BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

BUILDING CASES LIST

No. 5797 of 2000

BHP BILLITON (OLYMPIC DAM) CORPORATION PTY LTD (ACN 007 835 761)	Plaintiff
v
STEULER INDUSTRIEWERKE GmbH (ACN 083 733 966)	Defendant

No. 7268 of 2007

PROTEC PACIFIC PTY LTD (ACN 009 534 552)	Plaintiff
v
STEULER INDUSTRIEWERKE GmbH (ACN 083 733 966)	Defendant

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JUDGE:	HABERSBERGER J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	31 MARCH 2008; 1-4, 7-11, 14-18, 23-24, 28-30 APRIL 2008; 1, 2, 5–8, 12–14, 19-23, 26-28, 30 MAY 2008; 2-6, 12, 13, 16, 17, 19 JUNE 2008; 1, 2, 21-24 JULY 2008
DATE OF JUDGMENT:	7 AUGUST 2009
CASE MAY BE CITED AS:	BHP BILLITON (OLYMPIC DAM) CORPORATION PTY LTD v STEULER INDUSTRIEWERKE GmbH
MEDIUM NEUTRAL CITATION:	[2009] VSC 322	1^st Revision: 5 September 2011

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Trade Practices – Misleading or deceptive conduct – Representation by supplier that a particular liner was suitable for use as a long term containment membrane for the concrete solvent extraction tanks at the Olympic Dam mine – Other representations about the liner – Whether made to installer of liner or to owner of mine – Reliance – Whether representations were misleading or deceptive – Causation – Loss and damage – Trade Practices Act 1974 (Cth) ss.52, 82.

Contract – Which company entered into contract bearing name of one entity and ACN of another.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr PJ Riordan SC with Mr IM Percy	Middletons
For the Defendants	Mr PJ Cosgrave SC with Mr FJ Tiernan and Mr AF Gray	Anderson Rice

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

The Parties........................................................................................................................................... 2

The Proceedings................................................................................................................................. 3

The Solvent Extraction Plant............................................................................................................ 9

The Witnesses................................................................................................................................... 13

The Joint Report of Experts’ Conference..................................................................................... 19

The Factual Background................................................................................................................. 20

Selection of lining material for solvent extraction tanks....................................................... 20

Early involvement of Protec Pacific and Steuler.................................................................... 25

The Bid Request for HDPE Lining of Tanks/Ponds............................................................. 30

Steuler’s Role Following the Bid Request............................................................................... 33

Protec Pacific’s Bid...................................................................................................................... 38

WMC’s Consideration of the Bids............................................................................................ 40

WMC’s Acceptance of the Bid................................................................................................... 43

The On-Site Service Agreement................................................................................................ 47

Early Developments................................................................................................................... 49

Mr Gebhard’s Visit to the Site................................................................................................... 50

Incospec’s Visit to the Site......................................................................................................... 52

Further Problems On Site.......................................................................................................... 52

Dr Peggs’ Initial Involvement................................................................................................... 57

Working Towards Completion................................................................................................. 58

Possibility of Litigation Anticipated........................................................................................ 59

Mr Sadlier’s Visit to the Site...................................................................................................... 63

Mr Modes’ Visit to the Site........................................................................................................ 65

End of Protec Pacific’s Role....................................................................................................... 70

Subsequent Developments........................................................................................................ 73

The First Fire................................................................................................................................ 80

The Second Fire........................................................................................................................... 82

Dr Peggs’ Visit to the Site.......................................................................................................... 84

Mr Rohringer’s Visit to the Site................................................................................................. 85

Removal of the HDPE Lining.................................................................................................... 88

WMC’s Insurance Claim............................................................................................................ 90

The Deed of Settlement.............................................................................................................. 91

The Correct Protec Pacific Entity................................................................................................... 91

The Representations...................................................................................................................... 111

The First Representation.......................................................................................................... 115

The Second Representation..................................................................................................... 122

The Third Representation........................................................................................................ 126

Reliance............................................................................................................................................ 148

Were Steuler’s Representations Misleading or Deceptive?................................................... 155

The Third Representation........................................................................................................ 155

The First Representation.......................................................................................................... 187

The Second Representation..................................................................................................... 187

Future Representations............................................................................................................ 188

Causation and Damage and Loss................................................................................................ 189

WMC’s Claim............................................................................................................................. 190

Protec’s Claim............................................................................................................................ 201

Negligence....................................................................................................................................... 203

Contributory Negligence.............................................................................................................. 207

The Development Act.................................................................................................................... 207

Outstanding Issues........................................................................................................................ 208

HIS HONOUR:

Introduction

The dispute involved in these two proceedings concerned the suitability of a high density polyethylene (“HDPE”) lining material for the concrete tanks forming part of the new copper and uranium solvent extraction plant constructed at the Olympic Dam mine at Roxby Downs in South Australia in 1998 and 1999. The mine is owned by BHP Billiton Olympic Dam Corporation Pty Ltd, formerly known as WMC (Olympic Dam Corporation) Pty Ltd (“WMC”). The HDPE lining material was manufactured by a German company, Steuler Industriewerke GmbH (“Steuler”) and marketed under the trade name “Bekaplast”. It was sold by Steuler to an Australian company, Protec Pacific (NSW) Pty Ltd, and installed by that company or by a related company, Protec Pacific Pty Ltd, pursuant to one or more agreements with WMC. WMC alleged that the Bekaplast was not a suitable lining material for use in the solvent extraction tanks and that it had failed, or was about to fail, prematurely, with the result that it had been replaced with a fibreglass lining at considerable cost to WMC.

The Olympic Dam mine is located over 500 kilometres north, northwest of Adelaide in a hot, dry and remote part of South Australia. Its ore body compromises copper, uranium, gold and silver disseminated throughout a five kilometre by three kilometre area, 350 metres below the surface. It is said to be the largest uranium deposit and the sixth largest copper deposit in the world. The Olympic Dam enterprise, which commenced operations in 1988, consisted of a highly mechanised underground mining system and a complex metallurgical processing plant. The new copper and uranium solvent extraction plant was part of a major expansion of the operations to substantially increase the production capacity of Olympic Dam, from about 80,000 tonnes of copper per annum to in excess of 200,000 tones per annum and from 1,500 tonnes of uranium per annum to about 4,600 tonnes per annum. It was planned to operate the plant 24 hours a day, 365 days a year. Extremely toxic chemicals were used in the tanks as part of the solvent extraction process.

The Parties

In 1997, WMC was a subsidiary of a large public company, Western Mining Corporation Limited. In 2005, it became the subsidiary of an even larger public company, BHP Billiton Limited. WMC undertook the expansion of the mine and processing plant by setting up an integrated management team, the Olympic Dam Expansion Project (“the OEP”), which, at least in the case of the solvent extraction plant, comprised employees from WMC, Fluor Daniel Pty Ltd (“Fluor Daniel”), Bechtel Australia Pty Ltd (“Bechtel”) and Thiess Contractors Pty Ltd (“Thiess”). Fluor Daniel was the structural and mechanical engineer, Bechtel the project manager and Thiess was responsible for the construction of the tanks.

Protec Pacific, Wear & Corrosion Control Specialists (“Protec Pacific”), had been in the corrosion protection business since 1982. In 1997 and 1998, its business was operated through two companies, Protec Pacific (NSW) Pty Ltd (“Protec NSW”) and Protec Pacific (Tas) Pty Ltd, which from 5 May 1998 was called Protec Pacific Pty Ltd (“Protec”). It is this latter company which is the party to these proceedings. The managing director and majority shareholder of both Protec Pacific companies was Howard Smith.

Protec Pacific had completed more than 5,000 contracts by the time it was awarded the OEP contract. It had been previously involved with the Olympic Dam mine in 1987 and 1988 when it had provided protection for the concrete floors using thermoset materials with hypoxy resins. Although Protec Pacific had experience using polymer concrete, fibre reinforced polymer (“FRP”) and thermoplastics, including polyvinyl chloride (“PVC”) and polypropylene (“PP”) and possibly HDPE, it had no experience with copper or uranium solvent extraction prior to the OEP. A thermoset material was a material which became permanently rigid when heated or cured, whereas a thermoplastic material was one which was capable of softening or fusing when heated and of hardening again when cool. The top grade thermoplastic was polyvinyl diflouride or PVDF.

In 1997, Steuler had been in the business of designing, manufacturing, supplying and installing protective linings for many years. It was started in Germany in 1908 by Georg Steuler, the great grandfather of the present managing director, Michael Steuler. Later both his uncle and his father had managed the company. By 1997, Steuler had five divisions – refractory systems, surface protection systems, equipment engineering, plastics engineering and tiles/design ceramics. It employed some 1,100 people throughout the world. Mr Steuler said that his company held itself out as an international expert in the area of corrosion protection. It was an ISO 9001 accredited company.

One of the main products of Steuler’s surface protection systems division was Bekaplast. This was a lining system utilising HDPE to protect concrete pipes and tanks against corrosion. Steuler purchased smooth HDPE sheets from a manufacturer. It then welded a defined number of conical anchor studs to the underside of the sheet to produce the Bekaplast product. The anchor studs were intended to create a durable bond between the concrete and the lining. They could be cast directly into the concrete at the time it was poured, or they could be put into a cementitious screed or grout placed on top of the concrete after it had been cured. The Bekaplast technology was about twenty years old in 1997.

The Proceedings

By a generally indorsed writ in proceeding No. 5797 of 2000 (“the WMC proceeding”) filed on 19 June 2000, Protec sued WMC claiming a sum in excess of $2.1 million for monies due and payable under two agreements between them. The first of these agreements was alleged to have been made on or about 10 April 1998. It was said to be for the off-site supply by Protec of HDPE lining material for the copper and uranium solvent extraction area of the OEP. The second agreement was alleged to have been made on or about 13 June 1998. It was said to be for Protec to supply all labour, supervision, plant, equipment, vehicles and consumables necessary to carry out all of the work required to complete the installation and testing of HDPE lining materials to concrete tanks in the copper and uranium solvent extraction area of the OEP. A statement of claim was delivered on 23 August 2000.

On 22 September 2000, WMC filed its defence and counterclaim. It sought damages from Protec for breach of its duty to exercise reasonable care and skill in the design and installation of the lining system. WMC also sought repayment of a sum of about $610,000 which it alleged it had mistakenly overpaid Protec.

On 18 December 2001, WMC was granted leave to join Steuler as the second defendant to its counterclaim. By an amended defence and counterclaim, filed on the same day, WMC claimed damages from Steuler pursuant to s.82 of the Trade Practices Act 1974 (Cth) (“the TPA”), alternatively at common law, for numerous false and misleading representations about the design and qualities of the Bekaplast lining system and the training or supervision to be provided by Steuler.

On 3 June 2002, WMC filed an amended defence and counterclaim which introduced, for the first time, the allegation that the HDPE lining was unsuitable and would have to be replaced.

WMC continued to regularly amend its defence and counterclaim and its particulars of loss and damage. For example, on 5 June 2006, WMC filed a defence and counterclaim which was described as its second amended defence and sixth amended counterclaim against the plaintiff (as first defendant by counterclaim) and third amended counterclaim against the second defendant by counterclaim. By now, the damages sought by WMC exceeded $27 million, plus interest.

In April 2004, Protec issued a proceeding against Steuler claiming damages for negligent misstatement, but it did not serve the writ within time. Mr Smith gave evidence that neither the writ nor a notice of contribution in the WMC proceeding was served because he did not want either WMC or Steuler to know that Protec had sued Steuler. This strategy was designed to assist Protec’s bargaining position with WMC. Mr Smith gave evidence that at some stage he started negotiating directly with WMC. He said that he thought he was in a no win situation. Moreover, the amount of the counterclaim had increased dramatically. He told WMC that it could not recover that amount from Protec.

By a Deed of Settlement dated 3 July 2006, Protec settled with WMC the claim and counterclaim in the WMC proceeding, conditional upon Protec being successful in an application to serve Steuler out of time with its 2004 proceeding. In April 2007, an application to extend the period of validity for service of the writ on Steuler was refused by Hansen J.[1] Accordingly, the original settlement did not come into effect.
[1]Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2007] VSC 93.

On 17 May 2007, I refused an application by Steuler to amend its defence to WMC’s counterclaim insofar as it related to the inclusion of Protec NSW in the pleading. The issue was that, whereas Steuler once pleaded that certain things had been done or agreed by Protec, it now sought to plead that in some cases they had been done or agreed by Protec NSW and in other cases by one or other of the Protec Pacific companies. I upheld WMC’s argument that it would possibly be prejudiced by the late amendment because it would have been statute barred from joining Protec NSW as a defendant to the counterclaim.[2]
[2]Protec Pacific Pty Ltd v WMC (Olympic Dam Corporation) Pty Ltd (No. 2) [2007] VSC 152.

On 31 May 2007, WMC, Protec and Mr Smith entered into a new Deed of Settlement pursuant to which Protec consented to judgment being entered against it in the sum of $15 million. Part of the settlement terms was that Protec would issue a proceeding against Steuler, such proceeding to be conducted by WMC and by solicitors and counsel nominated by WMC. In consideration of the Deed, WMC agreed to pay all costs of the proceeding and to indemnify Protec, Mr Smith and Protec’s employees against any award of costs against them in favour of Steuler. Protec agreed that any amount of damages, costs and interest awarded to it in the new proceeding against Steuler would be applied in satisfaction of the judgment sum of $15 million. Protec further agreed to give WMC a first ranking charge and to provide WMC with first ranking priority over its entitlement to recover damages, costs and interest from Steuler. The Deed also provided that WMC would return to Protec a bank guarantee in the sum of $175,865.08. This was not contingent upon any payment by Protec to WMC. Mr Smith gave evidence that he understood that WMC could seek to enforce the settlement, even though Protec was in no position to pay $15 million.

Accordingly, on 3 August 2007, consent judgment was entered against Protec in the WMC proceeding, in the sum of $15 million. The only part of that proceeding remaining unresolved was WMC’s claim against Steuler, which had initially formed part of WMC’s counterclaim. Thus, WMC became, in effect, the plaintiff in the principal proceeding and the name of that proceeding was accordingly amended to reflect the changed situation.

On 16 July 2007, Protec issued a new proceeding against Steuler, No. 7268 of 2007 (“the Protec proceeding”). In its statement of claim, Protec alleged that in July 1998 it entered into an On-Site Service Agreement (“the OSS Agreement”) with WMC for the design, supply and installation of HDPE corrosion protection linings for concrete tanks forming part of the OEP, and that in consideration of WMC agreeing to enter into the OSS Agreement it warranted to WMC that the HDPE would have a service life of 20 years when used with the chemicals and under the operating temperatures listed in clause 1.5.4 of section 1 of the Bid Request (“the warranty”). Protec then alleged that Steuler made certain misleading or deceptive representations to Protec in relation to the Bekaplast HDPE and to the giving of the warranty. Protec further alleged that Steuler was negligent in making the representations to Protec. Protec said that it relied upon the representations in entering into the OSS Agreement and giving the warranty to WMC. Protec alleged that as a result of the misleading and deceptive representations, and/or negligence of Steuler, it suffered loss and damage as constituted by the Deed of Settlement with WMC. Therefore, Protec claimed judgment for the amount of its liability under the Deed of Settlement, being $15 million.

Steuler applied for summary judgment, largely on the basis that Protec had no claim against it because it was Protec NSW which had entered into the OSS Agreement with WMC. On 31 August 2007, I dismissed that application.[3] Pleadings were then completed with the delivery of Protec’s reply and defence to counterclaim on 5 October 2007.
[3]Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2007] VSC 312.

Having settled with Protec, WMC filed a fourth amended counterclaim against Steuler. The final form of this document was dated 30 April 2008 (“WMC’s counterclaim”).

At the start of the hearing, WMC’s amended particulars of loss and damage were as follows:

Payments made to Protec for supply of HDPE lining material and initial offsite installation costs

$1,157,154

Payments to Protec to install HDPE lining system

$4,141,811

Payments to Protec to rectify or repair defects in the HDPE lining system

$3,616,052

Costs of removing HDPE lining system and replacing it with a fibreglass lining system

$22,385,001

$31,300,018

Less reasonable cost for the design, supply and installation of a fire retardant FRP lining system in 1997-1998

$3,520,837

$27,779,181

Further, interest to July 2008 was said to be in excess of $21 million.

In mid-April 2008, or about two weeks into the hearing, Steuler sought to file an amended defence and counterclaim, raising for the first time issues of estoppel and rectification. Apparently, the filing and service of this pleading was meant to have taken place in December 2007, but it had been overlooked. Eventually, on 30 May 2008, by consent Steuler filed a different amended defence and counterclaim which omitted any reference to rectification and thus only raised the plea of estoppel as a new issue. On 1 July 2008, Protec filed a reply and defence to the amended defence and counterclaim.

At an early stage in the hearing, I raised with the parties the possibility of splitting off the question of quantum. I did so as a result of problems with the state of the evidence about the quantum of WMC’s claim and Steuler’s readiness to deal with further evidence filed at a late stage by WMC, and as a result of concerns that the trial would last much longer than the estimated three months. After due consideration, counsel for WMC and Protec agreed with this course of action, whilst counsel for Steuler stated that their client did not consent to, but did not oppose, such a course being followed. Accordingly, on 12 May 2008 I ruled that the trial be split along the lines proposed by the parties. This was that in the first hearing the Court should determine all issues other than:

(a)the question of the assessment of WMC’s loss (if any) as alleged in paragraph 56 of the fourth amended counterclaim against the second defendant by counterclaim, dated 30 April 2008;
(b)the issue of betterment pleaded in paragraph 29 of Steuler’s amended defence to counterclaim, dated 28 May 2007; and
(c)possibly, the issue of the reasonableness of Protec’s settlement with WMC.

It was further agreed that in the first hearing the Court should decide the factual and legal issues necessary to determine whether any and which of the categories of loss claimed by WMC in paragraph 56 were recoverable, but not determine the actual amount recoverable in any particular category or part thereof and that the question of the assessment of WMC’s loss would include any question that an item claimed by WMC should not be allowed because it was not reasonably required for the replacement of the HDPE lining with FRP lining. This course had the advantage that considerable time and cost might possibly be saved because it would only be necessary to hear evidence about quantum, if WMC (or possibly Protec) was successful in establishing liability on the part of Steuler.

Splitting off the question of quantum still left a raft of issues raised by the pleadings in both proceedings. However, by the time of final submissions many of these issues had been either abandoned or significantly narrowed. This was a sensible approach by both sides. Nevertheless, some extremely difficult issues remained for determination.

As stated above, pursuant to the Deed of Settlement, Protec’s proceeding was conducted by WMC’s lawyers. Thus, WMC and Protec had a common interest in establishing liability on the part of Steuler. On occasions, WMC and Protec are hereafter referred to in these reasons as “the plaintiffs” and Steuler as “the defendant”. Until it has been determined which of the two Protec Pacific companies, Protec and Protec NSW, was involved in the relevant events, I will use the term “Protec Pacific” when referring to something done by one or other of them, if that issue is uncertain, and when referring to something done by the group as a whole.

The Solvent Extraction Plant

In order to understand the dispute about the suitability of the HDPE lining for the solvent extraction tanks, it is useful to set out very briefly the process of ore extraction that was used at Olympic Dam. The following description of this process is based on the helpful evidence of Mark Butterworth, a Senior Metallurgist employed by WMC in the hydromet area after the second fire.

The ore at the Olympic Dam site was mined underground and brought to the surface and collected in open stock piles. It was taken from the stock pile by conveyer to the mill where it was ground to a sand consistency. Water was added so that it became a slurry. It then went into a cyclone where it was further separated. The thinner material was transferred to the downstream flotation process and the thicker material was returned to the mill for further grinding.

In the flotation process, the slurry was transferred to the rougher and scavenger tanks where the slurry was agitated with air. Chemicals were added so that the copper, gold and silver attached to the air bubbles and thereby floated to the top of the tanks. This process enabled approximately 90% of the copper to be recovered, which then moved to the smelter through polishing circuits. The gold, silver and copper were separated at the refinery stage in the electro refining section.

The balance, known as the flotation tailings, were then transferred to a tailings thickener which extracted the water out of them. The water was recycled back into the mill for use in the grinding process. The residual material went through the tailing leach tanks where the material was heated with steam to about 60⁰C and acid and sodium chlorate were added to leach or dissolve the copper and uranium (and any other minerals) out of the solids in the flotation tailings slurry. The dissolved minerals were then contained in the resultant solution. The solids were then separated from the liquid in the counter current decantation circuit, which was comprised of six tanks or thickeners in series. At the end of this process, the solution containing the dissolved copper and uranium was known as the pregnant leach solution (“PLS”) from which the residual solid material had been separated. The PLS was then piped to the PLS pond.

After the PLS pond, the solution entered the solvent extraction (“SX”) plant, which was a subset of the hydrometallurgical plant, or hydromet, which consisted of everything downstream from the flotation tailings thickener through to the end of the solvent extraction process. The HDPE lining that was the subject of this dispute was used in the many tanks forming part of the solvent extraction plant. Within that were the copper solvent extraction area (“CuSX”) and the uranium solvent extraction area (“USX”). Two copper extraction trains (A and B) and a copper tank farm area constituted the former. One uranium extraction train and a uranium tank farm area constituted the latter. Within each copper train there were five settler tanks (25 metres x 21 metres x 1 metre) each with an attached mixer box (3.3 metres x 3.3 metres x 3 metres). In the uranium train there were eight settler tanks (11 metres x 7 metres x 1.1 metres) each with an attached mixer box with the same dimensions as the mixer boxes in the copper trains.

The solution was pumped from the PLS pond into the extraction tanks in each copper train. The PLS solution was mixed with solvent (comprised of kerosene and a copper extractant called oxime) by agitation in the mixer box before it flowed over a weir into the settler tank of each unit. In the settler tanks, the lighter solvent or organic solution that had extracted the copper floated to the top of the tank. The heavier aqueous solution sank to the bottom. This process was assisted by a picket fence running across the settler tanks. The fence consisted of dividers or pickets made of HDPE. The solvent and PLS (now termed copper raffinate) were then separated at the end of the settler by a weir. The copper was extracted from the PLS in these units.

The copper raffinate (which now contained only 20% of the copper in the PLS but still contained all of the uranium) was then pumped to the copper raffinate tank, and the solvent was pumped to the loaded solvent tank. The loaded solvent was then “cleaned” in the scrub units in the A and B trains in which the solvent was mixed with a solution comprised mainly of water and small amounts of acid and copper, in order to remove iron and chloride. In the settler tanks, the solvent and scrub water then separated in a similar way to the extraction units, that is, with the solvent floating to the top and the water on the bottom of the settler, and the solvent and water were then separated at the end of the settler by a weir. The solvent then flowed from the scrub units to the strip units in each train. Electrolyte (acid) was mixed with the solvent in the strip units and it provided for the transfer of copper from the solvent to the electrolyte or aqueous stream. As in the extract and scrub units, the solvent floated to the top and the electrolyte to the bottom in the settler of each strip unit, with separation achieved by a weir at the end of each settler.

The electrolyte solution containing the copper was then piped to the refinery. The resultant solvent solution was called a barren organic solvent and it was pumped back to the extraction units to restart the process.

The copper raffinate which contained the uranium was treated in the uranium solvent extraction plant. The copper raffinate was pumped to the pulse columns which performed the same function as the copper extraction tanks except that the extraction was performed in a column and the solvent was now a mixture of kerosene, tertiary amine (a uranium extractant) and isodecanol, which modified solvent properties. The uranium was extracted in the pulse columns, and the resultant aqueous solution, which was referred to as uranium raffinate, was piped to the uranium raffinate tank.

The loaded solvent containing the uranium was transferred to the USX scrub tanks where it was treated or cleaned in much the same way as in the copper train. The scrubbed solvent was then moved to the USX strip tanks, where ammonia was added to transfer the uranium from the scrubbed solvent to a water solution called loaded strip. The loaded strip then moved to the precipitation area. The solvent, now called stripped solvent, was piped to the acidification unit, in which the solvent was mixed with acidified water. The acidified solvent was returned to the pulse columns to restart the process.

In cross-examination, Mr Butterworth said that the concentration of kerosene would be essentially uniform throughout the copper trains and the uranium train. The highest concentration of acid would be in the strip tanks in the copper trains and in the scrub tanks in the uranium train.

Initially, Steuler’s Bekaplast HDPE sheeting was used for the walls and floors of the tanks in the trains and the tank farm areas, and smooth HDPE material, which was not supplied by Steuler, was used for weir capping or flashing on the overflow weirs between the mixer and settler tanks, the weir flaps on the adjustable weirs in the settler tanks, some of the tops of walls and the outside of walls of the mixer and settler tanks, and the picket fences and distribution fences in the settler tanks. Later, the smooth HDPE material was used in all finishing off and repair materials including cover strip material for overstripping repairs, extensive patching work, corner angles and strip repair material, and Bekaplast was used in 1999 when the smooth HDPE weir capping and flaps were replaced.

The Witnesses

The plaintiffs, WMC and Protec, tendered witness statements or affidavits from 29 witnesses. Not all the plaintiff’s witnesses were cross-examined. The majority of the plaintiffs’ witnesses gave evidence relating to the factual background to the dispute. Most were present or former employees of WMC, but others had been members of the OEP team although employed by the contractors to WMC. Two of the plaintiffs’ witnesses gave technical evidence in the sense of reporting on the scientific tests carried out by them on the HDPE material. Five of the plaintiffs’ witnesses gave expert evidence on various aspects of the dispute. The following were some of the more important of the plaintiffs’ witnesses.

Rolf Scherrer was the Project Director of the OEP from 1996 until about March 1999. He was a qualified architect who now worked as a project consultant. He had been involved in project management for nearly 40 years. Mr Scherrer worked for WMC for about eight years from 1993. He had no previous experience with solvent extraction plants. Mr Scherrer reported to the executive general manager of copper/uranium, Mr Pierce Bowman and later Mr Ross McCann.

Robert McCulloch was the Project Manager, Process Facilities, with Bechtel, assigned to the OEP. He was a civil engineer who had worked for Bechtel since 1968. Mr McCulloch was involved with the OEP for about a year from September 1996. He had five project teams working on process facilities, one of which included the solvent extraction mixer/settler tanks. Mr McCulloch gave his evidence by video link from Montreal in Canada, where he was then working.

Robert Hannan was WMC’s Contract and Procurement Manager from about March 1992. He reported to Mr Sven Javer, WMC’s commercial manager. Mr Hannan had an associate diploma in engineering and had worked in the oil and gas and resource industry for about 30 years in roles of contract and procurement management, project services and project management.

Michael Softley was WMC’s Manager of Engineering for the OEP. He was a mechanical engineer who worked for WMC between 1962 and 2005. He was intimately involved with the Olympic Dam mine from its inception. He said that from mid-1998 through to the end of 1999 he was pretty well full-time on site during the working week.

Jeremy Folwell was the Chief Civil and Structural Engineer for the OEP. He reported to Mr Softley. At the time he gave evidence, Mr Folwell had worked for WMC at the Olympic Dam site and in its Adelaide office for over 12 years.

Jon Weir was a Senior Process Metallurgist with WMC. He commenced working for WMC in 1984 and was transferred to Olympic Dam in 1988 to work on the commissioning of the metallurgical plant. Mr Weir was involved with the feasibility study on the refinery. In late 1996 he became the WMC employee responsible for the design contract for the hydromet and concentrator. Initially, no witness statement was filed by Mr Weir. When it became obvious that Steuler would be making a submission concerning their failure to call Mr Weir, the plaintiffs sought leave to file out of time a witness statement by Mr Weir. Over the defendant’s opposition I granted that application. During the argument, counsel for Steuler indicated that they thought that he would be cross-examined for three days. Later, counsel announced that Mr Weir would not be cross-examined at all.

Jason Schell was a metallurgical engineer with an honours degree from the University of South Australia. He was currently employed as Vice President – Growth Projects for BHP Billiton Olympic Dam Corporation Pty Ltd. He was involved with the solvent extraction plant, amongst other areas at the mine, from 1995. He became the Manager of the solvent extraction plant in 2000. He was the Client Representative for the reconstruction of the plant post the second fire.

James Bowden was the Senior Chemist - Technical and Instruments employed by WMC at its Olympic Dam site between 1996 and 2006. He obtained a Bachelor of Science degree from Charles Sturt University in 1998.

Anthony Culf was a senior metallurgist employed by WMC at the Olympic Dam site. He was not involved with the hydromet at the relevant time. He gave evidence about the temperature records obtained from the Citect data management system in use in the hydromet.

Mark Starcevich was a Fluor Daniel mechanical engineer. He began working on the OEP in about March 1997. He had no prior experience in relation to hydrometallurgical plants. In his witness statement, Mr Starcevich said that he reported to Brian Thompson who was the lead mechanical engineer for the hydromet area of the OEP, and that Mike Sheeran was the person at Fluor Daniel who had responsibility for the design of the mixer and settler tanks and the choice of lining materials.

Len Matheson was a Fluor Daniel civil engineer. He had been an engineer for 38 years. In 1997 he was a senior civil engineer on the OEP, reporting to Jeffrey David, who, in turn, reported to Peter Albert. Mr Matheson worked on the OEP until about June 1998.

Keith Blizzard was a Procurement Specialist who worked with Bechtel for 38 years, retiring in 2004. From February to September 2007, he was a senior procurement officer on the OEP. This was an administrative position which did not require him to have technical qualifications or knowledge. Bechtel was the overall construction manager for the OEP, responsible for the procurement of all materials for the project. Mr Blizzard reported to John Otten, who was Bechtel’s Procurement Supervisor.

Howard Smith was the Managing Director of both Protec Pacific companies. He was a marine engineer by training. Mr Smith said that he had the role on behalf of Protec Pacific of conducting an overview of the OEP project and ensuring that the key deliverables were met. Mr Smith was only involved with the documentation when he thought he needed to be, or someone else did. He was on site “infrequently”, although he made a few visits, lasting between one and three days. Between visits, Mr Smith retained contact with his site manager twice or three times each week. When he was not on site, Mr Smith was travelling from project to project in New South Wales and Queensland.

Neil Pearson was Protec Pacific’s Contracts Manager and its person in charge on site. Mr Pearson was a licensed plumber, drainer and gas fitter. He also held plastic welding and fabrication certificates. Mr Pearson said that he commenced employment with Protec Pacific in about 1996 as a work supervisor. At the time of giving evidence, Mr Pearson was a teacher with a Bachelor of Education.

Richard Thomas, the Technical Director of TRI Environmental Inc (“TRI”) of Texas in the United States of America, gave evidence about the tests undertaken by his company on HDPE samples.

John Schiers was the principal of ExcelPlas Polymer Technology and Testing, which specialised in compositional analysis and failure analysis of polymers. Dr Schiers had obtained his doctorate in applied chemistry in 1991 from the University of Melbourne. He had written a leading text on polymer failure and another book on plastics recycling. Between 1994 and 1997 and from 2000, Dr Schiers had been engaged as a Polymer Consultant with ExcelPlas.

Ian Peggs was the President and principal of I-Corp International, Inc of Florida in the USA. Dr Peggs had obtained his doctorate in physical metallurgy in 1967 from Sheffield University in the United Kingdom. Dr Peggs had been a Geosynthetic Consultant for over 25 years. His speciality was geomembranes.

Simon Mann had been the principal consultant and testing specialist with Stone Initiatives & Materials Testing Group Pty Ltd since 2003. He had obtained a Bachelor of Applied Science in Applied Geology in 1979 and a Diploma in Metallurgy in 1983. Mr Mann’s company specialised in the testing of stone and related products such as concrete.

Steuler tendered 14 witness statements. All of its nine witnesses giving factual evidence were present or former employees of Steuler. Three of Steuler’s other witnesses gave only technical evidence in the sense of reporting on scientific tests carried out by them on the HDPE material. Finally, Steuler called two witnesses to give expert evidence. Not all of Steuler’s witnesses were cross-examined. The following were some of the more important of Steuler’s witnesses.

Michael Steuler was appointed the Managing Director of Steuler in 2004. He had obtained a degree in business administration in 1986. When he joined Steuler in 1994, he was the sales manager for the surface protection systems division. He then became the general manager of that division. In 2000, he was the managing director responsible for industrial products.

Walter Lähne was employed by Steuler from 1985 until 2005, when he retired. He commenced working in the Sales Department, dealing mainly with overseas exports. In 1987 he became a Project Manager and in 1995 he was appointed Head of the Export Department.

Matthias Walschburger worked for Steuler between November 1996 and October 2005. He had about 19 years’ experience as a structural engineer prior to joining Steuler. He was experienced in the administration of contracts. Mr Walschburger was engaged as a sales consultant in the export department. There were about four other employees in that department which was headed by Mr Lähne. In late 1998, Mr Walschburger was promoted to the position of Project Manager.

Thomas Gebhard was a sales engineer who joined Steuler in 1990. He had been the project manager on numerous Steuler projects involving Bekaplast. At the time of giving evidence, Mr Gebhard was still in the sales section of Steuler.

Ralf Modes was a Sales and Project Manager with the Plastics Engineering Division of a Steuler subsidiary. He had worked at Steuler since 1990 after obtaining a Diplom Ingenieur from the University of Essen. His main focus in his studies had been plastic technologies, especially the welding of thermoplastic material.

Gerhard Pabst was a supervisor of the plastic welders. He had worked for Steuler, at different places around the world, since 1974.

Edgar Widerstein was another supervisor of the welders. He had worked as a specialist for plastic welding work with Steuler between 1992 and 2004. Since then he had been employed as a project manager with a subsidiary company of Steuler.

Karl-Heinz Dunker was a chemist at the Corrosion Resistant Materials Division (the laboratory) of Steuler. Part of its role was to check specifications to ensure that the materials were suitable for use in a particular project. This was a requirement of Steuler’s ISO 9001 procedures.

Leopold Glueck had been an independent plastics technology consultant since 2003. He had obtained a Diplom Ingenieur from the University of Applied Sciences Wuerzburg Schweinfurt in 1978. Between 1981 and 2003 he had worked for SKZ Wuerzburg, a Plastics Testing Institute, finishing up as head of the department dealing with the testing of all kinds of concrete protective linings.

Ernest Rohringer had since 1990 been an independent consultant in acid resistant lining systems. He had obtained a Diplom Maschinenbau Ingenieur (Mechanical Engineer) in Austria in 1953. He had worked for 25 years with Steuler including being the General Manager of the Surface Protective Systems Division and the Managing Director of two Steuler subsidiary companies involved with the supply and installation of acid resistant linings. At the time he gave evidence Mr Rohringer had retired.

All of Steuler’s witnesses who were cross-examined performed the remarkable feat of giving evidence in English, assisted on occasions by an interpreter, even though English was not their native language.

The Joint Report of Experts’ Conference

Pursuant to an order of the Court, an Experts’ Conference was held in late January and early February 2006. It was attended on some or all of the six days by Dr Peggs, Dr Schiers, Mr Glueck, Mr Rohringer, Mr Modes and Professor Brian Cherry. The facilitator was Dr Donald Charrett, a member of the Victorian Bar. A detailed Joint Report of Experts’ Conference dated 7 February 2006 was prepared by the facilitator.

Professor Cherry was the expert engaged by Protec to provide “advice concerning the suitability” of HDPE as a tank lining material. As a result of Protec settling with WMC, Professor Cherry understood that his involvement had ceased. In June 2007, he was approached by Steuler’s solicitors to see whether he would be willing to meet to discuss his report dated 26 May 2003, concerning the environmental stress cracking of polyethylene, in which he commented on a report by Dr Peggs. On 7 November 2007 Professor Cherry met with Steuler’s solicitors and counsel. Eventually, the detail of which is set out in my judgment,[4] Protec applied for and obtained an interlocutory order that Professor Cherry be restrained from communicating in any way with Steuler, its servants or agents, including its solicitors and counsel retained on its behalf in the Protec proceeding, save and except all necessary communications between Steuler’s solicitors and Professor Cherry concerning arrangements for the latter being called by Steuler as an expert witness in the Protec proceeding. Neither side called Professor Cherry.
[4]Protec Pacific Pty Ltd v Cherry [2008] VSC 76.

The Factual Background
Selection of lining material for solvent extraction tanks

In 1994, WMC embarked on the planning of a major expansion to its operations at Olympic Dam, including an extension of the copper and uranium solvent extraction plant. It engaged Krebs, an internationally recognized engineering firm, to provide it with a report relating to the solvent extraction plant extension. Krebs presented the report in July 1994. It recommended that the concrete settler tanks be lined with FRP and that the mixers be constructed of free-standing FRP.

In June 1995, WMC’s Copper Uranium Division completed a Prefeasibility Study for Expansion of Olympic Dam. The report accepted the Krebs design of the solvent extraction plant for the purpose of the study. It recommended that a Feasibility Study on a three‑stage expansion program be undertaken.

In September 1995, WMC engaged Davy John Brown Pty Ltd (“DJB”) to supply engineering and consulting services for a feasibility study to expand the Olympic Dam Hydrometallurgical Plant, which area included the solvent extraction plant. DJB was an experienced international firm of engineering consultants. In its tender to WMC, DJB said:

The Davy group of companies have collectively studied, engineered, designed, constructed (or construction managed) over 40% of the world’s Solvent Extraction/Electrowinning plants around the world.

As part of its work, DJB thoroughly reviewed existing hydrometallurgical plants and considered process alternatives, including a comparison of the performance of several mixer/settler types. The results of its work was reviewed with WMC.

One of the projects mentioned by DJB in its list of relevant project experience was the provision of basic engineering and consulting services for the solvent extraction/electrowinning facilities for Compania Minera de Cananea, S.A. in Mexico. DJB stated:

High-density polyethylene (HDPE) was used extensively in the plant as an alternative to more expensive stainless steel. HDPE has been used for SX piping in many SX plants and was also used to line the concrete settlers at Cananea. This material was selected because of its demonstrated ability to work in the high acid/organic chemical environment, and for its ease of maintenance and installation.

DJB also referred to the use of HDPE lined mixer settler units at the Codelco solvent extraction/electrowinning plant at Chuquicamata in Chile.

WMC completed its own Feasibility Study in March 1996. It consisted of the compilation of various independent third party consultants’ work overviewed by the WMC Copper Uranium Division. It recommended that all rectangular concrete settler tanks be lined with HDPE, rather than FRP, and that the circular mixer tanks be constructed of FRP.

In October 1996, an Optimisation Study Report was completed. It was performed by an integrated team consisting of WMC managerial, financial, technical and operating personnel complemented by specialists and consultant engineers working in close co‑ordination at the OEP offices in Adelaide. One of the principal objectives of the Optimisation Study Report was to provide superior technical solutions where the design basis was deemed to be suboptimal.

A key element of the execution plan developed by the OEP team during the optimisation phase was that the OEP team would be “a fully integrated management team focused on OEP goals. The organisation and performance of this team will be as one single, seamless entity”.

In the Optimisation Study Report, reference was again made to the use of HDPE lined concrete tanks in the uranium and copper solvent extraction plant. This was for the settlers and major tankage. It was still proposed that mixer boxes and minor tankage would be constructed of fibre glass. One of the changes was that the volumetric throughput of the expansion SX plant was increased from 1900 m³/h to 2200 m³/h. The selection of the type of mixer/settler equipment was also changed from conventional mixer/settler plant to the reverse-flow mixer/settler layout.

It was stated in the Optimisation Study Report that it was planned to have the expanded plant operating by March 1999. It was to be a fast-track project and although WMC was in a hurry to get under way, it quickly fell behind schedule.

In September 1996, Fluor Daniel, an experienced international engineering company, expressed its interest in being considered for the engineering packages for the OEP. By a letter dated 21 October 1996, Fluor Daniel wrote to WMC stressing its “considerable Hydromet experience” both in Australia and overseas. It had designed the original Olympic Dam hydromet plant. Its process staff were said to have worked on 22 out of 25 operating copper solvent extraction/electrowinning (“SX/EW”) plants world-wide. In its letter, Fluor Daniel also said that:

The SX system is the heart of a SX/EW plant. Efficient transfer of copper from the leach solution to the tankhouse-rich electrolyte is essential to the performance of the SX, Leach and EW circuits. The ability to assess the effect of design variables on a wide range of operating conditions and capacities is vital to efficient design.
…
The design of SX circuits continues to evolve as newer generations of extractants provide reduced mixing time, better separation characteristics and optimised chemical kinetics and performance.
Fluor Daniel has worked with and continues to maintain regular contact with the major reagent vendors, equipment suppliers and plant operators. We have up-to-the-minute knowledge of the latest available products and technology innovations.

The design for the solvent extraction area, including the leak detection system, was awarded to Fluor Daniel.

By a facsimile dated 25 November 1996, Mr Weir wrote to Mr Softley attaching information from DJB and another company. Mr Weir told Mr Softley that contrary to the minutes of a management meeting held on 15 November 1996, “HDPE is the preferred material”. He said that what needed to be addressed was the fixing system as “T-locks” were not highly regarded.

The attached DJB response was a telefax, under the name of Kvaerner Davy-Andacollo, from a senior DJB engineer, Wayne Hopkins, apparently sent on 18 November 1996. Mr Hopkins listed ten HDPE lined concrete solvent extraction projects which had “all been successful”. He continued:

… The earlier ones did not attach the HDPE to “T Lock” and have shown undulations on the lining from swelling with time. For this reason we prefer to put down “T lock”.
I would say HDPE lined concrete is the standard method now in use with the only serious alternative being FRP lined concrete or free standing FRP for smaller units.
As regards your concerns with use of HDPE at higher temperatures we use this material as a tank lining for electrolyte at temperatures around 50⁰C with no problem. Admittedly use with organic has been at more ambient (up to 35⁰C) temperatures so some enquiries to the HDPE sheet vendors may be wise.

Mr Hopkins also warned Mr Weir not to mix FRP and HDPE.

By a facsimile dated 19 December 1996, Mr Weir wrote to Don Collins of WMC advising that the Optimisation Study had “factored an approx. $4m saving by using HDPE lined concrete versus rubber-lined mild steel”. Under the heading “Precedents”, he stated:

I have previously forwarded information on uses of HDPE in both thickener and SX applications. Nowadays, HDPE linings are the materials of choice for SX plants almost universally except in the States where chlorides are low enough to warrant stainless steel. ODO [Olympic Dam Operations] cannot consider stainless steel because of the expense of 2RK65 or SAF2507 stainless.
In thickening, there is no real precedent to using HDPE in this acidic application. There are many recent examples of neutral HDPE applications but none in acid environments. The use of HDPE in SX solutions at similar acidity and temperature is relevant but not directly comparable; in a slurry application, the wear characteristics are an additional concern but we can and do use HDPE lined pipe for our major slurry tailings lines.

Under the heading “Construction”, Mr Weir wrote:
Most, if not all, potential HDPE damage would be incurred during construction/fabrication. I am aware that QA/QC on HDPE installation is critical and our Constructability person, Bruce Weber, is pursuing States and Chilean expertise in construction systems for liners.

He concluded by stating that:
I am convinced that HDPE linings can be used successfully at ODO.

The minutes of an OEP meeting to discuss the SX plant held on 11 March 1997 noted that the mixer boxes were proposed to be constructed from stainless steel. It was also noted that the HDPE lining to settlers would be 5mm thick. Another meeting was held on 12 March 1997. The minutes noted that “mixer boxes were intended to be FRP after completion of the optimisation study. Stainless steel tanks were considered to be too expensive”. It was also noted that “it was thought that HDPE lined concrete mixer boxes could present problems if the forces provided by the pumper/agitators caused lifting of the lining”. Mr Matheson’s note of the meeting on 12 March 1997 was that a HDPE cast in liner was also an option for the mixer boxes.

By a facsimile dated 13 March 1997, Paul Thompson wrote to Omar Durand and Mark McLean, his Fluor Daniel colleagues, “with regard to FRP mix boxes for SX use”. He said that in the seventies and eighties all of the plants used stainless steel as they did not leak and lasted 30 to 50 years. But beginning with Codelco’s Ripios plant in Chuquicamata HDPE lined settlers “became common”. The challenge had been the connection between the metal mix boxes and the HDPE settlers but a reliable design had now been found. He said that he knew of only one plant linking cylindrical FRP mix boxes to HDPE “large” settlers. It had started recently in Chile, with a complicated connection. He said that for large flow mixer/settlers he would not recommend attempting to use “FRP mixers transitioning to HDPE lined settlers”.

By a memorandum dated 25 March 1997, Mr Sheeran of Fluor Daniel wrote to Mr Weir as follows:

Please find attached a summary of a number of options evaluated as potential mixer box materials. These options are as follows:
a)HDPE Lined Concrete – Concrete walls with a cast in HDPE lining. Internals would be a stainless steel insert with inbuilt baffles.
b)Individual FRP – circular FRP tanks with FRP baffles. The arrangement would have a carbon steel base mounted external to the settlers.
c)Polymer Concrete – polymer concrete tank with stainless steel baffles.
d)Stainless Steel – stainless steel tank including baffles, supported in a concrete structure.

Option (d) is the industry standard, but was rejected in the feasibility study for option (b) on the basis of cost. We have technical concerns about the use of circular FRP tanks in this duty (refer memo from Paul Thomson), hence our evaluation of other options. Option (c) is technically sound but cost is comparable to option (d) and is therefore rejected. The industry standard for large settlers is an HDPE lined concrete box. In option (a) we have extended this concept to the mixer box, the major difference being the use of complete studded panels set into the mixer box. Internal baffles and weirs would be manufactured in stainless steel or fibreglass as appropriate. The mixer boxes could be manufactured as pre-cast panels and assembled either on or off site.
… We recommend that the design be progressed on the basis of option (a), and request your approval and/or comments.

By an email dated 26 March 1997, Mr Weir advised his colleagues, including Messrs McCulloch, Softley, Folwell and Schell, that there were problems with the proposal that the mixer boxes be constructed with FRP and the settler tanks with HDPE. He said that “the preferred alternative” was to use HDPE 5mm lining material embedded in concrete. He wished “to progress with this design basis”. The construction method would be simple and the cost equivalent or cheaper than the FRP proposal. By a further email dated 2 April 1997, Mr Weir stated that “judging by the lack of response from all”, he was assuming that there were “no significant objections to this proposal”.

As will be seen below, in its Bid Request WMC nominated HDPE as the lining material for the tanks in the solvent extraction plant.

Early involvement of Protec Pacific and Steuler

In the meantime, Mr Smith of Protec Pacific and Mr Steuler of Steuler had been engaged in discussions about ways in which they could work together in the Australian market. The Olympic Dam expansion project was seen by both Mr Smith and Mr Steuler as one such opportunity. Mr Smith said in his witness statement that when he was in Germany in February 1997 it was agreed with Mr Steuler that Protec Pacific alone would submit a tender specifying Bekaplast as the lining material and that Steuler would assist Protec Pacific “in providing information and preparing the tender”. Mr Steuler and Mr Lähne told him that Steuler would be able to provide “the necessary technical expertise and support”.

Steuler had submitted its response to a prequalification questionnaire distributed by WMC, by a facsimile dated 24 October 1996. It was signed by Mr Steuler, who was variously described as Sales Manager or General Manager, Surface Protective Systems. It was stated in the response that Steuler was “currently considering opening up a branch office or subsidiary in Australia”. Included in the section on training was the following:

The site will be visited regularly by a Steuler project engineer. The training of the local personnel will be effected by our supervisor according to the Technical Information Sheets available for the materials used and according to our quality manual. Before starting with the execution of work, the local personnel will be trained carefully. They will also have to produce samples of the materials to be used which will be tested afterwards.

By a letter dated 29 January 1997, Mr Smith of “Protec Pacific, Wear & Corrosion Control Specialists” wrote to Des Milne of OEP giving information about Protec Pacific’s products and services which could be used by OEP. One of the big benefits of using Protec Pacific’s services mentioned by Mr Smith was that it was currently in the final stages of “Joint venture negotiation with one of the world’s leading mineral processing corrosion control corporations – Steuler of Germany”.

Mr Smith wrote a similar letter to Mr Weir on 13 February 1997. He added the following postscript:

Protec and Steuler of Germany have recently negotiated a partnership initiative that will facilitate the use of Steuler technology in Australia. This means that worlds’ [sic] best practice (Steuler) in wear and corrosion control will be available through a local (Protec) organisation.
Part of this technology will involve the use of Bekaplast (HDPE/PP) cast in linings that have been used extensively around the world in refining plants including those that use solvent extraction and electrolytic cells.

What became a very lengthy exchange of correspondence between Protec Pacific and Steuler commenced in March 1997 with Mr Smith seeking assistance from Mr Lähne in terms of information, recommendations, case histories and reasoned arguments why Steuler’s products would be superior for use in a number of specified projects including the OEP.

By a letter dated 14 March 1997, Mr Steuler sent to Mr Smith an “Agency Agreement” to be signed by him. The document was actually headed “Co‑operation Agreement” and was expressed to be between Steuler and “Protec Pacific, Wear & Corrosion Control Specialists”, thereafter called “Protec”. However, when Mr Smith signed the Co-operation Agreement on 1 April 1997, he affixed the common seal of Protec NSW.

By clause 2 of the Co-operation Agreement Steuler appointed “Protec” as its sole and exclusive distributor for Steuler products in Australia and New Zealand and granted that entity the exclusive right of purchasing Steuler products in that territory. Clause 4 provided as follows:

4.1Steuler warrants quality of material within the scope of specific tender/proposal technical specifications over a nominated period of time. This nominated period of time has to be agreed upon between both parties. If no time period will be specified in writing, the warranty time for installed products will be 12 months.
4.2In case of delivery of any defective products, Steuler shall deliver subsequently proper products at it’s [sic] sole expense to the end use or Protec store within the Territory.

By clause 5, Steuler agreed to pay “Protec” a specified commission for every order received by Steuler from other customers in the territory. It was also stated that “Protec” was not authorised to accept payments for Steuler. Clause 6 of the Co-operation Agreement stated:

6.Relationship

The relationship between Protec and Steuler shall be that of a purchaser and a seller. In case Steuler sells materials or services directly to third parties, a commission to [sic] will be paid to Protec.
Protec and Steuler also plan possibly on entering into project business together. For these kind of contracts separate agreements shall be worked out which will not affect the agreement on hand.
Protec shall not have any authority to incur any obligations on Steuler’s behalf.

Annex A to the Co-operation Agreement was a letter from Mr Steuler to Mr Smith, which was to be treated as part of the Agreement. It stated in part:

In addition to the agreement attached we discussed the following issues which should be treated as part of our Cooperation Agreement:
1.Protec and Steuler intend to start working together closely to form a long‑term relationship between both companies for the market of Australia and New Zealand.
2.If the cooperation develops as desired and if it should be desired by both companies, we also will have the option of forming a joint company for the development of the named marketplace.
3.Both parties will draw up a marketing plan for the development of this market for Steuler products and services. …
Protec Pacific will send a draft of this plan to Steuler by mid March. Steuler will also draw up a budget to support Protec with promotional activities, material for trial applications as well as training. …

By a letter dated 14 March 1997, Mr Smith sent Mr Lähne a draft Marketing Plan. The introduction referred to discussions between the senior executives of Steuler and Protec Pacific in Germany in March 1996 and February 1997. It also referred to the fact that:

Relevant hands-on marketing and technical experience currently rests with Steuler alone. Protec Pacific’s formidable track record does not include the application of Steuler products. It is therefore essential that Steuler continues to be in a position to closely support Protec Pacific for at least 2 years.

The Marketing Plan itself stated that one of the objectives was:

[The] Promotion and operation of major application assignments as co‑operative ventures between Steuler and Protec Pacific.

That would require “assistance from Steuler with site visits where appropriate and suitable documentation of track records”. At this time, Mr Smith was actively involved in seeking work from the OEP.

By a facsimile dated 18 March 1997, Mr Walschburger responded to Mr Smith’s latest queries. He said that most of the points had been discussed with Dr Dunker. Reference was made to “some big advantages of using Bekaplast instead of polymer concrete or laminate linings”. Mr Walschburger said that for the OEP solvent extraction area, Steuler would like to see Bekaplast used instead of the loose lining. Enclosed were “a selection of our most important projects”, most of which were electrolytic zinc plants. Included in the two page list were uranium solvent extraction plants installed by Cominak in Niger in 1976, by Outokumpu in Finland in 1993 and by Rössing in Namibia in 1991-1993.

Mr Smith’s note of a meeting with Mr Weir on 19 March 1997 recorded that Mr Weir told him that the project was “a fast track one” with the design and construct phase shrunk from three to two years. Mr Weir was also noted as saying that a good deal of preference will be given to people who could “guarantee speed of project completion”.

By a facsimile dated 7 April 1997, Mr Smith forwarded to OEP a list of Steuler Reference Projects and a Bekaplast summary sheet. The two page list of Reference Projects was headed “Electrolytic Plants for Non-Ferrous Metals”. Amongst a number of electrolytic zinc and copper plants which had used Bekaplast were the three uranium solvent extraction plants referred to above. The Bekaplast summary sheet, which also bore Protec Pacific’s name, listed numerous features of Bekaplast and the resulting benefits to the client. One such feature was “Broad Spectrum Chemical Resistance” which meant that it “Protects Substrate Against a ‘Cocktail’ of Process Liquids”.

By a facsimile dated 8 April 1997, Mr Walschburger wrote to Mr Smith setting out “some advantages for using Bekaplast”, which he could use in his “presentation”. Mr Walschburger’s comments included the following:

It has long been known in chemical engineering that these [Bekaplast] sheets possess excellent properties and resistance to both chemical and thermal conditions.
Extensive long-term laboratory studies and practical experience hive [sic] shown that a lining with Bekaplast sheets can also withstand frequent and extreme temperature fluctuations.
An example of the use of Bekaplast linings was “Lining of acid storage tanks, thickeners and sedimentation basins, etc, as well as acid and solvent resistant lining of solvent extraction plants”.

There was some doubt about whether this facsimile was ever sent because Protec could not produce a copy of it, but receipt of a facsimile on 11 April 1997 from Mr Walschburger of Steuler on the subject of “Bekaplast linings” was recorded in Protec Pacific’s incoming fax log. Mr Smith said that Protec Pacific had no other facsimile which matched the description in the log, but there was mention of a facsimile dated 10 April 1997. Whether or not the facsimile dated 8 April 1997 was sent, Mr Walschburger sent a similar document to Mr Smith on 24 April 1997.

The Bid Request for HDPE Lining of Tanks/Ponds

On 11 April 1997, Mr Otten of OEP forwarded to “Protec Pacific” the tender or Bid Request document for “HDPE Lining of Tanks/Ponds”. The due date for the bid was 17 April 1997. A replacement Material Requisition was sent by Mr Otten to Protec on 15 April 1997 and the due date was extended to 28 April 1997.

The Bid Request specified which tanks were to have the type “A” lining or the type “B” lining. The type “A” lining was:

Applicable to vigorously agitated tanks where significant negative pressure could be generated on the liner requiring secure fixing of the liner to the tank substrate. The liner is to extend above the maximum design liquid level with a splash cover continuing to the top of the tank wall, over the top and down the outside surface of the tank for a minimum distance of 150mm. Joint design of the liner shall ensure where possible that there are two welded joints between any liquid in the tank and the substrate.

The liner was to be:
HDPE sheet with integral fixing studs. Cast into concrete walls and floor. Liner shall be welded on interior and exterior of join.
Material – Black 5mm HDPE.

The type “B” lining was:
Applicable to non-agitated tanks without vigorous liquid movement allowing localised fixing of the liner to the tank substrate. The liner is to extend above the maximum design liquid level with a splash cover continuing to the top of the tank wall, over the top and down the outside surface of the tank for a minimum distance of 150mm. Joint design of the liner shall ensure where possible that there are two welded joints between any liquid in the tank and the substrate.

The liner was to be:
HDPE sheet.

Material – Black 5mm HDPE.

Clause 1.5.4 of Section 1, the Scope of Work and Pricing Schedule, read as follows:

Seller shall confirm that the lining material selected is suitable for a service life of 20 years exposed to the chemicals listed below, individually or in combination.

A)       Sulphuric Acid 180 g/L at 55⁰C

          Ferric (Fe³⁺) 20 g/L

          Copper (Cu²⁺) 5 g/L

          Chloride (CI^-)

3

g/L

B)        Kerosene 90 % at 55⁰C

          Aldoxime or Tertiary Amine 10 %

          Chloride (CI^-) 3 g/L

          H₂SO Entrainment

Clause 7.3 of the Engineering Specification stated:

THE LINING MANUFACTURER
The lining manufacturer shall confirm the suitability of its product and the proposed installation methods and details for the exposure conditions and operating conditions nominated in the Material Requisition.

Clause 4.1 of the General Conditions of Purchase read as follows:

4. SELLER’S FURTHER OBLIGATIONS
4.1 Standards of Design and Manufacture
The Seller warrants and undertakes that it shall design, manufacture, supply and commission the Goods:
a)in accordance with the requirements of the Purchase Order and using Good Design and Construction Practices; and
b)so that the Goods will have an operating life of at least thirty (30) years, subject to operation within the design limits and appropriate maintenance and repair, and will comply with all Environmental Laws, and will be fit for their intended purposes and free from all defects in design workmanship and materials.
c)in accordance with the relevant Australian Standards, in their absence the relevant British Standards, in both their absences such other International Standards as may be agreed between the parties.

The Seller shall ensure that all plans, drawings, specifications and other documentation prepared by the Seller in respect of the Goods shall in each case be adequate and suitable for their respective functions and purposes.

Clause 20 of the same part of the Bid Request dealt with Defects Liability. It commenced:

The Defects Liability Period shall be twenty four (24) calendar months from delivery or twelve (12) calendar months from successful start up, whichever is the earlier.

Mr Starcevich said in his witness statement that Fluor Daniel relied on the supplier and manufacturer of materials, with their intimate knowledge of their product, to assess the suitability of the product and to provide a warranty that it would perform as required. That was the reason for the inclusion of clauses 1.5.4, 7.3 and 4.1.

By a facsimile dated 16 April 1997, Mr Smith returned the Bid Request Acknowledgment Sheet signed by him on behalf of Protec NSW. In the facsimile, Mr Smith confirmed that the Bid Due Date had been extended until 28 April 1997. Further, he requested a realistic commencement date of early August 1997 in lieu of the scheduled date of 1 June 1997.

On the same day, Mr Smith faxed Mr Walschburger advising him that Protec Pacific had been put on the bid list for the OEP SX plant. Mr Smith said that he would forward the relevant documentation to Steuler for it “to bid on” once he received OEP’s approval of the August delivery date.

Steuler’s Role Following the Bid Request

Mr Smith said that in this tender preparation period he was in regular contact with Steuler representatives, particularly Mr Walschburger, who provided him with technical and commercial information to enable him to respond to the Bid Request.

The first step was that Mr Smith forwarded the relevant documents to Mr Lähne by a facsimile dated 17 April 1997. It contained the following comments:

We have not yet examined the tender in great detail, as such there will be many more questions/requirements that we will need to ask of Steuler, in addition to those included herein.
The primary purpose of this fax is to give Steuler sufficient time to meet the bid close date. The attached documents sufficient to make a start on initial technical and commercial work.
By Friday 18^th of April we will be in a position to set out how we would like your costings to be presented. In particular we will need a certain break up of the workshop and site-work labour manhours that you estimate will be required. …
In the meantime please note the following:-
Innovation – although price is very important, delivery and speed of contract completion is particularly important. OEP say that they have allowed the project cost to increase from AUD 1.5B to 1.7B (200M increase) in order to shrink the construction phase. Therefore if you can come up with any innovative ways to speed things up please advise Protec so that we can include in the bid.
…
Technical
A detailed Work Method Statement, in the English language, will be required on how the linings would be fitted in a workshop environment and on-site. In this statement please –
·provide details on weld procedures,
·how allowance will be made for ambient temperature variations during construction – the on-site work in particular will be subject to desert like conditions (hot during the day and cold at night).

Provide specification details on welding machines – name, model etc.
Provide a list of principal (main) tools and equipment that would need to be provided by Protec for a project of this size and scope.
Track Record
Please provide a specific track record stating where the proposed lining systems have been used in:-
·Uranium solvent extraction plants,
·Other solvent extraction plants.
·General lining works for hazardous liquids.

Also shown should be date of installation, country, client name, project name and size of installation (m2 or USD).
Closing Date
The closing date for the bid is the 28^th of April – this being the date that our bid must be in Melbourne (1000 kms from our office). The bid will be delivered to Melbourne by Protec courier.
We will need a minimum of 2 days to compile our documentation with Steuler's information. As it is unlikely that the Steuler information will be in [sic] exactly in accordance with Protec’s requirements, it would be advisable for:-
Steuler to send information through regularly – not in one large lot.
To have all documentation to Protec by close of business (German time) on Wednesday 23^rd April.

Dr Dunker said in his witness statement that on about 17 April 1997 Mr Walschburger telephoned him and said that he needed some advice in a hurry. According to Dr Dunker, Mr Walschburger said that he had a potential customer where HDPE had been specified as the lining material in a solvent extraction plant, and that he wanted Dr Dunker to look at a document listing the chemicals to be used at the project. Dr Dunker said that because HDPE had already been selected, Steuler was not being asked to test the proposed media against the Bekaplast product. In any event, time did not allow it and no sample of the solution was available for testing.

Dr Dunker said that, in order to respond to Mr Walschburger’s request, he referred to a test done in 1993 or 1994 by Steuler in respect of the kerosene (Shellsol D70) used at the Outokumpu solvent extraction plant in Finland. That test had not been requested by the client, but had been carried out by Steuler because of the provisions of the quality control standard ΙSO 9001. Steuler agreed that it was a requirement of ΙS0 9001 that clearance be obtained from the laboratory before a product was recommended as suitable for an intended application.

Clause 1.5.4 was given to Dr Dunker. He wrote his response in German on a copy of the document. A translation of the German was accepted as accurate by the plaintiffs. Opposite the mixture of chemicals labelled “A” he wrote “OK”. Opposite the mixture of chemicals labelled “B” he wrote “Slight swelling on the surface”. On the lower part of the page he wrote:

PE-HD has been tested in our laboratory for 3 months at temperatures of 55⁰C in a kerosene extraction solvent slight swelling of the surface (approximately 3%) with absorption of medium will occur, however this is reversible.

In cross-examination, Dr Dunker said that he had checked the chemical resistance charts produced by Simona and the German Institute for Building Technique prior to replying to Mr Walschburger’s request. This had not been mentioned before.

Following a telephone conversation between Mr Smith and Mr Walschburger, Mr Smith sent Mr Walschburger a facsimile dated 18 April 1997. It included the following points:

1.Please see Specification S-6 regarding the climatic conditions on-site – particularly temperature variations and humidity. This may not be so important if we are allowed to fabricate tanks with A and B type linings off-site (workshop in Adelaide).

…
4.As Steuler are going to recommend Bekaplast with 100 (+/-) knobs per m2 for Type B linings – it would be advantageous from a cost point of view to recommend a thinner lining IF THIS IS TECHNICALLY SOUND.

[36](1998) 196 CLR 494, 509 [33].
[37](2001) 206 CLR 459 [95]-[96].
…
In Marks v GIO Australia Holdings Ltd,[38] the Court said that the central issue under s 82 is to establish a causal connection between the loss claimed and the contravening conduct. Once such a connection is found to exist, nothing in s 82 suggests that the recoverable amount should be limited by drawing an analogy with contract, tort or equitable remedies although they will usually be of great assistance.[39]
…
In this case, the most appropriate approach is to identify what Mr Henville has suffered by way of prejudice or disadvantage in consequence of altering his position by reason of the breach of the Act. … By entering upon the project, Mr Henville has lost $319,846.51. If Mr Walker had not made representations in breach of the Act, none of this loss would have occurred. The loss suffered is therefore directly attributable to a contravention of the Act even though other factors played their part in bringing about the loss.[40]
…
Here the misrepresentations induced Mr Henville to enter into a contract and to construct units under the belief that the project would produce a substantial profit. If there had been no misrepresentations, Mr Henville would not have embarked on the course that he did and the loss that he suffered would have been avoided. That being so, his loss was a direct result of the misrepresentations and would have been recoverable in an action for damages for deceit. Moreover, I think that in a general way the loss was a reasonably foreseeable consequence of the misrepresentations. Although Mr Henville badly underestimated the cost of constructing the units, nothing in the findings of Anderson J or the Full Court demonstrates that any of the costs were unreasonably incurred. Matters such as the project being delayed with a consequential increase in costs and interest rates rising are matters that in the ordinary course of a development are reasonably foreseeable.
Nor do I see any reason why the principles applicable in an action for deceit at common law should not be applied in the present case. The purposes of the Act include promoting fair trading and protecting consumers from contraventions of the Act. Those purposes are more readily achieved by ensuring that consumers recover the actual losses they have suffered as the result of contraventions of the Act. Where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage, an award of damages that compensates for the actual losses incurred in embarking on that course of conduct best serves the purposes of the Act and should ordinarily be awarded.[41]
…
Nothing in the common law, in s 52 or s 82 or in the policy of the Act supports the conclusion that a claimant's damages under s 82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant's part. There is no ground for reading into s 82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant, it will be appropriate in assessing damages under s 82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act. But that proposition is concerned with the items that go to the computation of the loss.[42]

[38](1998) 196 CLR 494.

[39](2001) 206 CLR 459 [130].

[40](2001) 206 CLR 459 [132].

[41](2001) 206 CLR 459 [134]-[135].

[42](2001) 206 CLR 459 [140].

Hayne J reached a similar conclusion. He said:

… The question is to what extent, if any, did the appellants suffer loss "by" (that is, caused by) the respondents' misleading conduct?
If the traditional "but for" test, the test of necessity, is applied to the history I have described, neither the overestimation of the selling price, nor the underestimation of the costs, will be seen as the single cause of the whole of the loss that the appellants sustained. It cannot be said of either of these steps that, but for its occurrence, the appellants would not have sustained the amount of loss that they did suffer. Yet it can be said of each step that it was a necessary element of the set of circumstances that, together, were sufficient to bring about the loss that was sustained. Each played its part in the history of the events; each was a cause of what happened. Moreover, the two steps were concurrent causes of what happened. It cannot be said of either estimate that it was, in any sense, an intervening event.[43]
…
In the present case, the respondents' contravention of the Act can be seen to have caused the appellants' damage because the appellants relied on the respondents' misleading or deceptive conduct in deciding to proceed with the project. The amount of the loss ultimately suffered by the appellants was, however, brought about by the combination of circumstances of which the respondents' misleading and deceptive conduct was only one factor. The appellants' mistaken estimate of costs was another. How is s 82(1) of the Act to operate in such a case?[44]
…
The conclusion that the appellants suffered loss requires comparison between the position in which the appellants found themselves after the project was finished, and the position in which they would have been if, instead of relying on what they were told by the respondents, they had not undertaken the project. It does not invite attention to what would have been their position if an accurate estimate of selling price had been given by the respondents. Moreover, the conclusion that the appellants suffered loss neither requires nor permits consideration of some third or intermediate position in which the appellants undertook some project or transaction other than the one they did. It is, therefore, not relevant to consider what the loss might have been if costs had been estimated properly.
Secondly, seldom, if ever, will contravening conduct be the sole cause of a person suffering loss. Other factors will always be capable of identification as a cause of the person suffering loss. In a case like the present, the appellants' relying on the respondents' estimate of likely receipts can be seen to be a cause of their loss. What the Act directs attention to is whether the contravening conduct was a cause. It does not require, or permit, the attribution of some qualification such as "solely" or "principally" to the word "by".[45]

[43](2001) 206 CLR 459 [155]-[156].

[44](2001) 206 CLR 459 [159].

[45](2001) 206 CLR 459 [162]-[163].

Gummow J, the other member of the majority, agreed with the reasons for judgment of both McHugh J and Hayne J.[46] The other members of the Court, Gleeson CJ[47] and Gaudron J,[48] agreed that the appeal should be allowed but limited the damages to the amount of loss and damage that would have been suffered by Mr Henville if Mr Walker’s statements had been true.
[46](2001) 206 CLR 459 [152].
[47](2001) 206 CLR 459 [42]-[44].
[48](2001) 206 CLR 459 [72].

Counsel for the plaintiffs therefore submitted that as WMC was induced to enter upon a course of conduct that resulted in loss or damage, namely to install the unsuitable Bekaplast HDPE lining to the tanks in the solvent extraction plant, it was entitled to an award of damages that compensated for the actual losses it incurred in embarking on that course of conduct. Such actual losses, it was submitted, encompassed all four heads of WMC’s claimed loss and damage, including the cost of repairs to the HDPE lining, after it had been installed and before it was removed.

Steuler submitted that it was not liable for either all or part of WMC’s claimed loss or damage because, in effect, an intervening event or events had been such as to destroy the causal connection between contravention and loss or damage.[49]
[49](2001) 206 CLR 459 [13] (Gleeson CJ).

This possibility was recognised by the majority judges in Henville. McHugh J said:

If the defendant's breach has "materially contributed" to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.[50]

[50](2001) 206 CLR 459 [106].

Hayne J said:

There may be cases where some of the loss suffered by a person following ― and I use the word "following" in a neutral sense ― the conduct of another in contravention of the Act may not be loss suffered by that person by the contravening conduct. Had the appellants chosen, for wholly extraneous reasons, to change the design of the units, part way through their construction, in such a way as to waste some costs of construction already incurred, it might be said that the extra costs incurred were not caused by the respondents' contravention. … Thus, if notions of remoteness of damage or reasonableness are to find reflection in s 82(1) it seems probable that they may do so only through consideration of the causation question which the subsection poses.[51]

[51](2001) 206 CLR 459 [166].

In a joint judgment in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, Gaudron, Gummow and Hayne JJ said:

As was recognised in Henville v Walker there may be cases where it will be possible to say that some of the damage suffered by a person following contravention of the Act was not caused by the contravention. But because the relevant question is whether the contravention was a cause of (in the sense of materially contributed to) the loss, cases in which it will be necessary and appropriate to divide up the loss that has been suffered and attribute parts of the loss to particular causative events are likely to be rare.[52]

[52](2002) 210 CLR 109 [62].

The first supervening event Steuler pointed to was the second fire in October 2001. Steuler submitted that as a result of the second fire, WMC had to replace the HDPE in the solvent extraction plant in order to satisfy its statutory and common law obligations in relation to the safety of the plant, and to obtain insurance cover for the plant. That is, it submitted that the sole reason for the replacement of the HDPE was the safety and insurance requirements imposed on WMC following the second fire.

Steuler pointed out that it was stated several times in WMC’s Insurance Claim Report that the new solvent extraction plant had been designed and constructed in 1999 “in accordance with worldwide best practice”. There was no reference to the HDPE being completely unsuitable for the purpose it was supplied or that it had failed before the time of the fire and was therefore worthless. It was also stated in the report that WMC was required by statute, as part of the rebuild, to incorporate fire safety modifications in the design and rebuild of the damaged plant.

As part of the Overview in the Insurance Claim Report, WMC stated that:

Following the extensive investigation [into the cause of the fire], WMC was required to redesign and rebuild the SX facility, incorporating fire safety requirements to comply with WMC’s regulatory obligations.

The following South Australian legislation was said to be relevant to the regulatory environment:
Occupational Health Safety and Welfare Act;
Dangerous Substances Act 1979; and
Environmental Protection Act 1993.

Under the heading “Fire Safety Requirements” in the Report WMC stated that:
To comply with WMC’s statutory requirements the design for the rebuild of the SX plant incorporated a number of fire safety requirements …

Included as one of the requirements for each of the copper and uranium mixer/settlers and the copper and uranium tank farms was the following:
All tanks fitted with conductible FRP lining to eliminate static charge build-up …

Further, in Appendix N to the Report it was said in respect of the HDPE lining of the copper and uranium mixer/settler tanks which was to be replaced by FRP lining that whereas the purpose pre fire was “Corrosion protection of concrete tanks”, the purpose post fire was:
Corrosion protection of concrete tanks plus the provision of a conductive layer for the safe discharge of any static electricity build-up within the tank.

In the column headed “Reason for any difference/comment” it was said:
Combustible and non conductive HDPE material removed. Conductive, fire retarded FRP material installed to increase passive fire protection measures and reduce build-up of static electricity.

In the column headed “Reason for Change” the following appeared:
100% fire safety.

Further, in the JFE dated 2 May 2002 it was noted, under the heading “Insurance Considerations”, that WMC’s global insurance for Industrial Special Risks covering property and business interruption was renewed at 31 March 2002 but with “a specific exclusion on the SX facility”.

Counsel for WMC denied that the replacement of the HDPE was solely caused by the safety and insurance requirements following the second fire. They submitted that such a finding would have to completely ignore the largely unchallenged evidence of WMC’s witnesses on this point. (Counsel accepted, however, that some of the replacement costs did result from the need to make changes to avoid the recurrence of a fire and that, accordingly, these items were not recoverable from Steuler).

In his witness statement, Mr Softley said that the replacement of the HDPE with FRP was “seen as sensible and only solution based on the fact that FRP had proved to be successful after the first fire” and that there were continual problems with the HDPE lining. Another factor was that the HDPE was “considered a fire risk”. Mr Softley said that:

The downtime caused by the fire presented an opportunity to replace the problem linings.

Mr Softley agreed in evidence that the tanks in the solvent extraction areas were not directly affected by the second fire. The process solution was not removed from the tanks until March the following year.

Under cross-examination, Mr Softley said that the problems with leaks did not disappear between the two fires, “but the frequency of the problem had probably reduced”. He then said that “They certainly reduced in number but they didn’t disappear completely”. Whilst he agreed that references to leaks did not appear as frequently in the monthly reports, he was not prepared to concede that other leaks had not occurred, which as they did not affect production, were not mentioned.

Mr Softley also agreed that:

(a) replacing the HDPE was not the only solution; and
(b)the mixer tank with FRP insert performed by Thompson had not been successful.

In his witness statement, Mr Folwell said that:

On the basis of the serious extent of the deterioration of the liners and the opportunity presented to WMC by reason of the halt in production consequent on the second fire, I supported the recommendation that WMC should replace the HDPE in the mixer/settler tanks, in the copper SX trains and the uranium SX train with FRP.

That this had been Mr Folwell’s view for some years was illustrated by a document dated 18 April 2002 attached to Mr Rohringer’s report. In it, he recorded Mr Folwell’s response to his queries preceding his visit to the site. Two relevant questions and answers were:
What was finally the reason for the decision to replace the whole lining and not to repair local failures?
“Ongoing problems and expected worsening of problems”.
Why was it not possible to perform repair?
”It is possible but other failures to be expected! (Loss of production = $150,000/day)”.

In his witness statement, Mr Schell said that the replacement of all of the remaining HDPE with FRP lining:

was primarily done because the work that had been done post 1999 proved to be successful and reliable whereas we were continuing to have problems in those tanks that had not been replaced that were still lined with HDPE …
When we came to consider the lining reinstatement after the second fire, we knew the tanks relined with FRP after the 1999 fire had performed well. On the other hand, we continued to have leaks in the remaining HDPE lined tanks …
The reason for recommending [in the JFE dated 2 May 2002] a fire retardant conductive lining was related to fire prevention; but the reason for the replacement of the HDPE with FRP was that we believed that the deterioration in the linings, which were observed after the second fire, meant that it was not a suitable containment membrane.

Although some of the statements in WMC’s Insurance Claim Report are surprising, I have no reason not to accept the sworn evidence of Messrs Softly, Folwell and Schell that concerns about the suitability of the HDPE due to continuing problems with swelling and leaks were a factor in the decision to relace it with FRP. The timing of the decision to replace the HDPE may have been brought forward as a result of the opportunity presented by the halt in production consequent on the second fire. But this does not mean, in my opinion, that Steuler’s contravening conduct (its false and misleading representation about suitability) was not a cause of WMC’s loss, which would have resulted, at some time, without the second fire occurring.

The second supervening event relied on by Steuler was that the repairs to the HDPE lining were caused by the poor workmanship of Protec, Thiess and Fluor Daniel, as discussed above. Accordingly, Steuler submitted that, whatever else it might be responsible for, it should not be liable for the cost of repairing the HDPE. This argument might also apply to the installation costs head of loss and damage.

It seems to me that Steuler was correct in submitting that at least some of these repairs resulted from the conduct of others, such as Protec, Thiess and Fluor Daniel. But other repairs may have resulted from the unsuitability of the Bekaplast HDPE lining. That is, no definitive answer can be given at this stage. Therefore, it will have to be the subject of evidence and submissions in the second hearing (if the parties are unable to reach agreement on quantum).

Whilst not finally ruling on the matter of onus of proof, it is worth noting what was said on this issue in Henville. Gaudron J stated that:

… under s 82(1) of the Act, it is for the person whose contravening conduct materially contributed to the loss or damage to establish what component of that loss or damage is referable to some act or event other than his or her contravening conduct and not for the person who suffers loss or damage to establish the precise component or components referable to that conduct.[53]

[53](2001) 206 CLR 459 [70].

McHugh J appeared to agree, as his Honour said:

Arguably, once a plaintiff demonstrates that a breach of duty has occurred that is closely followed by damage, a prima facie causal connection will be established. It is then for the defendant to show that the plaintiff should not recover damages. In the words of Dixon CJ in Watts v Rake,[54] it is the defendant who must disentangle, so far as possible, the various contributing factors.[55]

[54](1960) 108 CLR 158, 160.

[55](2001) 206 CLR 459 [148].

Hayne J said that he did not need to decide the point, although his Honour commented:

For the moment, it is enough to say that it seems to me that such questions must find their answers within the Act rather than in analogies with common law.[56]

[56](2001) 206 CLR 459 [166].

A third argument advanced by Steuler about the question of damages was that, given the limited area of the lining in which the alleged defects were found by Dr Peggs, it was unnecessary to replace all of the lining in all of the mixer/settler tanks. It submitted that at most the lining of the mixer boxes required replacement. In a sense this is an argument about mitigation. In light of my findings about suitability, I do not consider it an unreasonable step for WMC to replace all of the HDPE lining, as all of it suffered from the same defect. I have found that the HDPE lining was unsuitable and that it was likely to fail completely well before a 20 year life. The consequences that future failure, in terms of employee and environmental safety and in terms of lost production, justified the decision to replace the whole lining following the second fire.

The situation is, therefore, that it would be premature to exclude any part of WMC’s claimed heads of loss and damage. These issues, together with the issue of betterment, will have to be considered in the quantum hearing.

Protec’s Claim

As previously stated, Protec’s claim for damages was limited to $15 million, being the amount for which it settled WMC’s claim against it and the amount of the consent judgment entered against it pursuant to that settlement.

In its defence in the Protec proceeding, Steuler pleaded that the settlement reached between Protec and WMC was not reasonable and gave various reasons for that conclusion.

One argument by Steuler was to the effect that Protec had suffered no loss from the settlement because it will never have to pay the settlement figure of $15 million. This was said to be the case because Protec had no ability to pay that sum; WMC knew that was the case; there was no term requiring Protec to actually pay that sum; on the contrary WMC agreed to release to Protec the bank guarantee in the sum of $175,865.08; as part of the settlement Protec agreed to pursue Steuler directly for damages and any damages recoverable by Protec would be payable by Protec to WMC; and the first ranking charge and/or priority executed by Protec in favour of WMC is only over Protec’s entitlement to recover damages, interest and costs from Steuler in the Protec proceeding and does not extend to other assets or income of Protec.

In my opinion, there is nothing in any of these points. Parties are free to settle on any terms they see fit. In return for settling for a right to enter judgment for $15 million against an impecunious defendant, WMC gained Protec’s assistance in pursuing Steuler, which was no doubt thought to be a defendant worth pursuing financially. Further, it is very easy to justify the view that giving up the limited amount of the bank guarantee was a small price for WMC to pay to obtain the overall settlement.

A second argument was that the settlement was not based on any proper or reasonable analysis by or on behalf of Protec as to its liability and/or the quantum of its liability to WMC in the WMC proceeding.

Protec’s argument was that, on the basis that the Bekaplast HDPE supplied was not suitable for its intended purpose, Protec’s position, with respect to WMC’s claim against it, was hopeless. Counsel for the plaintiffs submitted that this was so because of the representations made by it and because in the OSS Agreement Protec had contracted, allegedly in terms of Specification 7, that:

the lining system was a tough durable and chemically resistant system which shall withstand the site operating conditions to give long term protection to the concrete substrate.

However, in my opinion, the situation is not that simple. As has been found, the representations in the Bid were in fact made not by Protec but by Protec NSW. It was the author of that document, which formed the basis on which WMC granted the Purchase Order to Protec NSW.

Nor do I agree with the submission based on the terms of Specification 7 of the OSS Agreement. When one looks at that specification, which is headed “Design Detail”, it can be seen that rather than Protec promising that this is what it would provide, this was WMC stating or specifying that this is what “the concrete lining system shall be …” WMC then went on in the same specification to require that:

The concrete lining system shall consist of Steuler™ HDPE Sheeting bonded to the prepared substrate.

That is, no doubt as a result of what had occurred in 1997, Protec was being told by WMC that the concrete lining system, which Protec was contracting to install, had to be the Steuler Bekaplast HDPE sheeting.

Nevertheless, I do consider that, if the Bekaplast HDPE supplied was not suitable for its intended purpose, Protec’s position, with respect to WMC’s claim against it in the WMC proceeding, was very difficult. This is because, as far as the WMC proceeding is concerned, all three parties (Protec, WMC and Steuler) have accepted that no distinction is to be drawn between Protec and Protec NSW. If this conclusion means that some amendments are required to be made to Protec’s statement of claim in the Protec proceeding, I would be prepared to allow such a step, because the case was clearly fought on the above basis and therefore Steuler could not claim to be prejudiced by any such late amendment.

Counsel for the plaintiffs accordingly submitted that no one could suggest that, in these circumstances, settling for $15 million a claim said to total potentially $45.8 million (being $27.8 million, plus say $18 million in interest to the time of settlement) plus costs, was in any way unreasonable. Further, it would be obvious from the interlocutory history of the WMC proceeding and the lengthy hearing that the amount of costs, which an unsuccessful defendant might have to pay, would not be insignificant. In addition, settling at the time that it did, saved Protec from having to incur further costs in preparing for the trial, including drafting several witness statements, and the costs of the hearing itself.

While this might be considered to be a persuasive argument in favour of the reasonableness of the settlement, I propose to defer any final conclusion to the second hearing, when I will have a better understanding of the real quantum of WMC’s loss.

One issue yet to be addressed is the question of how the future judgments in favour of WMC and Protec fit together, so that WMC does not end up being over-compensated for its loss and damage.

Negligence

Even though I have held that each plaintiff is entitled to succeed in respect of their misleading or deceptive representation claim under the TPA, I should say something about their alternative common law claims. However, for obvious reasons, the parties were primarily concerned with the claims under the TPA and very little was said in final submissions about the negligence claims. By and large, all that Steuler submitted was that there had been no breach of any duty or any damage caused because it denied that the representations were false.

The plaintiffs submitted that the three representations by Steuler were made negligently in breach of the duty of care to each of Protec and WMC. They submitted that at the time that Steuler made each of the representations:

(a)       Steuler knew or ought to have known that:
(i)       the representations were with respect to a serious matter; and
(ii)Mr Smith and Protec, as a corporation of which he was a director, were likely to rely on the representations, in
(1)       making representations to WMC
(2)       entering into contractual relations with WMC;
(iii)WMC was likely to rely on the representations and the consequent Protec representations (made in the Bid) in deciding to proceed with the installation of Bekaplast HDPE linings for the concrete tanks at Olympic Dam.

(b)Protec did reasonably rely upon the representations in making representations to WMC; and entering into contractual relations with WMC.
(c)WMC did reasonably rely upon the representations and the consequent Protec representation in deciding to proceed with the installation of Bekaplast HDPE linings for the concrete tanks at Olympic Dam.

It was further submitted that, in the circumstances, Steuler owed a duty to Protec and WMC to exercise reasonable care in the making of the representations to avoid:

(a)Protec incurring economic loss by reason of its reliance referred to above; and
(b)WMC incurring economic loss by reason of its reliance referred to above.[57]

[57]Mutual Life & Citizens Assurance Co. Ltd v Evatt (1968) 122 CLR 556.

There was really no contrary argument advanced against these propositions, and I agree with them.

The plaintiffs submitted that the fact that Steuler owed Protec a duty of care was demonstrated by particular aspects of the close relationship between them. They submitted that the relationship between Steuler and Protec was one marked by the following features:

(a)Protec was entirely dependent upon Steuler with respect to product selection and specification because it had no experience with, or detailed knowledge of, Steuler’s Bekaplast products.
(b)Protec referred all technical matters to Steuler for assistance and frequently asked it for information and advice.
(c)Under the Co-operation Agreement, Protec would act as an agent, a distributor and an installer and Steuler would act as supplier and supervisor.
(d)The relationship would be co-operative and long term and the plan was to “enter into project business together”.
(e)Steuler would closely support Protec for at least 2 years and in the long term Protec and Steuler might form a joint vehicle for the Australian operation.

The plaintiffs submitted that, although the 23 April 1997 facsimile was sent to Protec and not to WMC, Steuler owed WMC a duty, in making the representation, to take reasonable care so as to avoid WMC sustaining a loss by reason of it entering into contractual relations with Protec and proceeding with the installation of Bekaplast HDPE linings for the concrete tanks at Olympic Dam. This duty arose because the 23 April 1997 facsimile was sent for the purpose of inducing WMC to do those very things. The same argument applied to the 4 July 1997 statement which was repeated in Mr Smith’s facsimile dated 8 July 1997.

A person who knows or ought to know that information will be passed onto a third party owes a duty of care to the third party. In Esanda Finance Corp Ltd v Peat Marwick Hungerfords Brennan CJ said:

But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements is missing, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice.[58]

[58](1995) 188 CLR 241, 252.

In my opinion, the representations were made negligently in that Steuler:

(a)incorrectly relied on the Cominak plant in Niger as an example of a successful installation of a Bekaplast HDPE lining in a solvent extraction plant, when PVC and not HDPE had in fact been used;
(b)relied on the Outokumpu plant in Finland as an example of a successful installation of a Bekaplast HDPE lining in a solvent extraction plant without making any inquiry as to what had happened at that plant;
(c)relied on tests performed in respect of the Bekaplast HDPE lining supplied to Outokumpu without making any inquiry as to what had happened at that plant;
(d)failed to advise Protec that time did not allow it to test the proposed solution against the Bekaplast HDPE lining;
(e)ignored the information contained in the Chemical Resistance Chart(s) published by Hoechst (the other manufacturers) concerning the reaction of the HDPE material to kerosene at elevated temperatures;
(f)failed to take into account that the solubility parameters of HDPE and kerosene were similar and that at elevated temperatures the kerosene was diffused into the HDPE with the detrimental effects referred to above; and
(g)had no evidence on which to base the representation that the Bekaplast HDPE lining would be suitable for long term use with a solvent such as kerosene at elevated temperatures.

I therefore find that the representations were made negligently by Steuler in breach of the duty of care it owed to each of Protec and WMC.

Contributory Negligence

Steuler submitted that any loss or damage suffered by WMC was caused or contributed to by the negligence and lack of care of WMC and its agents Protec, Fluor Daniel and Thiess. However, as contributory negligence is not relevant to a claim under the TPA, this issue need not be considered further.

The Development Act

A similar issue pleaded by Steuler in the WMC proceeding was that apportionment of liability under s.72 of the South Australian Development Act 1993 was applicable to WMC’s claim and that accordingly judgment should be given against Steuler only for such amount as may be just and equitable in the circumstances having regard to the extent to which the acts or defaults of Steuler contributed to the loss and damage suffered by WMC.

I accept the plaintiffs’ submission that the provisions of the South Australian Act cannot impinge on the remedies laid down in the TPA. Once again, therefore, this issue need not be considered further.

Outstanding Issues

Once the parties have had the opportunity to consider these reasons, I will hear submissions, at a mutually convenient time, as to what steps should be taken to deal with the outstanding issues concerning quantum.

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Payments made to Protec for supply of HDPE lining material and initial offsite installation costs	$1,157,154
Payments to Protec to install HDPE lining system	$4,141,811
Payments to Protec to rectify or repair defects in the HDPE lining system	$3,616,052
Costs of removing HDPE lining system and replacing it with a fibreglass lining system	$22,385,001
$31,300,018
Less reasonable cost for the design, supply and installation of a fire retardant FRP lining system in 1997-1998	$3,520,837
$27,779,181

A) Sulphuric Acid	180	g/L	at 55⁰C
Ferric (Fe³⁺)	20	g/L
Copper (Cu²⁺)	5	g/L
Chloride (CI^-)	3	g/L
B) Kerosene	90	%	at 55⁰C
Aldoxime or Tertiary Amine	10	%
Chloride (CI^-)	3	g/L
H₂SO Entrainment

[2009] VSC 322

7 August 2009