Plaintiff v Defendant

Elsewhere in the tender[9] the total labour cost for the project is shown as $3,745,637.10 representing 12.06 FTEs per annum.

9 The pleading therefore alleges that the services agreement contained the following terms:

(a) that the number of Help Desk calls was likely to be of the order of 433 per month[10]; and

(b) that Ipex "would have to apply an average of 12.06 FTEs per annum during the period of the Services Agreement in order to provide the Services"[11]; and

(c) that Ipex "would have to apply an average of no more than 10.16 FTEs per annum during the term of the Services Agreement in order to provide the Help Desk Services"[12]

10 Ipex then alleges that each of these terms was breached inasmuch as the number of Help Desk calls was about 795 per month[13] and that the number of FTEs required was 23.59 per annum for the provision of the Services[14] and 21.69 per annum for the provision of the Help Desk Services.[15] These facts give rise to the first three causes of action.

11 In paragraphs 19 to 21 and 22 to 25 the increase in the number of Help Desk calls and the consequent increase in the Help Desk Services required to be provided is said to comprise a "significant change in the workload" or "a change in the scope of the services agreement". These are two suggested pre-conditions to a contractual entitlement in Ipex to an adjustment of the service fee. These are the fourth and fifth causes of action.

12 A further associated cause of action is that the Melbourne Water representation that Ipex could expect receive Help Desk calls at the rate of about 433 per month during the period of the service agreement[16] constituted misleading and deceptive conduct contrary to s. 51A of the Trade Practices Act and s. 4 of the Fair Trading Act.[17]

13 I shall return later to a seventh claim, that for an adjustment of the services fee pursuant to cl. 15 of the services agreement.[18]

14 I pass over the last cause of action which is for payment of a monthly instalment of the services fee for November 2002.[19] There was no complaint about this part of the proposed pleading.

15 The attack by Melbourne Water on the proposed pleading is based upon the contention that it is embarrassing and prejudicial to the fair trial of the proceeding. No argument was addressed that the causes of action as pleaded were futile. Counsel for Melbourne Water make what they say is a fundamental criticism of the pleading, namely, that the statement of claim does not sufficiently identify the Help Desk Services in question. The logic of the Ipex case, insofar as it depends upon the increase in the number of Help Desk calls, requires that some relationship be established between this increase and the suggested increase in the Help Desk Services and the Services. The response on behalf of Ipex was that this is correct and obviously so. It was put, by way of example, that, if 100 Help Desk calls required the provision of a given amount of services, it is very likely that a consequence of an increase in the number of those calls to 150 will be that there would be some increase in the number of services required to be provided in response to them. In the earlier drafts of this pleading this was said to be a direct relationship: the amount of Help Desk Services to be provided in such a case would be 150% of those required to respond to 100 calls. This approach, which was very much criticised, has now been abandoned. What is now put is that the extra calls generated some extra work and that this work required the application of some extra time calculated in FTEs and that the financial consequence of this is some extra cost.

16 To this point, Ipex alleges only that it increased some extra time and that it suffered some loss. If it wishes to recover an award of damages it must also quantify the amount of this.[20]

17 The contention made on behalf of Melbourne Water was that such an assertion as to extra work must be particularised. Unless Ipex is required to identify what is this extra work and what is its measure in FTEs, it is not possible to understand what is this extra work and quantify the loss and, more importantly for Melbourne Water, it is not possible to meet the claim. This, it is said, would require the pleaders to identify what are the type and volume of services which would be required to be provided under the service agreement in response to 433 Help Desk calls per month, and what was in fact provided in response to the greater number of calls actually received. This would lay the factual and logical foundation for the next step in the claim, namely, that this response in some way caused it to incur quantifiable loss and damage.

18 In fact, the pleading by-passes this. It speaks not of the type and volume of the Help Desk Services and of the response provided to this by Ipex, but of the extra FTEs involved in providing this response. It measures these extra FTEs as the difference between the number of FTEs in the tender estimate and the total number in fact applied in the performance of the Help Desk Services. The former number is said to be the measure of work which was required under the services agreement to respond to for the Help Desk calls at the rate of 433 per month and the latter is the measure of work which was in fact required to respond to the actual number of Help Desk calls received.

19 The application of this methodology to the present case is pleaded as follows:

One FTE = 1,672.5 work hours.

1,672.5 x 11.53 x 3 years = 57,851.78 work hours.

Costs per hour (including GST) = $165

Total extra cost 57,851.78 x 165 = $9,545,543

20 On behalf of Melbourne Water it was first put that these figures demonstrate the danger of accepting the methodology. The cost of providing Help Desk Services in the tender was a little over $3M. The increase in the number of these calls of some 84%[21] has had the consequence of increasing the worker hours applied in response to them by over 110%[22] in terms of FTEs and about 300%[23] in terms of cost.

21 Then it was put that the mere fact that Ipex applied an increased number of work hours than was provided for in its tender ignored the logical requirement that it be alleged and proved that this increase in measured work hours was causally related to the increase in the number of calls. And so, it was contended, Ipex should identify with some precision and what volume and type of services it was, under the services agreement, to perform in response to Help Desk calls and, further, it should identify what was in fact the impact of the increased number of Help Desk calls on those services and their volume. In this way it would be apparent what extra cost was said to have been thereby incurred.

22 It was put that this is necessary, even for those claims where the breached term is one that no more than specified FTEs would have to be applied,[24] for it was alleged in the pleading that these FTEs were required to be applied in order to provide the Services or the Help Desk Services respectively.

23 The response of Ipex to this criticism is that the services which were provided in response to each Help Desk call are spelt out in the logs which it maintained of all Help Desk calls and of its response to those calls. These are the logs of the 28,631 Help Desk calls received over the contract period which are summarised in Schedule 3 over 495 pages. The logs themselves occupy 143,155 pages. Four of these logs, by way of example, are annexed to the statement of claim as Schedule 4. As best I can see from these documents, the nature of the enquiry received by the Help Desk and the Ipex response to it are set out in them but there is no record of the work performed or the work hours involved.

24 Counsel for Ipex then said that the pleading asserts as a fact what was the time and cost to their client of providing the Services and the Help Desk Services. They said that this is a fact which, in accordance with the practice in applications of this kind, I must accept as proved or provable.

25 This, however, says nothing about the question of causation - the relationship between the increased number of Help Desk calls which Ipex was required to respond to and the extra work which it claims to have performed in doing this. This is the essential difficulty posed by a claim such as the present. Conventionally, causation will be demonstrated by showing what was to be done and how it was more difficult or costly to perform in the context of an increase in Help Desk calls. Ipex, however, does not pursue this course; it relies upon inference. Stripped to its essentials, Ipex is saying that the number of calls was greater than it expected and that the number of hours of work was greater than expected and that the Court should infer that the one was the cause of the other.

26 There was some debate before me as to whether this was a global claim and might therefore attract to itself the criticisms which have been directed to such claims. Since there is only one event which is said to have brought about the extra work it is not a true global claim. It is more correctly described as a total time/cost claim. The steps in such a claim in a case such as that referred to in part (a) of paragraph [9] above or those referred to in paragraphs [11] and[12] above are as follows:

(a) that the allowance in the tender of 10.16 FTEs for the provision of the Help Desk Services is reasonable. In other words, it is for the plaintiff to show that its tender price was not an underestimate or that it did not reduce it to an unreasonable level in order to win the contract or that it did not skew the figures so as to maximise recovery in the event of change or that for some other reason the estimate was not unreasonable;[25]

(b) that the increase in the number of Help Desk calls from 433 per month to 795 per month was an event for which, as a matter of law, Melbourne Water was responsible to compensate Ipex for the extra costs incurred;

(c) that 21.69 FTEs per annum was applied to the performance of the Help Desk Services which Ipex was, in the event, required to perform. A similar figure for the Services is 23.59 FTEs per annum. When pressed as to where these figures came from, counsel for Ipex responded, "by reference to employee records, details and things of that nature. I didn't do the calculation".[26] I must confess that I did not derive very much encouragement from this response.[27]

(d) that the cost to Ipex of providing these extra FTEs is to be calculated by applying the rate of $165 per working hour. This is an assertion of fact which I must accept for present purposes.

(e) that the figures in part (a) and part (c) are causally related by the event referred to in part (b). This is alleged in paragraph 12 of the statement of claim:

"Consequent upon the Help Desk Calls being of the order referred to in paragraph 10 hereof [that is, in excess of 433 per month] the Plaintiff in order to meet the workload arising from that number of Help Desk Calls had to apply an additional 11.53 FTEs per annum for the period of the Services Agreement and thereby suffered loss and damage, being that occasioned by having to apply an additional 11.53 FTEs per annum over and above the 10.16 FTEs."

In paragraph 5 of their memorandum of 1 December 2005 counsel for Ipex put the matter this way:

"The plaintiff pursuant to paragraph 11 of the statement of claim, will prove that the reason why there had to be applied 11.53 FTEs in excess of the agreed amount was because the level of Help Desk calls was far in excess of 433 per calendar month with the consequent increase in services to be provided.

27 Where the claim is put as a breach of a term such as that alleged in parts (b) or (c) of paragraph [9] above, the element of reasonableness in fact (a) need not be pleaded because the number of FTEs is warranted in the alleged term.

28 It does not appear from the pleading what facts Ipex intends to establish to lead to the conclusion referred to in part (e) above, namely, that there is a discernable nexus[28] between facts (a) and (c). The pleading and the argument before me suggest that the Court at trial will be invited simply to infer causation from facts (a) and (c). In the context of this case, I would, at a pleading level, be prepared to conclude from these facts that the 84% increase in the number of Help Desk calls might require Ipex to provide some increase in the volume of work and, as a consequence it increased the FTEs required and the labour cost. This is a significant conclusion for present purposes, for the cases show that the Court will strive to overcome merely evidentiary shortcomings in order to quantify a loss whose existence has been demonstrated. But, even so, it is for the plaintiff to decide how it will quantify this loss[29] but the Court will expect it to do so by showing, in a case such as the present, that the breach caused Ipex to perform certain extra work which is valued at a certain sum unless this evidence is not obtainable. This last proposition flows from the statements of Brooking J in JLW (Vic) Pty Ltd v Tsiloglou[30]:

"If he [the plaintiff] proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages. . . . Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can."

In the context of global or total time/cost claims, a similar attitude underlies the reluctance of the Court to permit those cases to go forward unless a more conventional form of presentation is shown to be unavailable or impracticable.[31] In this case, there is no material offered as to this matter.

29 But this case, as it is now presented, is not a global claim. It does not have to confront the difficulties attending the proof that the plaintiff's loss was consequent upon one or more of a multiplicity of alleged wrongful acts. It attributes its loss solely to the increased number of Help Desk calls. The point of vulnerability of this case is that of demonstrating the fact that this increase in the number of calls caused the increased number of FTEs which were actually provided. This question, even at a pleading level, must be addressed by the application of commonsense[32] and in a practical way. It is a question, too, upon which Ipex bears the ultimate burden of proof. In the pleading, Ipex seeks to discharge this burden by inviting the Court to infer causation from the coincidence of the extra calls being followed by the extra FTEs. It will discharge this burden only by satisfying the Court that there was no other causally significant factor which contributed to these FTEs.[33]

30 The danger of this method of presenting such a claim is that it tends to shift to the defendant the task of demonstrating that the other factors for which it is not legally responsible played such a causative role. It is for this reason that the plea may be rejected as embarrassing. But this conclusion will not follow in every case. As Smith J pointed out in Nauru Phosphate Royalties Trust v Matthew Hall Mechanical and Electrical Engineers Ltd [34], the fact that the evidentiary or shifting burden may pass to the defendant on a given issue does not detract from the obligation of Ipex to prove on the balance of probabilities at the end of the day that the extra FTEs and their cost have in fact been caused by the increase in the number of Help Desk calls. It must be accepted in the context of adversary litigation that this may be so and that a plaintiff has no obligation to make things easy for its adversary. Nevertheless, it cannot be gainsaid that, as a matter of forensic reality, this will often impose a great burden upon the defendant which, in many cases, is less able than the plaintiff to know what occurred from day to day and the Court will be concerned that this burden be not an unnecessary or unreasonable one. It is for this reason that the Court will be inclined to require the plaintiff to bring forward "the precise evidence" of its loss which is within its power or to show why that is not reasonable or practicable.

31 In paragraph 11(b) of the statement of claim the pleaders seek to address this proof which lies upon Ipex by the allegation that the number of Help Desk calls was not caused by any inefficiency or deficiency in the provision by Ipex of the Help Desk Services requested.

32 This does not, of course, go far enough. Not only must Ipex plead and prove that the increase in the number of Help Desk calls was not due to its conduct; it must in support of the inference also plead and prove that no factor other than this increase was relevantly responsible for the extra FTEs and, as a consequence, the extra cost incurred by it. I say relevantly because causation is a concept which requires a pragmatic approach. The law will find a causal link between a wrongful act and damage notwithstanding that other factors have played a part. The cases use differing terminology to characterise this causative role of the wrongful act[35] and it is not necessary for me on application of this kind to enter upon that debate. Nevertheless, the conclusion which I have reached as to the pleading obligation of Ipex to negative extraneous factors means that the current plea cannot be accepted.

33 Moreover, it is apparent from what I have heard of this case that the burden which the plaintiff would cast upon the defendant is that of analysing the information contained in the logs of the 28,631 Help Desk calls and any other material relating to the operations of Ipex which might come to light and the work which was done in response to those calls, to show that for some reason or reasons the worker time incurred was not greater than might have been the case had the number of calls been of the order of 433 per month. It is not, in my view, unreasonable to suppose that Ipex itself has some idea of how this increase in the number of calls affected its work program and the amount of worker hours which were required to deal with them, and that it can express this. This conclusion is fortified by the absence of any material suggesting the contrary. This is another reason for rejecting the proposed pleading as it affects these claims.

34 I turn now to the seventh claim, that based on cl. 15 of the services agreement arising out of a suggested variation made on 28 February 2002.[36] This claim is made in the alternative to the proceeding claims. Clause 15(a) of the services agreement confers upon the Melbourne Water representative the power to direct a variation. Variation is defined in cl. 1.1 to mean "any addition, reduction or other alteration to the Services". By cl. 15(c) the service fee may be increased or decreased by a reasonable amount as determined by the Melbourne Water representative "If the nature extent or content of the Services is increased or decreased in accordance with cl. 15(a)". These terms are pleaded in paragraph 34.

35 The paragraphs, however, which appear to be directed to this claim commence at paragraph 21 in which a number of terms of the services agreement are set out. It is not immediately apparent to me what is the relevance to the variation claim of the terms alleged in Parts (iii), (iv) (v) or (vi). The thrust of the claim appears to be that by a variation contained in a letter of 28 February 2002, Melbourne Water directed[37] Ipex to perform its contractual obligation in an information technology environment "which was different"[38] from that contemplated in the services agreement.[39] It is then said that the performance by Ipex of its contractual obligations in this changed environment constitute "an increase in the nature extent or content of the services, within the meaning of clause 15(c)"[40] with the consequence that Ipex is entitled to a commensurate increase in its service fee.[41]

36 From a pleading point of view, no serious criticism is addressed to this plea so far. What is the subject of complaint are the pleas with respect to the quantification of the claimed increase in the service fee and its relationship with the changed environment. This appears in paragraph 43 which I venture to set out in full.

"43. In the premises and in particular to paragraph 28(vi) the total Services Fee for the period on and from 28 February 2002 to 31 July 2003 is the sum of $4,101,249.90 calculated in accordance with the relevant FTEs.

Particulars

The additional average of 10.54 FTEs per year from the date of the Variation to the end of the Services Agreement (17 months) ('the Variation Period').

The number of hours per FTE for the variation period is:

223 days x 7.5 hours per day = 1,672.5 hours per FTE per year.

1,672.5 hours per year x 1.41 years (17 months/12 months) = 2,358.26 hours per FTE for the Variation Period.

The necessity for the additional 10.54 FTEs per annum over the term of the Services Agreement required an additional 24,856.06 hours (10.54 FTEs x 2,358.26 hours) which at the rate of $165 per hour (inc GST) amounts to $4,101,249.90."

37 In the light of the paragraphs which I have summarised above, I would expect that the increase in the service fee will be related to the different and, perhaps, more difficult, circumstances represented by the changed environment. The changed environment which was brought about by the letter of 28 February. What appears, however, is the bald statement in the first sentence of the particulars under paragraph 43 that Ipex incurred an additional average of 10.54 FTEs for the balance of the contract period after the date of variation. No explanation as to the provenance or make-up of this figure is given. There is no assertion that the extra additional work time was a product of the change environment or of the variation. It is not alleged how the changed environment led to this increase nor what services were affected by it and in what way. If, as I suspect from the paragraphs 28(v) and (vi), 32 and 39, that the figure of 10.54 FTEs and the consequent amount of $4,101,249.90 is a total time/cost claim, the plea also suffers from the deficiencies I have mentioned in paragraph 47 and 48 of my March 2005 judgment and paragraph 24 of my July 2005 judgment, as well as those which I have endeavoured to set out above. I will not accept paragraph 43.

38 The final claim which was the subject of criticism is that based on misleading and deceptive conduct. The representation as to the likely number of Help Desk calls in the three year period from 1 August 2000 is said to have been made without reasonable grounds. The representation as to the 433 calls per month is said to be derived from the call summary for the period September 1999 to March 2000. This representation is said to have been made without reasonable grounds because the service provider for Melbourne Water from July 1998 to June 1999 had received Help Desk calls from the rate of 763 per month.

39 Notwithstanding the different causes of action and the different factual spaces, Ipex puts as the quantification of its loss the same calculation as it makes in paragraph 12 with respect to the breach of contract claims. It says that it would have negotiated and agreed with Melbourne Water a service fee reflecting its increased FTEs of 11.53 per annum and its extra cost of some $9.5M, making the contract price $14.7M instead of the agreed contract price of $5.2M.

40 I have in my July judgment concluded that, as a matter of pleading, I will accept this allegation and I adhere to this view.

41 I mentioned in my July judgment the responsibility of the judge managing a complicated case such as the present.[42] It is apparent that this proceeding its interlocutory stages and at trial will be very expensive and complicated for the parties. This is a feature of much commercial litigation in this Court and it must be accepted as a fact of litigation. The Court, however, has the duty as well as abundant power to ensure that the issues between the parties are promptly and economically determined[43] so as to minimise that burden and judges are encouraged to exercise these powers, provided always that this can be done without compromising the overriding objective of the Court's procedure which is to do justice between the parties. The advantage of judge management of particular cases is that the court can bring to bear the experience of the judge and the flexibility of the Rules to achieve that result.

42 I was pressed, very properly, by counsel for Ipex with arguments which were based upon the restrictions upon the power of the Court to strike out a pleading or to disallow an amendment. I accept that this is so. The plaintiff, in this case, however, comes to the Court seeking the exercise of its discretion to permit an amendment which it is having enormous difficulty in formulating. This difficulty is not the result of any inadequacy on the part of the practitioners who are very experienced. This causes me to look with some care at the proposed pleading with the words of the Privy Council in mind:

"It is for the plaintiff in an action to formulate his claim in an intelligible form and it does not lie in his mouth to assert that it is impossible for him to formulate it and that it should, therefore, be allowed to continue unspecified in the hope that, when it comes to trial, he may be able to reconstitute his case and make good what he then feels able to plead and substantiate."[44]

To this may be added the further consideration which may be relevant to a piece of major commercial litigation such as this. If the pleading difficulty appears to be the product of some essential shortcoming in the plaintiff's case, the Court should be astute to ensure that the case, which the defendant will be required to address at considerable trouble and expense, should be permitted to go forward only if it is one that is capable of being expressed in a manner which is logically and legally sound. It may be a cause of little satisfaction to a defendant, faced with the prospect of incurring substantial expense in resisting a claim which cannot be formulated, to be told at the end of the day that it will be successful and that it will recover an order for payment of most of these expenses. This is in my view a matter which is relevant to the exercise of my discretion in allowing a plaintiff to amend.

43 Since it follows that the pleading will require some further work, I venture to suggest that counsel give consideration to the following particular matters which I fear will cause trouble in the future.

(i) Is it appropriate that the same measure of loss and damage be claimed for all of the claims which depend upon the representation as to 433 Help Desk calls per month?

(ii) Is it appropriate to cost the extra FTEs at a rate very much in excess of the tender rate?

(iii) How is it that the claim based on the variation, albeit it is an alternative to those based on the 433 Help Desk calls representation, is quantified by reference to the tender FTE estimates?

44 I will therefore refuse to Ipex leave to deliver a fourth amended statement of claim in terms of the draft of 21 November 2005. I will, if this be sought, direct that a further draft pleading be submitted and, subject to any submissions to the contrary, I will make a like order for costs as I made on 27 July 2005.

I certify that this and the 1917 preceding pages are a true copy of the reasons for Judgment of Justice Byrne of the Supreme Court of Victoria delivered on 10 March 2006.

DATED this tenth day of March 2006.

[1] [2005] VSC 78.

[2] [2005] VSC 258.

[3] [2005] VSC 78 at [13]- [19]; [2005] VSC 258 at [6].

[4] See for example second amended statement of claim filed 16 August 2004 paras 7, 10

[5] Page 5 of Schedule C.

[6] Statement of claim para. 5(f).

[7] Page 4 of Schedule C.

[8] That is, approximately $102,780 per FTE or $62 per hour.

[9] Page 8 of Schedule C.

[10] Statement of claim para 9.

[11] Statement of claim para 13.

[12] Statement of claim para 16.

[13] Statement of claim para 10.

[14] Statement of claim para 14.

[15] Statement of claim para 17.

[16] Statement of claim para 45.

[17] Statement of claim para 46.

[18] See para [34]ff below.

[19] Statement of claim paras 26 and 27.

[20] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80, per Mason CJ and Dawson J; at 99, per Brennan J; at 118 per Deane J; and at 137-8, per Toohey J.

[21] 795 [rparenmid] 433 = 183.6%.

[22] 21.69 [rparenmid] 10.16 = 213.48%.

[23] 9.5 [rparenmid] 3.1 = 306%.

[24] Statement of claim para 13, 16.

[25] I mention in passing that the pleaded fact that the actual cost of providing the Help Desk Services is nearly three times the cost included in the tender suggests that there may be a real issue at this point.

[26] Transcript 22 November 2005, page 20.

[27] An examination of the predecessors to the current proposed pleading suggests that the figures are to be found in Schedule 1 Annexure C to the second amended statement of claim of August 2004. This annexure is not part of the current draft pleading.

[28] Wharf Properties Ltd v Eric Cumine Associates (1991) 52 BLR 1 at 21 (PC)

[29] Nauru Phosphate Royalties Trust v Matthew Hall Mechanical and Electrical Engineers Ltd [1994] VicRp 67; [1994] 2 VR 386 at 406, per Smith J.

[30] [1994] VicRp 16; [1994] 1 VR 237 at 241 and the cases there referred to.

[31] Nauru Phosphate Royalties Trust v Matthew Hall Mechanical and Electrical Engineers Ltd [1994] VicRp 67; [1994] 2 VR 386 at 405, per Smith J.

[32] March v Stramare [1991] HCA 12; (1991) 171 CLR 506 at 524 per Deane J.

[33] John Holland Construction & Engineering v Kvaerner Brown (1996) 8 VR 681 at [15]. Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2004] BLR 295 at [10], [14] ff.

[34] [1994] VicRp 67; [1994] 2 VR 386 at 406.

[35] See Butterworths, Halsbury's Laws of Australia, vol 6 (at 9 March 2006) 110 "Contract" [110-11160].

[36] Paragraphs 28 - 43.

[37] Paragraphs 35, 36.

[38] Paragraphs 37, 38 and Schedule 6.

[39] Paragraph 33.

[40] Paragraph 40.

[41] Paragraph 41.

[42] [2005] VSC 258 at [1]

[43] Rule 1.14

[44] Wharf Properties Ltd v Eric Cumine Associates (No.2) (1991) 52 BLR 1 at 23.