Heavy Plant Leasing Pty Ltd (In Liquidation) v McConnell Dowell Constructors (Aust) Pty Ltd (No 3) [2023] NSWSC 634 [2023] NSWSC 585

Andrew Hales  |  Sean Cooley

Key takeout

• An ‘upstream’ payment received in settlement of a claim may be taken into account by the court when determining an amount payable in a claim against a ‘downstream’ counterparty. 
  
  
• A significant risk arises when the upstream settlement is for a global amount for several heads of claim, as the evidentiary onus is on the recipient to show that it has not received that amount in compensation of claims made against the downstream party.

• In this case, the full amount of a global payment made by a head contractor to a subcontractor was taken into account by the court when determining the overheads and management costs payable to the subcontractor in a claim made against a sub-subcontractor.

Facts

The background facts of this case were addressed in our update on Supreme Court decision No. 2 between these parties in 2022: What’s for de-cert: can a contractor ‘de-certify’ payments to its subcontractors? – Construction Law Made Easy. 

Relevant to this decision, Fluor Australia Pty Ltd (Fluor) was appointed head contractor of a long running coal seam gas project in Queensland.  Fluor subcontracted the works to McConnell Dowell Constructions (Aust) Pty Ltd (MDC), who subcontracted the civil works to Reed Constructions Australia Pty Ltd (Reed).  Before Reed was placed into voluntary administration, the contract was novated to Heavy Plant Leasing Pty Ltd (HPL).  HPL breached the contract, which MDC subsequently terminated.

The court held in 2022 that, among other things, MDC was entitled to damages to place it in the same position as if HPL had performed the contract.  The calculation was to be made by deducting the amount that MDC would have paid to HPL to complete the entirety of the civil works from the sum of the costs incurred by MDC in completing the civil works and the amounts already paid to HPL (cost to complete).  At the time of the decision in 2022, the court was not in a position to determine precisely what relief MDC was entitled to.

Fluor paid MDC, among other amounts, $17.5 million in settlement of an upstream claim made by MDC.  The question posed by the court in 2022 was whether the payment to MDC must be taken into account in determining MDC’s cost to complete in the downstream contract with HPL.  In other words, had MDC received payment from Fluor that duplicated the damages it sought from HPL?

HPL contended that the entirety of Fluor’s $17.5 million payment should be deducted from the cost to complete.  This position was different to the position HPL took in the 2022 proceedings.  In comparison to the entire coal seam gas project’s scope, HPL’s scope only represented around 11% of the entire project value (as adjusted).

MDC contended that no part of Fluor’s $17.5 million payment related to the cost to complete and that it should not be taken into account when calculating the damages sought from HPL.

Decision

The court held that MDC had failed to show that Fluor’s $17.5 million payment was not received by it in compensation of the overheads and management costs claim it made against HPL. 

The court therefore decided that Fluor’s $17.5 million payment must be set off completely against what would otherwise have been MDC’s entitlement to payment from HPL for overheads and management costs.