Transerve Pte Ltd v Blue Ridge WA Pty Ltd

REASONS FOR JUDGMENT 1 Sometimes it is best to start near the end. 2 On 29 March 2012, at a fourth and last site meeting at Surabaya in Indonesia, Mr Alan Mackenzie purported to terminate a subcontract that he, on behalf of Blue Ridge WA Pty Ltd, had earlier made with Transerve Pte Ltd to construct accommodation units for the Roy Hill mining project in Western Australia. 3 Subsequently, Blue Ridge constructed the required accommodation units for the mining project. 4 How these events came about is at the heart of the matters in issue in this proceeding. 5 In short, the applicants contend that in the course of termination of the subcontract and itself constructing the accommodation units, Blue Ridge "expropriated" the subcontract and thereby caused the applicants to suffer financial loss. 6 The applicants identify three central issues concerning Mr Mackenzie, in relation to their complaints, namely, whether Mr Mackenzie personally engaged in unconscionable conduct, or in misleading and deceptive conduct, or interfered with contractual relations. 7 As explained further below, because Blue Ridge went into liquidation prior to the trial of this proceeding, at trial Mr Mackenzie was the only respondent against whom the applicants sought relief. 8 Mr Mackenzie denies all claims against him, says Blue Ridge, by him, was entitled to terminate the subcontract, and says that at no time did he or Blue Ridge act unconscionably, or engage in misleading or deceptive conduct, or interfere with contractual relations. 9 On 20 December 2011, a little more than three months before the purported termination, Roy Hill awarded Blue Ridge the head contract for the design and supply of 476 accommodation units for the Roy Hill mining project, to be fabricated in three separable portions, the first being for 233 units. 10 On 22 December 2011, Roy Hill provided Blue Ridge with the layout requirements, which were forwarded by Blue Ridge to Mr Geoffrey Leembruggen at Leembruggen Butler Pty Ltd in Perth, Western Australia, which company at material times acted as Transerve's agent. While not an officer of the company, Mr Leembruggen was authorised by Leembruggen Butler to represent it in all material dealings with Blue Ridge. 11 On 23 December 2011, Blue Ridge forwarded a copy of the notice of award provided by Roy Hill to Transerve in Singapore, and to Leembruggen Butler in Perth. The notice contained drawings, comments and handwritten amendments. 12 Confirmation of the award of the subcontract by Blue Ridge to Transerve and Leembruggen Butler followed soon after on 4 January 2012, with the formal subcontract executed on 16 January 2012 in favour of Transerve alone; as was always the intention. 13 The award of the subcontract followed dealings over more than two months between Blue Ridge, Leembruggen Butler and Transerve. 14 In October 2011, when Blue Ridge had been invited by Roy Hill to tender for the head contract, Mr Mackenzie met with Mr Leembruggen to discuss the project. 15 On 17 October 2011, Mr Mackenzie provided Mr Leembruggen and his daughter, Ms Natasha Butler, a director of Leembruggen Butler, with quotation drawings. 16 On 20 October 2011, Ms Butler emailed the pricing for four-man, three-man and two-man units, based on the quotation drawings, to Mr Mackenzie. 17 On 24 October 2011, the Blue Ridge tender was accepted for consideration by Roy Hill. 18 By about 16 November 2011, Blue Ridge had requested that Mr Leembruggen provide a delivery schedule. Mr Leembruggen that day emailed to Mr Mackenzie a new quote for three-man and four-man units. 19 Mr Leembruggen had explained to Mr Mackenzie in the course of those dealings that Transerve would be the subcontracting party. On 5 December 2011, Ms Butler, Mr Leembruggen and Mr Robert Liu and Mr Baharudin Paiman of Transerve, met with Mr Mackenzie in Perth. 20 On 7 December 2011, Roy Hill notified Mr Mackenzie that bank guarantees would be required from Blue Ridge under the head contract, if awarded, and that the first progress payment under the head contract would be made upfront upon submission of the bank guarantees. In particular, Roy Hill told Blue Ridge that all bank guarantees under the head contract were to be issued by Blue Ridge. 21 That notification was also forwarded to Mr Leembruggen by Blue Ridge. It was understood at material times that the subcontract, if awarded, would be "back to back" with the head contract, reflecting the terms of the head contract, so that similar bank guarantees obligations would apply between the parties to the subcontract. 22 On 7 December 2011, Mr Leembruggen emailed Mr Mackenzie outlining Transerve's financing arrangements for any subcontract through Bank DKI in Indonesia, and confirmed a final price of $73,000 for each of the four-man units. 23 On 8 December 2011, Transerve confirmed the offer from Blue Ridge for a subcontract to manufacture and supply 233 accommodation units - being the first separable portion under the proposed subcontract. 24 By mid-December, Mr Mackenzie and Blue Ridge understood that PT Mulya Surya, an Indonesian company based in Surabaya, would be engaged by Transerve to manufacture and supply the units. 25 On 14 December 2011, Mulya provided a confirmation letter from Bank DKI to Mr Mackenzie confirming bank guarantees would be issued to Mulya for the purpose of satisfying Transerve's obligations under any subcontract. 26 At this point a decision concerning the award by Roy Hill of the head contract was imminent. 27 On 14 December 2011, Mr Mackenzie for Blue Ridge received annexure Part A to the proposed head contract from Roy Hill, which he forwarded to Mr Leembruggen requesting that he sign off on it and explaining some additional engineering costs. 28 Mr Leembruggen that day confirmed to Mr Mackenzie that Transerve had suitably qualified personnel and that it would produce a product in accordance with the Building Code of Australia (BCA) and Australian Standards. 29 On 16 December 2011, Mr Mackenzie advised Mr Leembruggen, via email, that "Leembruggen Butler" (that is to say, Transerve) would get the project. 30 Then, on 20 December 2011, Roy Hill indicated it would award the head contract to Blue Ridge. 31 Following that, as explained above, on 22 December 2011, Roy Hill provided Blue Ridge with the layout requirements, which were forwarded by Blue Ridge to Mr Leembruggen the same day. On 23 December, Roy Hill sent the notice of award to Blue Ridge and Blue Ridge forwarded a copy of the notice of award, with drawings, comments and handwritten amendments, to Transerve. 32 There was much activity following these events, as one would expect, given that the contracts provided for the manufacture and supply of the first 50 units of the first separable portion of 233 units by 31 March 2012. 33 On 27 December 2011, Mr Mackenzie and Mr Philip Richardson, an employee of Blue Ridge, met with Mr Leembruggen. 34 On 31 December 2011, Mr Leembruggen again met with Mr Mackenzie and Mr Richardson. Mr Mackenzie was then about to go on holidays and thereafter was overseas until 21 January 2012. Mr Richardson was to be Blue Ridge's contract manager in his absence. Further meetings followed, involving Mr Leembruggen, Ms Butler, Mr Richardson, and Mr Suharto of Mulya. 35 On 4 January 2012, Blue Ridge confirmed that Transerve had been appointed to manufacture and supply the units in accordance with the notice of award. While it stated in its written notice that both Transerve and Leembruggen Butler had been awarded the subcontract, it was understood, and later clarified, that Transerve was the sole contracting party. 36 By its notice dated 4 January 2012, from Mr Richardson of Blue Ridge, Blue Ridge advised: This is to advise that Blue Ridge has accepted and appointed Transerve PTE LTD/Leembruggen Butler Pty Ltd (exclusive agents for Transerve) to manufacture and supply the abovementioned accommodation buildings as per the attached Notice of Award for the agreed price of $73,000 per 14.4 x 4.2m 4 Person Staff Quarter. All terms and conditions are back to back with Roy Hill Purchase order. 37 It was well understood by all parties at that point that the necessary finance to carry out the required manufacture under the head contract and subcontract and payments to be made thereunder would be facilitated by the provision of an initial bank guarantee of 10% of the relevant contract sums - by Blue Ridge providing bank guarantees in that regard under the head contract to Roy Hill, and by Transerve providing similar bank guarantees to Blue Ridge under the subcontract. As noted above, Mulya had earlier confirmed to Blue Ridge it would supply the required bank guarantees to satisfy Transerve's contractual obligations in this regard. This was never an issue for Blue Ridge. 38 On 12 January 2012, Mulya raised a bank guarantee for 10% of the contract sum through Bank DKI and presented it to Blue Ridge (first bank guarantees). 39 On 13 January 2012, Blue Ridge inquired of Mr Leembruggen as to the status of the architectural drawings. 40 On 16 January 2012, Blue Ridge and Transerve formally concluded the subcontract between them for Transerve to manufacture and supply the 233 accommodation units as per the first separable portion of the Roy Hill award. 41 By letter dated 16 January 2012 from Mr Richardson of Blue Ridge to Mr Robert Liu of Transerve, Blue Ridge advised Transerve that it had accepted and appointed Transerve to manufacture and supply the units "as per the attached Notice of Award" for the agreed price of $73,000 per unit, with the following bullet points noted: • Payment milestones back to back with Roy Hill payment terms to Blue Ridge • Delivery dates as per Roy Hill letter of intent to Blue Ridge. • Taxes - Transerve to deliver CIF Dampier excluding all taxes. • Insurance - 20M public liability as submitted by Leembruggen Butler. 42 The letter concluded by confirming that all terms and conditions were back to back with the Roy Hill purchase order. 43 Relevantly, for both the head contract and the subcontract, by annexure Part A, item 12, supplier's security was dealt with. By (b) the amount or maximum percentage of the contract sum was stated as follows: Bank Guarantees; • 1 x 10% Bank Guarantee; to be held as a Performance Guarantee • 2 x 10% Bank Guarantee; to be held as an advance payment bond, 1st supplied on initial payment. 2nd supplied on second payment Delivery delay of completed units by the Purchaser shall not prevent the release of the above listed Bank Guarantees. 44 By cl 24.1, and item 32 of Part A, as modified for the purposes of the subcontract, Transerve was entitled to the first progress payment in the sum of $1,700,900, upon the provision of the first 10% bank guarantee to be held as a performance guarantee. 45 By item 33 of Part A, the period for payment under cl 24.1 of the head contract was stated to be 30 days from the date on which a correctly rendered and fully substantiated invoice was submitted. Item 33 further provided that substantiation of invoices was to consist of approval by the purchaser's representative of attainment of the claimed milestone. 46 On 16 January 2012, Mr Leembruggen, Ms Butler and Mr Richardson met in Perth, with Mr Mackenzie participating in the meeting by telephone from Scotland. 47 On 17 January 2012, a kick-off meeting was held between Blue Ridge, Roy Hill and Mr Leembruggen. 48 From that point on, Leembruggen Butler was actively engaged in Perth on behalf of Transerve in doing what appeared to be required to perform the subcontract, at least at the Perth end. On 18 January 2012, it received preliminary findings regarding BCA compliance. 49 On 20 January 2012, Transerve forwarded drawings of the floor layout to Blue Ridge, which returned them to Transerve with comments. 50 On 21 January 2012, Mulya provided an official English translation (dated 16 January 2012) of the first bank guarantees to Blue Ridge, as requested. 51 On 21 January 2012, Mr Leembruggen forwarded to Blue Ridge the final architectural drawings. Blue Ridge then requested a date to inspect a prototype or mockup of the units. 52 On 23 January 2012, Mr Leembruggen proposed that the inspection of the mockup take place on 8 or 9 February 2012. 53 On 24 January 2012, Transerve received confirmation that the drawings complied with the BCA requirements. 54 Between 24 January and 10 March 2012, Transerve issued a number of technical queries (TQs) to Blue Ridge. It expected these to be passed to Roy Hill and responded to in a timely manner. 55 On 31 January 2012, following provision of the first bank guarantees, Transerve issued an invoice to Blue Ridge for the first progress payment under the subcontract. 56 That day, Mr Mackenzie advised Mr Leembruggen that the first bank guarantees were unacceptable to National Australia Bank (NAB) in their current format. 57 In relation to the first bank guarantees, Blue Ridge sought from Transerve a letter of transfer, following a request by NAB, which documentation was then provided by Transerve to Mr Mackenzie. 58 Construction activity nonetheless continued apace. On 1 February 2012, there was a meeting between Ms Butler and Mr Richardson to finalise the inspection and test plan. Blue Ridge that day notified Transerve by Leembruggen Butler that the supplier list needed to be amended. 59 On 6 February 2012, Roy Hill requested an update from Blue Ridge regarding the provision of its bank guarantees (second bank guarantees) to Roy Hill under the head contract. 60 That same day, Blue Ridge requested Transerve to provide a progress report on the project. 61 On 8 February 2012, in accordance with the earlier request, the first site inspection of the mockup took place in Surabaya, at the premises of Mulya, attended by representatives of the parties and Mr Bob Gill, an inspector engaged by Roy Hill. Mr Gill made a report which marked certain manufacturing specification points to be on "hold" which was subsequently provided to Blue Ridge. 62 The next day, 9 February 2012, a kick-off meeting took place in Surabaya attended by those same representatives of Roy Hill, Blue Ridge, Transerve, Leembruggen Butler and Mulya. 63 That same day, Roy Hill wrote to Blue Ridge giving notice of non-conformance with the head contract due to Blue Ridge's failure to provide the second bank guarantees to Roy Hill. 64 On 13 February 2012, as a result of the 8 February first site inspection, Transerve produced a procurement register which identified the expected delivery dates of the first 50 units being 31 March 2012. 65 It also that day wrote to Blue Ridge requesting payment of the first progress payment under the subcontract. 66 Also that day, as a result of dealings between Mr Mackenzie and Mulya, initiated by Mr Leembruggen, Mulya arranged the second bank guarantees to enable Blue Ridge to respond to the notice of non-conformance issued by Roy Hill on 9 February 2012. This was done on the basis that Blue Ridge would pay Mulya an arrangement fee of $230,000. As discussed below, while there is no dispute about the essence of this bank guarantee agreement, there is dispute as to when the arrangement fee was to be paid by Blue Ridge: whether immediately on provision of the second bank guarantees, or when they were accepted by Roy Hill. 67 On 14 February 2012, Blue Ridge provided an audit or inspection report to Transerve. 68 On 18 February 2012, Transerve advised Blue Ridge that due to the fact that drawings would need to be redone, following the comments received, there may be an impact on the overall timing and cost of the project. 69 On 21 February 2012, Transerve submitted final structural drawings to Blue Ridge. 70 That day, Mr Mackenzie emailed Mr Robert Liu at Transerve advising that the second bank guarantees had been submitted to Roy Hill. 71 The next day, 22 February 2012, Ms Butler received an English language translation of the second bank guarantees and passed it on to Blue Ridge. 72 That same day, Mr Leembruggen and Mr Walter Liu followed up Mr Mackenzie regarding signed drawings in order to proceed with construction and to complete the mockup. 73 At that time, the first progress payment under the subcontract had, on the face of the subcontract, become due and payable by Blue Ridge on 1 March 2012, that date being 30 days after the issue of the invoice for that progress payment on 31 January 2012, as provided by item 33 of Part A. 74 On 1 March 2012, the second site meeting at Mulya's premises in Surabaya occurred, which was attended by representatives of Blue Ridge, Transerve and again by Mr Gill. Ms Butler and Mr Leembruggen were present at the site but did not participate in the meeting. There were concerns expressed about how advanced the mockup was. 75 On 3 March 2012, Transerve wrote to Blue Ridge outlining its concerns, following this meeting, including about the fact that the first progress payment had not been paid and that it still did not have approved-for-construction (AFC) drawings from Blue Ridge. 76 On 6 March 2012, Blue Ridge emailed Leembruggen Butler, Mulya and Transerve attaching a tersely worded report of Mr Mackenzie outlining his concerns following the meeting of 1 March 2012. 77 On 7 March 2012, Transerve, harbouring its own concerns about Blue Ridge's performance of the subcontract, wrote to Blue Ridge noting that it could not proceed with construction in the absence of AFC drawings and answers to TQs. 78 That same day, without the knowledge of Transerve, Leembruggen Butler or Mulya, Mr Mackenzie met, at his request, with representatives of Roy Hill. Mr Mackenzie raised the possibility of Blue Ridge fabricating the second and third separable portions of the head contract in place of Transerve, citing Blue Ridge's concerns about the ability of Transerve to perform the subcontract. 79 Coincidentally, that same day Transerve, by Mr Walter Liu, emailed Mr Mackenzie requesting an urgent meeting involving Blue Ridge, Mulya, Transerve and Roy Hill. 80 The next day, 8 March 2012, Mr Mackenzie advised Mr Liu by email that Roy Hill would not be involved in any such meeting. 81 That same day, the third site meeting occurred at Surabaya, attended by representatives of Blue Ridge (on this occasion by Mr Craig Mackenzie, Mr Mackenzie's nephew), Transerve, Mulya, Mr Leembruggen and, again, Mr Gill. 82 Then on 9 March 2012, Mr Mackenzie advised Transerve that it had no chance of getting contracts for the second and third separable portions. 83 That same day, Mr Mackenzie provided a submission to Roy Hill regarding Blue Ridge's proposition that Blue Ridge should take over the second and third separable portions of the head contract. 84 On 12 March 2012, Transerve again followed up Blue Ridge regarding AFC drawings and payment of the first progress payment. 85 Mr Mackenzie emailed Mr Walter Liu of Transerve the same day, advising of the need for Transerve to continue work on the mockup unit. 86 The next day, 13 March 2012, Mr Mackenzie again met with representatives of Roy Hill in Perth. Again, this was without the knowledge of the applicants. During this meeting Mr Mackenzie raised the prospect of Blue Ridge performing all work under the subcontract, including the work then being undertaken by Transerve under the subcontract on the first separable portion. 87 From that point onwards, until the purported termination of the subcontract by Mr Mackenzie, for Blue Ridge, just over two weeks later, at the fourth and final site meeting at Surabaya, events went quickly downhill. 88 On 15 March 2012, Transerve provided a daily report to Roy Hill and Blue Ridge concerning the completed mockup. 89 That same day, Mr Mackenzie provided a proposal to Roy Hill for fabrication of the full scope of the first separable portion by Blue Ridge, again without the applicants' knowledge, and thereby effectively cutting Transerve out of the works. 90 On 16 March 2012, Blue Ridge nonetheless requested that Transerve confirm the forecasted completion dates for the first 50 units. Transerve replied that they could not estimate a date until they received signed drawings and a written commitment as to when the first progress payment would be paid, but would likely require 10 days to get the remaining items to site, plus 30 days for production of the 50 units. 91 Roy Hill wrote to Mr Mackenzie the same day, confirming receipt of his proposal for Blue Ridge to take over construction of all the units and scheduling a meeting for 18 March 2012. 92 On 19 March 2012, Roy Hill, without the applicants' knowledge, conducted an audit of Blue Ridge's facilities in Perth. 93 On 20 March 2012, Blue Ridge issued "Contract Direction No 1" to Transerve and Leembruggen Butler requiring them to "suspend" contract works due to Transerve's alleged non-performance and failure to meet the delivery schedule; and it then arranged the site meeting of 29 March 2012. 94 On 21 March 2012, Roy Hill wrote to Blue Ridge, again without the applicants' knowledge, proposing terms on which Blue Ridge could be engaged to manufacture all units. Mr Mackenzie for Blue Ridge accepted Roy Hill's terms the following day, 22 March. 95 The next day, 22 March 2012, Mr Walter Liu of Transerve wrote to Roy Hill advising Transerve had received Contract Direction No 1 to suspend works from Blue Ridge. 96 On 26 March 2012, Transerve wrote to Blue Ridge giving formal notice under the subcontract alleging that Blue Ridge was in breach of the subcontract by virtue of its failure to pay the first two progress payments. 97 On 27 March 2012, in advance of the proposed fourth site meeting on 29 March 2012, Blue Ridge requested Roy Hill to provide a "cancellation letter" to Transerve. When such a letter had not been provided by 29 March, Blue Ridge renewed its request to Roy Hill. On 29 March, Roy Hill emailed Mr Mackenzie indicating that such a cancellation letter would not be provided, and stating, in effect, that Blue Ridge's dealings with its subcontractor were its own affairs, not Roy Hill's. 98 Then, on 29 March 2012, everything came to a head - and an end - at the fourth site meeting in Surabaya. This meeting was attended by Mr Mackenzie, Mr Craig Mackenzie and Mr Richardson of Blue Ridge, Mr Walter Liu and Mr Baharudin of Transerve, Mr Leembruggen and Ms Butler of Leembruggen Butler, and Mr Suharto of Mulya. No Roy Hill representative was present. Mr Mackenzie purported to terminate the subcontract on the basis that the mockup offered by Transerve was of no use to Blue Ridge or Roy Hill. 99 The next day, 30 March 2012, Roy Hill wrote to Blue Ridge confirming acceptance of the proposal to fabricate the first separable portion of the head contract at Blue Ridge's facilities in Perth. 100 On 2 April 2012, Transerve wrote to Blue Ridge rejecting the purported termination of the subcontract and notifying its intention to continue performing under the subcontract, and demanding payment of the first and second progress payments it then claimed were due under the subcontract, totalling AUD3,401,800. 101 The next day, 3 April 2012, Mulya wrote to Blue Ridge, requesting payment of monies allegedly owing to it. 102 On 10 April 2012, Blue Ridge wrote to Transerve formally terminating the subcontract and advising that Roy Hill had cancelled its contract with Blue Ridge. 103 It was in these broadly stated factual circumstances that Transerve, Mulya and Leembruggen Butler commenced this proceeding against Blue Ridge and Mr Mackenzie in 2012. 104 After the proceeding was commenced, Blue Ridge went into voluntary liquidation. Subsequently a court-appointed liquidator was appointed by the Court on the application of Transerve. The claims against Blue Ridge are no longer pursued by the applicants. A cross-claim against Transerve, made with the voluntary liquidator's leave, was withdrawn following the appointment of a court-appointed liquidator. 105 Consequently, at trial, pursuant to the third amended statement of claim, the applicants sought relief against Mr Mackenzie only, alleging he is liable to each of them personally for contraventions of the Australian Consumer Law (ACL) (which is Sch 2 to the Competition and Consumer Act 2010 (Cth)) and as a person involved in contraventions of the ACL by Blue Ridge. They allege Mr Mackenzie engaged in misleading and deceptive conduct, unconscionable conduct, was involved in similar contraventions by Blue Ridge, and also that he interfered with contractual relations. Mr Mackenzie denies all claims against him. 106 The key issues in the proceeding are whether: (1) Mr Mackenzie made misleading precontractual representations to the applicants about Blue Ridge's financial capacity and experience; (2) Mr Mackenzie made misleading second bank guarantees representations to the applicants that the second bank guarantees had been accepted by Roy Hill and/or were acceptable to Roy Hill; (3) Mr Mackenzie made misleading Roy Hill termination representations to the applicants in relation to the termination of Blue Ridge's contract by Roy Hill; (4) Mr Mackenzie and Blue Ridge engaged in unconscionable conduct in purporting to terminate and terminating the subcontract; (5) Mr Mackenzie interfered with contractual relations; and (6) if Mr Mackenzie is liable to the applicants, the applicants have established loss and damage as claimed.

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Cases Cited (38)