Certain of the variation claims in which a greater difficulty factor loading was sought by Kennedy Taylor were reduced by Mr Holland to reflect the August 1997 agreement and Crown paid the reduced sum. Another change to the Kennedy Taylor variation claims which Mr Holland consistently and unilaterally adopted was the refusal to pay the sum of $50, $60 or $100 for drawings, manuals or references provided by Kennedy Taylor. He did this because he said these items were included in the original contract work and he had previously agreed this with Kennedy Taylor. These reductions, likewise, were not discussed and agreed with Kennedy Taylor as the claims were processed, but Crown consistently paid and Kennedy Taylor accepted the reduced payments and were accordingly bound by this.

61. Despite protestations to the contrary by counsel for Crown, I was of opinion that only the first and probably the second of these six bases for defence were covered by paragraphs 11 and 11.1 of the defence as it stood in August.[5] Only these matters were contemplated as the subject of the agreed preliminary questions. The trial of the preliminary issues, therefore, struggled on in the hope that the new issues might be accommodated in the trial or put to one side. In the end, it became apparent that the preliminary trial could not proceed. Counsel for Crown had by the third day not even been able to list the variations which fell within the six groups for which they were contending. The enlargement of the issues would have put Kennedy Taylor, whose evidence was to be led first, at a great disadvantage. The restriction of the trial to a determination of the first basis of defence only would not have the expected effect of avoiding a detailed examination of the variations at a full trial. Accordingly, the trial was abandoned and orders were made for a trial of all issues to commence in March 2003. I reserved the question of costs thrown away.

64. Counsel for Kennedy Taylor, naturally enough, contended before me that the abandonment of the preliminary trial was due to the amendments made and proposed by Crown and that Kennedy Taylor should have its costs thrown away as a consequence. Reference was made to Rule 63.17.

67. This order was resisted by counsel for Crown who contended that I should further reserve the costs of the preliminary trial or make no order as to these costs.

70. An order reserving costs, properly understood, means that the incidence of the costs is deferred for later argument and determination. This is not a case for such an order. I have heard what the parties wish to say as to which, if either, party should bear these costs. Nothing could be gained by deferring the question further or referring it to another judge, perhaps the trial judge, who would have less familiarity than I with the circumstances of the events of 2000.

73. It sometimes happens that an order reserving costs is but a gentle way of ordering that the costs be costs in the cause. After settlement or trial it is not uncommon for the successful party to be awarded costs including any reserved costs. This is not a case where such an order is appropriate. The trial of the preliminary issues was seen by the parties as being in their interests, a factor which might tend to the conclusion that the costs should be treated as part of the litigation as a whole. But, in this case, the benefit of the procedure was lost due to the shift in position of Crown after August 2000.

76. For the same reason, it is not appropriate for me to make an order that neither party recover the costs in question. I can see no reason in imposing a burden on Kennedy Taylor which has not contributed to the regrettable abandonment of the preliminary trial.

79. On behalf of Crown it was put that little costs have been lost by reason of the abandonment of the preliminary trial, at least little of the preparatory costs. It was said that witness statements and the Court Book would have to be prepared for the trial in any event. To my mind this is a question for the Taxing Master in the event that Kennedy Taylor should in due course obtain an order for costs of the proceeding. The master, with the assistance of the legal representatives of Crown will doubtless be astute to avoid duplicating the burden on that party in such event.

82. I am satisfied that the utility of the trial of preliminary questions was lost by reason of the changes to the defence of Crown. It was put by counsel on its behalf that it was always their intention to raise under paragraph 11.1 all of the matters exposed at the trial. If this indeed was their intention it is regrettable that it was not clearly set out in their pleading. Crown must therefore pay the costs thrown away as a consequence of those changes. Whether this is, strictly speaking, an application of Rule 63.17 or an application of the reasoning underlying that rule, is of no consequence.

85. I can see no good reason for staying the order for costs until the final determination of the proceeding.

88. At the conclusion of argument, I said that I was minded to use this occasion to make some general observations on the dangers attending the trial of preliminary questions and what the Court might expect of practitioners if this procedure is to play a useful role in the determination of building cases. On reflection, I will postpone these observations to another occasion. I will, however, say one thing. Where, in a managed list, a case is set down for trial, counsel for the parties expressly or impliedly assure the Court that the case is ready for trial and that they are satisfied with the state of the pleadings and particulars and with discovery. They will also be asked to provide an estimate of the likely duration of the trial. These are but minimal requirements for the proper arrangement of the Court's business. Where the trial is a trial of a preliminary question there is the further requirement that the question be formulated in a satisfactory way, that the evidentiary basis for the trial is understood and, further, that the resolution of the question is likely to assist the parties in the resolution of the litigation[6]. The judge managing the case is, to a very large extent, in the hands of the parties and their legal representatives in making an order for trial, for they are more familiar with the state of preparedness of the proceeding, with the issues which are really in controversy and with the evidence which is expected to be available. The Court is entitled to and does expect that counsel are sufficiently instructed to fulfil these responsibilities and that they do so. Where the trial date is lost or the trial aborted by reason of any failure by one party to fulfil these responsibilities and costs are thrown away as a result, it will not come as a surprise that the delinquent party should, in any event, bear those costs. Experience shows that an order for party and party costs will, even so, leave the innocent party bearing some burden of these costs thrown away. This being the case, there is much to be said for a costs order directed to remedying this deficiency, such as an order that they be taxed on a solicitor and client basis. I express no view as to whether such an order would be appropriate in the present case. It was not the subject of any argument before me.

91. It is sufficient that I conclude, as I did on 25 July 2001, that the plaintiff's costs thrown away by reason of the abandonment of the trial of the preliminary issues, be taxed and paid by the defendant.

[5] I ignore as inconsequential for this purpose, the fact that a further representative of Kennedy Taylor, Mr Paneras, is said to have participated in the negotiations.

[6] See Jacobson v Ross [1995] VicRp 24; [1995] 1 VR 337.