East Meets West – A View from Australia

Robert Fenwick Elliott1

A Paper for the International Construction Law Conference, London

Monday 24th September 2012

The purpose of this paper is to make a few observations about how delay analysis is currently being treated in Australia.2.

This paper will look particularly at the recent decision in Alstom v Yokogawa (No. 7)3, which many construction lawyers will find somewhat remarkable. It certainly represents a high water mark for a particular approach to delay issues, and perhaps what the statisticians might call an “outlier”. To understand it, a brief introduction may be helpful.

First, although Australia occasionally leads the way in construction law issues (the landmark decision on the nature of quantum meruit in Pavey & Matthews v Paul is an example), more often or not, commercial and legal practice in Australia tends to lag somewhat behind the UK.

Secondly, perhaps for this reason and perhaps as a result of a competitive streak engendered by vast amounts of sport, bespoke construction contracts in Australia are often extraordinarily aggressive. In particular, it is by no means uncommon to see notice provisions, often expressed as conditions precedent to extensions of time, that are intended to be and are in fact practically impossible to comply with.

Thirdly, there has never been a Lady Thatcher, nor any need for her, in Australia. The natural resources are so immense that if Australia wants some more wealth, it simply has to grow some more or dig it up. For this reason, both the political and legal climate is generally on the “soft left” and there is very little of the “You have made your bed, now lie in it” that is now perhaps increasingly detectable in UK decisions. On the contrary, the impact of the so called “Security of Payment” legislation which operates in the east of the country4 is such that for the purpose of

1 Barrister & Solicitor of the Supreme Court of Australia, Lawyer of the Supreme Court of New South Wales, Partner Fenwick Elliott Grace (Adelaide), Founding Partner of Fenwick Elliott LLP (London)

2 Despite its location, Australia regards itself, as any rate for legal purposes, as part of the western world. Certainly, it is very much a part of the common law world. For the purpose of this session, however, Australia is treated as “east”.

3 [2012] SASC49

4 All States and Territories, in fact, except the economic powerhouses of Western Australia and the Northern Territory. P a g e | 2 adjudication claims for payment, all contractual mechanisms regulating payment under construction contracts are ignored.

Finally, there is something of an evaporation effect. Australians with the most marked and anarchic tendencies tend to follow Barry McKenzie to Europe or elsewhere. Those that remain are often all the more conservative, and in particular Australians at home are surprisingly enamoured of regulation.

Against this background, it is perhaps hardly surprising that the Society of Construction Law Delay & Disruption Protocol has proved attractive.

The modern Australian approach to delay analysis starts perhaps with Kane Constructions Pty Ltd v Sopov [2005] VSC 237 (30 June 2005). That case that set the scene in demonstrating that modern Australian courts are not impressed by mere impressionistic approaches to delay analysis, but that instead were looking for the sort of detailed and logical analysis identified by McAlpine Humberoak v McDermott, as now implemented by the modern software tools:-

661 Before turning to the individual EOTs, it is instructive to consider the principles generally applied with respect to EOT claims. An adjustment to the time of practical completion is only available where there has been an actual delay and the delay was caused by one of the events set out in the contract. Any delay that does not affect practical completion is irrelevant. Further, where the contractor has been delayed by one of the reasons set out in cl.35.5 of the contract, for example, delay caused by an act of the principal in combination with another valid delay, then the situation of concurrency may exist and the contractor would not be entitled to an additional extension of time; it would be calculated as if just one event of delay had occurred.

662 The approach to be applied by the courts with respect to EOT claims was considered in McAlpine Humberoak Ltd v McDermott International Inc (No.1),[68] a UK Court of Appeal case….

668 Lloyd LJ was in this way able to provide strong guidance on the appropriate approach to be taken to these sorts of cases. The analysis should be principally a factual one, with good records in support. The relevant events and their effect should be looked at according to the time in which they occur and in the context of the work actually going on at the time. In other words, global claims are bound to fail…

673 McAlpine outlines the general approach which should be taken with respect to EOT claims. More specifically, with EOT claims, the burden of proof is on the claimant to establish actual delay. Whilst theoretical calculations, particularly those contained in computer software programs, are useful tools in the building industry, generally further information will be required. Whilst there may be assumptions and calculations, it is necessarily a matter of the claimant proving in the proper way that there has been actual delay such as to substantiate claims for reimbursement.[84]…

676 For the purposes of the EOT component of its claim, the plaintiff, in this case, relied upon the evidence of Tivendale and, also, the expert evidence of Lynas. Evidence was also given by Dordevic and Qi Shao with respect to the set-out and shop drawings and the impact upon delay; Skarajew as to events on-site through his diary; Omond and, also, Lynas as to the technical analysis of the EOTs and the delays. The evidence of Tivendale in this regard was received subject to objection. The defendants argued that Tivendale was not on- P a g e | 3

site, did not have first-hand knowledge of the delays and the circumstances that allegedly caused those delays and that he lacked the expertise to give such evidence. I do not accept the objection. Clearly Tivendale had expertise in light of his professional qualifications and experience. As the project manager he also had experience with respect to the site itself. More particularly, Tivendale had experience in relation to the application of software utilised on modern building sites. In the context of a substantial building work it is inconceivable in the modern day and age that technological resources could not be utilised. The Court of Appeal in McAlpine was not concerned with the software support which was so obviously available to the plaintiff in the present case. In my view, the evidence relied upon by the plaintiff was appropriate and admissible.

Eighteen months later in 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 1) [2006] VSC 490 (14 December 2006) the Court endorsed the approach that had been adopted by the arbitrator in that case, in which the arbitrator had looked at the analysis in terms of whether it satisfied the guidelines of the SCL protocol in considering whether it was reasonable.

55 Ultimately the Arbitrator concluded:

"194. The 15 August 2000 issue of the Go Mode Programme does broadly portray the proposed construction sequence and intent. The development of this programme by Mr Lynas into Go Mode C and then as finally revised to Go Mode D:

(a) sits comfortably with the as-built programme agreed by the Experts;

(b) whilst not the Contractor’s Program under cl 33.2, is a programme (developed from an Abigroup construction programme) which is capable of being used to assess the effect of identified delays; and

(c) generally satisfies the guidelines for retrospective delay analysis published by the UK Society of Construction Law [2002].

In my opinion, therefore, the Go Mode D Programme does provide a reasonable basis for assessing the effect of the claimed delays using the programming methodology agreed by the Experts, which is earlier discussed in Paragraph 179."

I am not persuaded that either this process of reasoning or these conclusions demonstrate misconduct.

It has not been only in Australia that the eastern world has been having regard to the protocol. Thus for example in Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners International Ltd & Anor [2007] EWHC 918 (TCC) (20 April 2007) (the case’s genesis was in Hong Kong and the Philippines, albeit eventually decided in London, the court said:

2. In these proceedings Mirant-Asia Pacific Construction (Hong Kong) Limited, referred to as "Mirant", claims against Ove Arup and Partners Hong Kong Limited ("Arup") damages for breach of contract and negligence in relation to a power station constructed at Sual in the Philippines.

123. It is important to have in mind that there may be more than one critical path. The Society of Construction Law Delay and Disruption Protocol (page 54) confirms: P a g e | 4

"There may be more than one critical path depending on workflow logic of delay to the progress of any activity in the critical path which, without acceleration or resequencing, may cause the overall Project to be extended."[1] And hence to the Alstom case, which was decided in South Australia, and in particular Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49

The first notable point about the decision was that a novel resource-based analysis method was rejected, apparently not on its merits, but rather because it is not mentioned in the SCL protocol as a recognised method of delay analysis. It was also relevant that it was not mentioned in Keith Pickervance’s book, or any other of the texts. The relevant passages are as follows:-

412 As is the case with any professional discipline, there are numerous key terms to be found in the programming world that require some definition and understanding. A key term, and one that finds its way in to the EC&I contract in various places, is “critical path”. Both the head contract and the EC&I contract required these parties to prepare what is known as a critical path program. Mr Lynas referred 5to the definition in the Society of Construction Law’s Delay and Disruption Protocol (“the Protocol”).6

568 The implication of a term that the parties to a commercial contract agree to do all that is necessary to be done on their part to enable the other party to have the benefit of the contract is well recognised and is not controversial….

571 On that basis, which I accept, the implied duty to co-operate cannot overrule the expressed provisions of the contract.7

572 In summary, it would appear that the following principles are established:

(1) It is a general rule, applicable to every contract, that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract;8

(2) Where, in a written contract, both parties have agreed that something shall be done which cannot be effectually done unless both concur in doing it, the proper construction of the contract is that each party agrees to do all things necessary to be done on its part to enable that, even though there are no express words to that effect;9

(3) Where the performance of obligations under a contract requires co-operative acts, the parties must have mutual duties to comply with the reasonable request for performance made by the other. What is reasonable will depend on the circumstances.10

5 Report of Tracey, Brunstrom & Hammond dated 23 January 2009, Exhibit P438, Appendix E.

6 Exhibit P450. 7 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607-608; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 368

8 Butt v McDonald (1896) 7 QLJ 68, 70-71; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607-608; Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 449-450

9 Mackay v Dick (1881) 6 App Cas 251, 263

10 Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 P a g e | 5

The implication of a duty to cooperate is not novel, but the detailed three part formulation of the rule goes rather further than the usual authorities, and in this case the impact was particularly far reaching.

574 The implied obligation not to prevent or hinder performance by the other party to the contract may be seen as the corollary of the duty to co-operate. It is a duty which is again well recognised.11

Again, the implied duty not to prevent or hinder performance is reasonably well established. It does not appear to have added much to the duty to cooperate here.

585 The basis of the implication of an obligation of good faith was also discussed obiter by Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd.12 Finn J considered that the duty of good faith and fair dealing should apply to all contracts, while his Honour acknowledged that others see it only as an implication in particular classes of contract. His Honour also considered that the implication could not be excluded by an “entire agreement” clause. I respectfully agree with both propositions…

593 As to the meaning of good faith in this context, the New South Wales Court of Appeal in Burger King cited with approval, as did Sheller JA in Alcatel Australia Ltd v Scarcella,13 an extra-curial statement of Sir Anthony Mason that the concept of good faith “embraced no less than three related notions”:

(1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself);

(2) compliance with honest standards of conduct; and

(3) compliance with standards of contract which are reasonable having regard to the interest of the parties.14

The notion that a duty of good faith applies to all contracts is deeply controversial. A more conservative analysis would suggest that the question of good faith should be analysed, not by reference to contracts, but by reference to particular contractual obligations. Thus, where a party reserves to itself, or to one of its own employees, the role of superintendent, it is pretty well established that there is a duty of good faith in relation to such certification, but much more questionable as to whether that duty of good faith applies to other contractual obligations.

In this decision, the “three related notions”, and particularly the last of them, would have very far reaching implications if universally adopted, in requiring a generalised standard of reasonable conduct in all commercial dealings. An allegation of failure to act reasonably could be made in pretty much every construction project.

11 Marshall v The Colonial Bank of Australasia Ltd (1904) 1 CLR 632; London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51.

12 [2003] FCA 50, [915]-[922]; (2003) 128 FCR 1, 208-209.

13 (1998) 44 NSWLR 349, 369.

14 [2001] NSWCA 187, [171]; (2001) 69 NSWLR 558, 570. See also Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. P a g e | 6

The suggestion that the common law, at any rate in Australasia, is moving more closely towards a Civil Law approach to good faith is evidenced by Good Faith, Unconscionability Reasonableness – What on earth do they have to do with Construction Law? being a paper presented to the Fourth International Construction Law Conference in Melbourne in May 2012 by Tómas Kennedy-Grant QC.

606 I do find, however, that the implied obligation to co-operate, the implied obligation not to prevent or hinder YDRML’s performance of the EC&I contract and the implied obligation to act in good faith had the following effects, in this case:

 That Alstom was required to provide regularly to YDRML its updated and accurate Works Program showing at least all logic links to YDRML activities, all relevant interface and access information and the critical paths to the respective Milestone Dates, and particularly the Relevant Scheduled Dates;  That that should have been provided whenever any material changes occurred which might affect YDRML’s program; and  That the programs provided should have been in Primavera P3 form and in a format capable of being integrated with YDRML’s own Primavera P3 program.

The most remarkable aspects of this case are the far reaching and detailed obligations that were found to arise out of the implied good faith obligation. It is rare in a major project for a head contractor to share all of its planning information with its subcontractors, and even when the planning information is shared, it is usually and deliberately in the form of PDF printouts, rather than Primavera or Microsoft Project file form, specifically so that the subcontractor cannot know about the logic lying behind whatever the head contractor is demanding by way of performance. This dictum may well, therefore, provide a basis for subcontractors in many cases to mount damages claims against head contractors in cases of delay.

1262 It seems to me that Mr Lynas’s inquiry based on the instruction by which he was confined was an entirely pointless inquiry.

1263 Much of Mr Lynas’s report was in fact written by Mr Timothy Ash and Mr Chris Nicolas. Mr Lynas wrote the text of the report but Mr Ash conducted the analysis and review of delays in the Appendices. Mr Ash was not called. Mr King appears to have analysed and completed the whole of his report.

1264 It is also a matter of some concern that Mr Lynas did not adequately discharge or was not permitted to discharge his responsibility to the Court as an expert…

Mr Lynas’s previous reputation as a leading delay analyst in Australia did not immunise him from criticism in this case.

1265 The methodology used by Mr Lynas in analysing delays for Stage 1 Mechanical Completion was a process known as Resource Analysis to which reference will later be made…

1282 The first problem with this method is that it is not an accepted method of delay analysis for construction programming practitioners. Mr King had never encountered this particular method before. It is not mentioned in the Protocol as a recognised method of delay analysis. Mr Lynas also agreed that this method, to the best of his recollection, was not mentioned in the text Delay and Disruption in Construction Contracts by Keith Pickavance, which Mr Lynas himself described as the most comprehensive work on the subject of which he is aware, and an extract from which was relied on by Alstom for other purposes. Nor was Mr Lynas aware of any documented reference to this particular method in any other text on construction law. It seems to have been a creature of TBH alone. I am satisfied that the Resource Analysis method is not a method recognised within the engineering profession. It should be rejected for that reason alone. P a g e | 7

The moral of this judgment is that it is now very dangerous in Australasia for a delay analysis to proceed on anything other than one of the well established routes as set out in the SCL Delay and Disruption Protocol.

The “weasel words” so frequently deployed now by way of entire agreement clause proved entirely ineffective;

1519 Article 2.2.1 is a typical entire agreement clause designed to exclude any previous agreements and representations. Article 2.2.2 is permissive as to one method of variation. It is not mandatory and does not provide that the contract may only be amended by written agreement of the parties. In any event, there is nothing to prevent a written contract from being varied by subsequent oral agreement. Even a contract under seal may be modified or discharged by oral agreement.15 If the contract provided that it could only be amended in writing, such a stipulation would also be ineffective.16

The effect of the East Coast Model Security of Payment Legislation in Australia is to drive a coach and horses through virtually all contractual provisions designed to stem a contractor’s claims to payment, and the Alstom case provides a vivid example of the courts also giving contractual regimes very short shrift.

In adjudications, “delay damages” (the Australian term broadly equivalent to loss and expense, often in Australia liquidated at a fixed amount per day or per week) are recoverable and there is nothing to stop a claimant putting a delay analysis in by way of payment claim, whereupon the respondent will, depending on the state, have either two weeks or three weeks to put in a full response.

Within the court system, my own experience has been that delay claims succeed without any need for an expert to be instructed. The delay analysis can be pleaded simply by way of particulars of the claim to entitlement for extension of time and, provided that witnesses of fact or documents are available to sustain the facts behind analysis, I have found the courts are prepared to accept such analysis by way of submission from the bar table and to find accordingly.

Robert Fenwick Elliott

15 Creamoata Ltd v The Rice Equalization Association Ltd (1953) 89 CLR 286, 306, 326; Copper Industries Pty Ltd (in liq) v Hill (1975) 12 SASR 292.

16 Liebe v Molloy (1906) 4 CLR 347, 353-355; Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd

(1981) 36 ALR 567, 576; Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251. See, especially, the discussion by Finn J of the question in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty

Ltd [2003] FCA 50, [213]-[223]; (2003) 128 FCR 1, 61-63.