In December 2021, the WA Supreme Court handed down its decision in the matter of DM Drainage & Constructions Pty Ltd v Karara Mining Ltd [No 6].1 While the subject matter of the case is the usual fare for construction cases, what is noteworthy is the magnitude of the litigation itself and the Court’s robust comments on the manner in which the case was managed.
This case has important implications for case management in large-scale construction disputes and the potential use of Court-appointed referees to assist in this type of litigation moving forward. It also touches on:
- the importance of good record-keeping and the difficulties in proof that arise where a party seeks to rely on oral evidence to pursue claims; and
- the question of who bears the onus of proof where a party seeks to recover adjudication payments made pursuant to the Construction Contracts Act (2004) (WA) (CCA).
Background and decision
The case concerned a ~$26 million contract between DM Drainage and Constructions Pty Ltd (DM Civil) and Karara Mining Ltd (Karara) for the construction of an operations water package for the Karara iron ore project (Contract). The package comprised a 136km water pipeline together with a borefield, pump stations, tanks and electrical infrastructure.
There were numerous variations to the works under the Contract. Karara paid DM Civil ~$53 million in relation to the Contract. DM Civil claimed up to a further ~$19 million for alleged additional work, delays and disruption.2
DM Civil brought contractual variation claims but also brought a number of non-contractual claims including a “reprice” claim grounded in equitable estoppel and, in the alternative, a quantum meruit claim and an implied contract claim.
Karara counterclaimed seeking repayment of amounts paid to DM Civil in respect of numerous rapid adjudication applications brought by DM Civil in respect of payment claims issued under the Contract.
The Court awarded DM Civil around $700,000 on the basis of contractual variation claims, which was less than 4% of the total amount it had claimed in the action. Karara on the other hand was awarded over $6 million in respect of its counterclaim.
Key takeaways
Efficient case management
This case is unusual in that it ran for a number of years (around 9 years from commencement to final judgment), involved a lengthy trial and resulted in written judgment exceeding 1,000 pages in length. This was disproportionate to the amount in issue.3
Justice Vaughan was heavily critical of DM Civil’s approach to the litigation which “contributed to a trial and a trial record of mammoth dimensions“.4
His Honour provided several examples of DM Civil’s conduct which, in his view, demonstrated that little consideration had been given to whether the way in which DM Civil’s case was prepared and presented was efficient and effective. These examples include:
- the shear length of the papers, pleadings and closing submissions which were voluminous, difficult to navigate, paid little attention to the Court’s conventions with respect to the formatting of documents and failed to assist the Court by providing for an objective consideration of the evidence;
- the witness statements were exceedingly long; and
- the expert evidence relied upon by DM Civil was “tendentious and difficult to follow“, contained inadmissible material and required subsequent supplementation.5
His Honour did accept some responsibility for the length of submissions noting that against his better judgment he “was persuaded not to introduce a page limit“.6 The robust judgment by Justice Vaughan serves as an important reminder for lawyers to ensure that they identify and distil for the Court the essential points being advanced in support of a party’s case and avoid a “trial by avalanche” scenario.7 That is, they should seek to make the Court’s life easier and present the case in a clear, concise and objective manner. In this regard, it is also likely that the Court may in certain circumstances seek to impose page limits for submissions and other documents filed in the proceedings.
Court’s power to refer certain matters to referees
Justice Vaughan referred to the Court’s powers to refer certain matters to referees.8 He noted the Court’s reluctance in the past to invoke this power:
- due to a perception that the use of referees diminishes the Court’s authority to adjudicate disputes in their totality; and
- as it requires parties to pay fees for services that the parties would ordinarily expect the Court to render free of charge.9
However, Vaughan J said that this reluctance should be put aside (particularly in big cases) given the value a referee could bring to the litigation.10 In this case, to the failure to engage a referee at an earlier stage was, in retrospect, was a bad decision. In fact, Justice Vaughan found that a referee ought to be engaged to facilitate a lump sum costs order after the judgment was handed down.
This potentially represents a significant change for how disputes may be managed in the future. In particular, for more complex litigation the Court may seek to identify whether:
- there are any technical issues that could be efficiently and effectively determined by an expert;11
- any aspects of the case could be neatly carved out and issued to a referee to reduce the number of sitting days required by a Judge. For example, Justice Vaughan identified that a referee could have assisted in the determination of the variation claims and hence reduced the significant burden on the Court;12 and
- there are any issues of procedural fairness that the Court should take into account when determining if aspects of the matter should be referred out.
Given the strong indication from Justice Vaughan, it is our view that we are likely to see increased use of referees in in Western Australia (particularly construction cases which often involve highly technical issues and numerous claims) moving forward. If the parties don’t embrace this approach, the Court may do so of its own volition.
Oral statements
This case also illustrates the difficulties in pursuing non-contractual claims that rely on oral evidence. In this respect, subject to certain limitations, Justice Vaughan pointed out that contemporaneous documentary records are likely to be a more accurate reflection of underlying events than the later witness statements prepared for the purpose of the litigation at a time when false memories can intrude.13 In particular Justice Vaughan noted that, in some instances, DM Civil was not able to provide evidence in an objective and dispassionate manner.14 This raised issues of reliability.
DM Civil relied on oral statements as constituting part of the conduct on which it based its equitable estoppel reprice claim. The claim ultimately failed in part due to deficiencies in DM Civil’s contemporaneous record keeping. For example, Justice Vaughan found that the daily job sheets provided by DM Civil did not adequately identify or quantify the additional work performed by DM Civil or the extent of any such additional work, which in his view was “a substantial limitation on the probative force” of those records.15
This is an important reminder for parties: where a dispute is brewing, particular care should be taken to ensure that records are reliable and useful in the event they need to be used in Court to support a claim (noting that the claimant bears the onus of proof).
Implied contract / Quantum meruit Claim
In relation to the implied contract and quantum meruit claims, Justice Vaughan found that DM Civil had failed to establish that any additional works performed by DM Civil pursuant to directions given by Karara was work outside the Contract.16
His Honour noted that the language of the directions did not suggest an intention to enter into legal relations outside the Contract. None of the directions used terminology such as “contract”, “agreement” or “acceptance” nor did the directions alter the basic nature of the works that DM Civil was required to perform under the Contract. DM Civil was still required to excavate, lay pipes and backfill along the pipeline route. In His Honour’s view, in all the circumstances, the acts and conduct of the parties – viewed objectively – did not provide a sufficient basis to infer an agreement to perform work outside the Contract.17
Therefore, this decision reaffirms that where a formal contract exists between parties, it will be very difficult to demonstrate that a separate agreement has been made absent a clear written document.
Global costs claims
A further issue arose in the case as to whether DM Civil could advance a quantum meruit claim on a “global costs” basis and what DM Civil had to show in terms of causation in any event. A “global costs” claim, according to Justice Vaughan (quoting Justice Beech in the 2014 proceeding), “is one in which a plaintiff claiming under a construction contract contends that there were multiple interacting events for which the defendant is responsible and, rather than attempting to identify the precise loss from each event, the plaintiff pursues a claim for the global loss which the plaintiff says was caused by all the events for which the defendant is responsible”.18
While no decision was made as to whether a quantum meruit claim could be advanced on a global claim basis, Justice Vaughan reinforced and applied Beech J’s decision in the 2014 proceeding, reminding the parties that causation must be proven directly and not by inference. Where a claimant seeks to prove loss by adopting a global costs claim, it will be necessary for the contractor to eliminate from the claimed loss and expense all matters that were not the responsibility of the principal.19
The success of a global costs claim will hinge on whether the contractor can establish that there were no operative causes of its loss and expense, other than those that were the responsibility of the principal.
Recovery of amounts paid “on account”
Karara’s counterclaims were generally for the recovery of amounts paid to DM Civil pursuant to adjudications under the CCA, which dated back to 2011. The counterclaims raised an important question of onus. Karara said that it was entitled to an order for restitution of the amounts paid pursuant to the CCA adjudications unless DM Civil established an entitlement to retain those amounts.20 On the other hand, DM Civil said that it was for Karara to make out its counterclaims and that Karara bore the onus of proof in respect of any order for restitution.
His Honour ultimately determined that Karara bore the legal onus or burden of proof to establish its entitlement to restitution due to overpayment on the basis that a party who asserts a legal entitlement must prove to the Court that the case has been established. That is, the legal burden lies on the party who alleges or asserts an issue.21 Ultimately, Karara was largely able to demonstrate an overpayment in respect of the adjudication determinations and was entitled to recovery of amounts paid to DM Civil.
Conclusion
The WA Supreme Court in DM Civil v Karara has made it clear that big litigation is not for the faint of heart, and in particular that:
- there is an expectation on parties to present their case in a clear and concise manner, and in a way that assists the Court (after all, there is only one Judge but a lot of lawyers involved);
- moving forward, Courts may consider referring parts of the proceedings out to independent referees where appropriate, even if one or both of the parties prefer not to;
- contemporaneous record keeping is essential for a claimant;
- contract is king – agreements outside of the main contract need to be properly documented;
- global costs claims remain difficult to establish;
- of course, care needs to be taken by Contractors to ensure notification of claims to avoid the operation of contractual time-bars (including a final claim stage); and
- it can take a considerable amount of time to claw back wrongful adjudication payments made under the Construction Contracts Act (2004) (WA) and the party subject to a wrongful adjudication determination bears the onus of proving that restitution is required.
This article was written by Kate Morrow, Partner, Darcy Thompson, Senior Associate and Caitlin Grehan, Solicitor.
1 [2021] WASC 410.
2 DM Civil v Karara, [8].
3 DM Civil v Karara, [22].
4 DM Civil v Karara, [29]
5 DM Civil v Karara, [22] – [23].
6 DM Civil v Karara, [24].
7 DM Civil v Karara, [22]. The phrase “trolley load litigation” was first used by Honourable Clifford Einstein of the New South Wales Supreme Court in Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 669.
8 DM Civil v Karara, [3783].
9 DM Civil v Karara, [3784]
10 DM Civil v Karara, [3785].
11 See: Kadam and Others v MiiResorts Group 1 Pty Ltd and Others (No 4) [2017] FCA 1139.
12 DM Civil v Karara, [3783].
13 DM Civil v Karara, [57].
14 DM Civil v Karara, [168].
15 DM Civil v Karara, [99].
16 DM Civil v Karara, [2057].
17 DM Civil v Karara, [2059] – [2062].
18 DM Drainage & Construction Pty Ltd v Karara Mining Ltd [2014] WASC 170, [36] – [38].
19 DM Civil v Karara, [1454].
20 DM Civil v Karara, [2275]
21 DM Civil v Karara, [3696].
22 DM Civil v Karara, [560] – [562], [2137].
