BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd
[2016] QSC 55
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- Unreported Judgment
- Appeal Discontinued (QCA)
- BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd[2016] QSC 55
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BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd[2016] QSC 55
BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd[2016] QSC 55
SUPREME COURT OF QUEENSLAND
CITATION: | BM Alliance Coal Operations Pty Ltd & Ors v BGC Contracting Pty Ltd [2016] QSC 55 |
PARTIES: | BM ALLIANCE COAL OPERATIONS PTY LTD (first plaintiff) v BGC CONTRACTING PTY LTD ABN 88 008 766 407 (defendant) |
FILE NO: | BS6603 of 2013 |
DIVISION: | Trial Division |
PROCEEDING: | Interlocutory Application |
DELIVERED ON: | 17 March 2016 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 11 February 2016 |
JUDGE: | Mullins J |
ORDER: | The defendant’s application filed on 18 December 2015 is dismissed. |
CATCHWORDS: | PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – STRIKING OUT – DISCLOSING NO REASONABLE CAUSE OF ACTION OR DEFENCE – where the plaintiff owner entered into a contract with the defendant contractor to construct an earthworks dam – where the plaintiff terminated the contract – where the plaintiff’s claim is for damages for breach of contract and repudiation – where the plaintiff alleges it is necessary to rectify the defendant’s breaches of the contract specified in the statement of claim and claims the costs of rectification as loss and damage – where the defendant applies to strike out paragraphs of the plaintiff’s statement of claim on the basis that the paragraphs failed to assert a causal nexus between the alleged breaches and the items of loss or damage – where the plaintiff relies on the application of the “ruling principle” for the assessment of damages for breach of contract – whether sufficient material facts are pleaded by the plaintiff to support the cause of action for damages for breach of contract Bellgrove v Eldridge (1954) 90 CLR 613, considered Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56, considered Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 310 ALR 113, considered Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8, considered Willshee v Westcourt Ltd [2009] WASCA 87, considered |
COUNSEL: | G Beacham QC with B O'Brien for the plaintiffs R A Holt QC with L Clark for the defendant |
SOLICITORS: | Herbert Smith Freehills for the applicants McCullough Robertson Lawyers for the defendant |
- The defendant applies to strike out paragraphs 19 to 23 of the plaintiffs’ statement of claim filed on 23 April 2015 or, in the alternative, for an order that the plaintiffs provide further and better particulars in respect of paragraphs 19(d) and 20 to 22. The application is opposed on behalf of the plaintiffs. There is a dispute between the parties as to what material facts must be pleaded in respect of the plaintiffs’ claim for damages for breach of contract arising from works performed by the defendant (an earthworks contractor) in constructing an earthworks dam and associated works at Goonyella Riverside Mine near Moranbah.
Background to plaintiffs’ claim
- The plaintiffs are joint venture parties which own the mine and the first plaintiff is the management company which operates the mine for them. The relevant contract was entered into between the first plaintiff and the defendant in December 2010. In December 2011 the first plaintiff terminated the contract. At the time the termination took effect in January 2012, the construction of the dam was incomplete.
- This proceeding was commenced by the plaintiffs in July 2013 claiming damages for breach of contract and repudiation. The breaches alleged in paragraphs 14 to 18 of the statement of claim are the placement of “lots” of soil in the embankment of the dam which do not comply with the specifications in the contract, along with the late delivery or non-delivery of the test results and reports required under the contract which were required to demonstrate the compliance of the lots with the specifications. The plaintiffs seek the costs of rectifying the non-compliant lots and the additional costs of completing the dam.
Progress of the pleadings
- Paragraph 19 of the statement of claim (omitting the particulars) alleges:
“19.By reason of the breaches of the Contract set out above:
- The soil placed in the Embankment in the areas described in paragraph 14 above does not comply with the requirements of the Contract;
- The first plaintiff cannot determine whether the soil placed in the Embankment in the areas described in paragraph 15 above complies with the Contract;
- The first plaintiff did not become aware of the matters set out in (a) and (b) above, until further soil had been placed in the Embankment on top of the areas which suffer from the deficiencies described in (a) and (b) above;
- The work performed under the Contract does not comply with the Contract.”
- Paragraph 20 then pleads that by reason of the defendant’s breaches of contract referred to in paragraphs 14 to 18, the first plaintiff has suffered loss and damage, the measure of which is the cost of rectifying the breaches referred to in paragraphs 14 and 15, or alternatively 14 and 16. Paragraph 21 contains an alternative pleading on the basis that it is the joint venture parties which have suffered the loss and damage and the first plaintiff is entitled to sue for and recover that loss for the benefit of the joint venture parties.
- Paragraph 22 then sets out what the plaintiffs allege is necessary to be done in order to rectify the breaches in these terms:
“In order to rectify the breaches referred to in paragraphs 14 and 15, or alternatively 14 and 16, above, it is necessary to:
(a)remove the work performed by the defendant that does not comply with the Contract, and re-perform that work in accordance with the Contract (Cost of Rectification);
(b)alternatively:
(i)alter the batter of the upstream shoulder from 1V:3H to 1V:4H, and install a HDPE liner to the upstream shoulder and the floor of the Dam impoundment area (Alternative Cost of Rectification Option 1);
(ii)alter the batter of the upstream shoulder from 1V:3H to 1V:4H, completely remove and replace the downstream shoulder and increase the thickness of the filter blanket layer (Alternative Cost of Rectification Option 2).”
- The respective costs of the rectification works are alleged in paragraph 23.
- The defendant has pleaded to the respective allegations made in paragraphs 14 to 18 of the statement of claim and in paragraph 21 of the defence denies each of the allegations alleged in paragraph 19 of the statement of claim.
- In paragraph 22 of the defence, the defendant responds to paragraph 20 of the statement of claim (on the assumption the defendant breached the contract as alleged by the first plaintiff) in these terms:
“(a)no loss was suffered by the first plaintiff;
(b)the pleaded breaches of contract did not render the Dam (so far as completed to the time of termination) unfit for its intended purpose;
(c)the pleaded breaches of contract do not justify the expense, time and effort of demolishing and rebuilding the Dam;
(d)the time and cost involved in demolishing and rebuilding the Dam would be out of all proportion to the benefit gained;
(e)in the premises, demolishing and rebuilding the Dam is not a reasonable response to the pleaded breaches of contract.”
- The same allegations are made by the defendant in paragraph 23 of the defence in response to paragraph 21(a) of the statement of claim.
- In paragraph 24 of the defence, the defendant denies the allegations pleaded in paragraph 22 of the statement of claim on the basis that it is not necessary for the plaintiff to undertake any of the work pleaded in paragraph 22 as a consequence of the defendant’s performance of the contract and alleges that any requirement to re-perform work performed by the defendant had been caused by the matters that are then set out in paragraph 24(b) of the defence.
- There is a detailed response by the plaintiffs to paragraphs 22 and 23 of the defence which is set out in paragraph 24A of the reply. In particular, the plaintiffs pleaded in paragraph 24A(b) that:
“(b)in relation to paragraph 22(b) and 23(a)(ii) the plaintiffs:
- say that the consequence of the breaches of contract set out in the further amended statement of claim is that the Dam could not be certified for use;
- deny the allegation and believe it to be untrue because of the material fact set out in sub-paragraph (i) above;”
The defendant’s complaint
- The defendant’s main complaint about paragraphs 19 to 23 of the statement of claim is that there is a failure to assert a causal nexus linking each alleged breach of contract in paragraphs 14 to 18 of the statement of claim with the loss and damage flowing from each breach.
- The plaintiffs rely on Bellgrove v Eldridge (1954) 90 CLR 613 to assert in response that no further facts need be pleaded as the first plaintiff is entitled to insist upon performance of the contract and adherence to the standards of construction required by the contract and the loss for a failure to comply with those standards is the sum of money required to make the work conform with the contractual standard.
- On the strike out application, the issue is whether, in respect of a cause of action for damages for breach of a contract, it is necessary for the plaintiffs to plead any additional material facts in the statement of claim showing the causal link between the acts complained of and the loss claimed.
- Both parties’ submissions addressed authorities relevant to identifying the material facts to be established to recover damages for breach of contract. It is appropriate therefore to consider the effect of these authorities.
The relevant authorities
- In Bellgrove the defendant owner counterclaimed against the plaintiff builder for breach of the building contract and claimed damages on the basis the house was worthless. The trial judge had found that there had been “a very substantial departure from the specifications” that resulted “in grave instability in the building”. The issue before the trial judge was whether there was available for remedying the defect in the construction of the foundations any practical solution other than the demolition of the building and its re-erection in accordance with the plans and specifications. Judgment was given for the defendant for the amount that represented the cost of demolishing and re-erecting the building in accordance with the plans and specifications together with certain consequential losses less the demolition value of the house and moneys unpaid under the contract.
- The court observed at 617:
“In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.”
- It is apparent from the discussion by the court of the assessment of damages in Bellgrove that it was a question of fact as to what work was necessary to remedy the defects in the building to produce conformity with the plans and specifications and that not every breach of a building contract requires the removal or demolition of some part of the structure. The court noted at 618, as was held to be the position in Bellgrove, “there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place”.
- The court noted a qualification of reasonableness to the rule that the measure of damages is the cost of the remedial work required to achieve conformity with the plans and specifications in these terms, at 618:
“The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.”
- Bellgrove was considered by the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 which concerned the measure of damages recoverable by a landlord for the breach by the tenant of clause 2.13 of the lease of business premises pursuant to which the tenant had covenanted not to make, or permit to be made, any substantial alteration or addition to the demised premises, without the prior written approval of the landlord (which consent was not to be unreasonably withheld or delayed). The lease was for a term of 10 years that commenced on 1 February 1997. Without the permission of the landlord, the tenant in July 1997 commenced a massive refurbishment of the foyer which resulted in the removal of the existing foyer and the construction of a high quality foyer made from granite. At first instance, judgment was given for the landlord for damages of $34,820 which was assessed at the diminution in the value of the building for breach of clause 2.13. The landlord successfully appealed to the Full Court of the Federal Court of Australia and was awarded damages by the majority of $1.38m based on the cost of reinstatement approach. The appeal to the High Court was unsuccessful.
- The judgment of the High Court at [12] noted that clause 2.13 was an express negative covenant that served “a function of considerable practicable utility in relation to the Landlord’s capacity to protect its legitimate interest in preserving the physical character of the premises leased.” The court also noted at [12] that the landlord would have been able to obtain the assistance of equitable remedies to prevent a substantial alteration being made to the premises by the tenant without prior written consent. In respect of the tenant’s submission that the appropriate measure of damages was the diminution in value of the reversion, the court observed at [13]:
“The assumption underlying the Tenant’s submission takes no account of the existence of equitable remedies, like decrees of specific performance and injunction, which ensure or encourage the performance of contracts rather than the payment of damages for breach. It is an assumption which underrates the extent to which those remedies are available. However, even if the assumption were correct it would not assist the Tenant. The Tenant’s submission misunderstands the common law in relation to damages for breach of contract. The ‘ruling principle’, confirmed in this Court on numerous occasions, with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman:
‘The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed’.” (footnotes omitted)
- The court therefore held at [15] that “the Landlord was contractually entitled to the preservation of the premises without alterations not consented to; its measure of damages is the loss sustained by the failure of the Tenant to perform that obligation; and that loss is the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached”. The court also noted at [15] the similar approach of the court in Bellgrove at 617.
- The tenant relied on the qualification referred to in Bellgrove. The court noted, however, that on the basis of the example which the court in Bellgrove had given at 618 of when the qualification to the ruling principle would apply that it tended “to indicate that the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances. It was also noted at [17] that the “reasonableness” exception was not found to exist in Bellgrove and nothing in the reasoning in Bellgrove suggested that the course which the landlord proposed in Tabcorp was unnecessary or unreasonable.
- The court in Tabcorp concluded at [19]-[20]:
“[19]Further, the Landlord correctly submitted that the Tenant’s submission misconstrued what this Court said in Bellgrove v Eldridge. The ‘qualification’ referred to in the passage quoted above that the ‘work undertaken be necessary to produce conformity’ meant, in that case, apt to conform with the plans and specifications which had not been conformed with. Applied to this case, the expression ‘necessary to produce conformity’ means ‘apt to bring about conformity between the foyer as it would become after the damages had been spent in rebuilding it and the foyer as it was at the start of the lease’. And the Landlord also correctly submitted that the requirement of reasonableness did not mean that any excess over the amount recoverable on a diminution in value was unreasonable. The Tenant’s submissions rested on a loose principle of ‘reasonableness’ which would radically undercut the bargain which the innocent party had contracted for and make it very difficult to determine in any particular case on what basis damages would be assessed. That principle should not be accepted.
[20]If the benefit of the covenant in cl 2.13 were to be secured to the Landlord, it is necessary that reinstatement damages be paid, and it is not unreasonable for the Landlord to insist on their payment.” (footnotes omitted)
- Bellgrove therefore remains authoritative for the application of the ruling principle where a builder breaches a contract by substantially departing from the specifications.
- Both Bellgrove and Tabcorp were applied in Willshee v Westcourt Ltd [2009] WASCA 87. There was an implied term in the building contract for a house that the limestone for the external cladding would be of high quality. The owner Mr Willshee claimed that the builder Westcourt breached that term by using inferior or second quality limestone. That claim was upheld, but Mr Willshee was awarded damages by the trial judge only for the cost of cleaning and sealing the limestone and some repainting. Mr Willshee succeeded on appeal to recover damages for the amount required to put him in the position of having a house constructed using limestone which was of high quality. The damages reflected the cost of demolishing the exterior wall and replacing it with limestone which was of high quality. In considering the application of the qualification of unreasonableness, Martin CJ (with whom the other members of the court agreed) at [70] found that Westcourt’s breach “was a serious and significant breach, which had a significant impact upon the rate at which the external cladding of the house weathered and deteriorated, and which has had a significant impact upon the appearance of the house”. It was also noted by Martin CJ at [72] that the party wishing to rely upon the qualification to the “ruling principle” of damages carries the onus of proving the facts relevant to its application.
- Tabcorp was followed in Clark v Macourt (2013) 253 CLR 1, in which the ruling principle was applied in assessing damages for breach of warranty in respect of some of the assets that were sold by the vendor company to Dr Clark. Dr Clark had agreed to purchase from the vendor company the assets attached to an artificial reproductive technology business including frozen sperm. The vendor warranted that it would provide Dr Clark records for the frozen sperm that complied with specified guidelines. Of the 3,513 straws of frozen sperm that were delivered, only 504 of those had compliant records and were therefore usable by Dr Clark in her artificial reproductive technology business. Dr Clark therefore had to acquire usable frozen sperm from a supplier in the United States. She charged her patients a fee which covered the costs in acquiring the usable frozen sperm from the United States. The parties agreed that Dr Clark should have expected to receive, in accordance with the warranty, an additional 1,996 compliant and usable sperm straws, apart from the 504 that were usable. At first instance damages were assessed at almost $1.3m as the value of the 1,996 compliant sperm straws as at the date of completion. The appeal had been allowed by the New South Wales Court of Appeal on the basis that Dr Clark had suffered no loss. Dr Clark appealed to the High Court.
- By majority, the High Court allowed the appeal and reinstated the assessment of damages at first instance on the basis that damages for breach of contract were to put the promisee, so far as money could do it, in the same situation, as if the contract had been performed as promised (at [7], [26] and [106]). As damages were assessed at the date of breach and not at the date of trial, the subsequent dealings by Dr Clark left her neither better nor worse off than she was before she undertook the transactions (at [19], [37] and [128]-[129]).
- The majority were therefore in agreement that the ruling principle governed the assessment of damages. Keane J noted at [107] that in Bellgrove the court at 617-618 “explained that the practical operation of the ruling principle may vary depending on the commercial context; but that the principle is always applied with a view to assuring to the purchaser the monetary value of faithful performance by the vendor of the bargain”. Keane J then stated at [109]:
“The value to be paid in accordance with the ruling principle is assessed at the date of breach of contract, not as a matter of discretion, but as an integral aspect of the principle, which is concerned to give the purchaser the economic value of the performance of the contract at the time that performance was promised. In this way, the measure of damages captures for the purchaser the benefit of the bargain and so compensates the purchaser for the loss of that benefit. (footnote omitted)
- The defendant relies on a statement made by Leeming JA (with whom the other members of the court agreed) in Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 310 ALR 113 in dealing with what the plaintiff in a building case must prove to establish damages for breach of contract where there is a “global claim” for damages. Leeming JA confirmed at [186] that “there are no special legal principles that mean the plaintiffs in ‘building cases’ win or lose differently from plaintiffs in other classes of contractual case”. Leeming JA then stated at [187]-[188]:
“[187]A plaintiff seeking damages will fail unless he, she or it establishes breach, causation and loss.
[188]True it is that some decisions on breach of contract in building cases have used the language of ‘global claim’. Contrary to what was at the forefront of Mainteck’s written and oral submissions, this does not involve any special principles of fact or of law.”
- There is nothing in these general observations by Leeming JA in Mainteck which detract from the authority of Bellgrove and Tabcorp in the application of the ruling principle to the assessment of damages for breach of contract.
Are all material facts pleaded in the statement of claim?
- The plaintiffs are not required to plead that they are seeking for the damages to be assessed by the application of the ruling principle, as that is law that applies to the plaintiffs’ claim in accordance with the relevant authorities. A subsidiary complaint which the defendant’s solicitors had made in the r 444 letter dated 12 November 2015 was that for the costs of rectification work to be recoverable as damages for breach as the plaintiffs had pleaded in their statement of claim “the dam must have been deficient in some way as a result of the alleged breaches” and asserted that the plaintiffs need to plead that each of those breaches created a deficiency in the dam and what the deficiency was. In similar vein, the defendant submitted on this application that no practical consequence from any defect in the dam, such as the dam not being reasonably fit for its purpose, is pleaded. The subsidiary point raised by the defendant is not supported by the relevant authorities.
- In a claim for damages for breach of a construction contract in reliance on Bellgrove, the statement of claim must plead the relevant provisions of the contract, identify the breaches and then plead the action the plaintiffs assert must be taken to rectify the breaches to achieve conformity with the contract. This must be followed by the specification of the loss and damage arising from the costs of rectification.
- The defendant’s submission which is critical of paragraph 20 (and also paragraph 21) of the statement of claim asserts that these are the paragraphs alleging loss and damage arising from the alleged breaches and that no attempt is made by the plaintiffs to identify or plead the causal nexus between breaches and the alleged loss and damage.
- It is a mistake to focus on paragraphs 20 and 21 of the statement of claim, without having regard to the allegation in paragraph 22. It is worth observing that paragraphs 20 and 21 appear to be out of order with paragraph 22.
- It is paragraph 22 in which the allegation is made that in order to rectify the breaches referred to in paragraphs 14 and 15 (or 14 and 16) it is necessary to remove the work performed by the defendant that did not comply with the contract and re-perform the work in accordance with the contract which is described as the cost of rectification. Two alternative methods of rectification are then pleaded in paragraph 22(b). Paragraph 20 (and therefore paragraph 21) logically follow with the claim for that cost of rectification as the loss and damage for the breaches of the contract. The qualification of the reasonableness of the proposed rectification as an issue has then been raised in paragraph 22(e) of the defence, as contemplated by Willshee at [72].
- The defendant’s complaint that the plaintiffs should plead a causal nexus between each alleged breach of contract with a particular item of loss or damage is unfounded, when the plaintiffs are seeking to recover the cost of the work that is necessary to remedy all the non-compliances with the contract, so that the first plaintiff is in the position, as if the contract had been performed as promised.
- The defendant’s complaints about paragraphs 19 to 23 of the statement of claim are misconceived in light of the plaintiffs’ reliance on the application of the ruling principle to the assessment for damages for breach of contract. All material facts to support the claim have been pleaded. The application to strike out paragraphs 19 to 23 of the statement of claim cannot succeed.
Request for particulars
- In respect of paragraphs 19(d), the defendant seeks full particulars of the “work performed under the Contract” which is said not to comply with the contract. That request takes paragraph 19(d) out of context. It is the conclusion to the pleading of the other matters in paragraphs 19(a), (b) and (c). Paragraph 19 has otherwise been previously particularised in an adequate manner.
- The request for further particulars of paragraphs 20 and 21 of the statement of claim in respect of the loss and damage alleged to have been caused by each of the defendant’s alleged breaches of contract is misconceived in light of the reliance by the plaintiffs on the application of the ruling principle. For the same reason the defendant’s request in respect of the facts, matters, circumstances and things relied on by the plaintiffs in support of the allegation that the alleged necessity to rectify was caused by the alleged breaches is also misconceived. The balance of the particulars that are sought in respect of paragraph 22 of the statement of claim is in respect of matters that have already been sufficiently pleaded and particularised by reference to the breaches referred to in paragraphs 14 and 15 (or 14 and 16) of the statement of claim. The request for particulars appears to have been drafted, without considering the content and context of the other relevant paragraphs in the statement of claim.
- The alternative claim in the application for an order for further and better particulars must also fail.
Orders
- It follows that the defendant’s application filed on 18 December 2015 must be dismissed.
- Subject to hearing submissions from the parties, I consider that costs should follow the event.