BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH (No 2)
[2011] VSC 659
•16 DECEMBER 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
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 | |
DATE OF HEARING: | 15-18, 21, 24-25, 28-30 JUNE 2010; 1 and 6 JULY 2010 WRITTEN SUBMISSIONS 18 and 27 AUGUST 2010 | |
DATE OF JUDGMENT: | 16 DECEMBER 2011 | |
CASE MAY BE CITED AS: | BHP BILLITON (OLYMPIC DAM) CORP P/L v STEULER INDUSTRIEWERKE GmbH [No 2] | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 659 | |
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Trade Practices – Misleading or deceptive conduct – Loss and damage – Proof thereof - Comparison with position if not misled – Supervening event – Onus of proof if several causes – Trade Practices Act 1974 (Cth) ss 52, 82.
Damages – Proof that settlement reasonable – Evidence to be called.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr PJ Riordan SC with Mr IH Percy | Middletons |
| For the Defendant | Mr PJ Cosgrave SC with Mr FJ Tiernan SC and Mr AF Gray | Hunt & Hunt |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Revisiting Earlier Reasons................................................................................................................ 3
WMC’s Damages Claim.................................................................................................................... 4
Consideration of the Issues.............................................................................................................. 9
The Quantum of WMC’s Claim if Contrary Conclusion Reached......................................... 17
Supply of HDPE and Initial Off-Site Installation Costs Charged by Protec........................ 21
HDPE Installation and Repair Costs Charged by Protec......................................................... 21
Completion Costs - Supervision................................................................................................... 25
Completion Costs – Labour Hire................................................................................................... 28
Completion Costs - Materials......................................................................................................... 35
Completion Costs - Indirect Costs................................................................................................ 39
Costs Incurred in 2002..................................................................................................................... 41
Removal of HDPE Costs................................................................................................................. 43
Preparatory Costs............................................................................................................................. 52
Removal and Preparatory Costs - Indirect Costs........................................................................ 62
Quantification of the Competing Approaches........................................................................... 63
Protec’s Damages Claim.................................................................................................................. 65
Limitation Defences......................................................................................................................... 72
Final Orders....................................................................................................................................... 73
HIS HONOUR:
Introduction
This judgment is concerned with the question of the assessment of damages in two related proceedings where I have previously given judgment on liability (“the first judgment”).[1] For a complete understanding of the issues involved in the two proceedings, it is necessary to refer to both judgments as I have tried in this judgment to keep repetition of matters dealt with in the lengthy first judgment to a minimum.
[1]BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322.
However, by way of introduction it is helpful to repeat what I said at the commencement of the first judgment:
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.[2]
[2][2009] VSC 322, [1].
In the first judgment I found that:
(a)Steuler represented to Protec Pacific (NSW) Pty Ltd (“Protec NSW”) and WMC that:
(i) Bekaplast HDPE lining systems supplied and manufactured by Steuler had been installed and sold in extraction plants in other parts of the world and had been in service for more than 20 years (“the second representation”); and
(ii) Bekaplast HDPE was suitable for use as a long term containment membrane for the concrete solvent extraction tanks at Olympic Dam[3] (“the third representation”);
[3][2009] VSC 322, [384]–[507].
(b)Protec NSW repeated the second and third representations to WMC;[4]
(c)in reliance on the second and third representations:
(i)WMC decided to enter into the On-Site Service Agreement (“the OSS Agreement”) with Protec Pacific Pty Ltd (“Protec”) and install the Bekaplast HDPE lining system; and
(ii)Protec entered into the OSS Agreement with WMC;[5] and
(d)the second and third representations were misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“TPA”), and were made negligently in breach of Steuler’s duty of care to WMC and Protec.[6]
[4][2009] VSC 322, [384]-[507].
[5][2009] VSC 322, [508]–[529].
[6][2009] VSC 322, [530]–[624] and [626]-[632].
Following a ruling given early in the first hearing that the questions of liability and quantum be split, I decided, with the concurrence of the parties, that the first judgment would 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.[7]
[7][2009] VSC 322, [23].
It was agreed that in the first judgment I would 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. At the start of the first 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 made and costs incurred by WMC in completing the installation and attempting to rectify or repair defects in the HDPE lining system[8]
$3,616,052
Payments made and costs incurred by WMC in removal of the HDPE lining system, decontamination and replacement with a fibreglass lining system
$22,385,001
$31,300,018
Less the reasonable cost for the design, supply and installation of a fire retardant (conductive) FRP lining system in 1997-1998
$3,520,837
$27,779,181
[8]In the first judgment this item was mistakenly also described as “payments to Protec”. See [2009] VSC 322, [20].
In the first judgment, however, after discussion of the competing submissions,[9] I concluded 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.[10]
[9][2009] VSC 322, [635]-[664].
[10][2009] VSC 322, [665].
With respect to Protec’s claim for judgment in the sum of $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 the first judgment I rejected various arguments advanced by Steuler against the reasonableness of that settlement.[11] Nevertheless, I decided that I would “defer any final conclusion to the second hearing, when I will have a better understanding of the real quantum of WMC’s loss”.[12]
[11][2009] VSC 322, [666]-[676].
[12][2009] VSC 322, [676].
Revisiting Earlier Reasons
During the course of the second hearing an issue arose as to whether, if I was minded to do so, I could revisit my earlier reasons and give different reasons. Steuler submitted that I could do so given that no order or judgment had yet been perfected. Reference was made to the Court of Appeal decision in Fletcher Construction Australia Limited v Lines McFarlane & Marshall Pty Ltd[13] where Chernov JA said:
In the case of a superior court of record, judgment is not relevantly finalised until it is entered in the records of the court. Hence, until that occurs, the judge can recall the order and the reasons and make a different order and give different reasons.[14]
Reference was also made to the judgment of Brennan, Dawson, Toohey and Gaudron JJ in Smith v New South Wales Bar Association, where their Honours said:
It has long been the common law that a court may review, correct or alter its judgment at any time until its order has been perfected.[15]
[13](2001) 4 VR 28.
[14](2001) 4 VR 28, [49] (Charles and Vincent JJA agreed with Chernov JA).
[15](1992) 176 CLR 256, 265.
WMC submitted that there was no occasion for me to revisit my earlier reasons. Further, it referred to the judgment of the plurality in Smith where the proposition in Ritchie’s Supreme Court Procedure that the power to review a judgment in a case where the order has not been entered will not ordinarily be exercised “to permit a general re-opening”[16] was said to be correct “as a general statement”.[17]
[16]Ritchie’s Supreme Court Procedure, New South Wales, vol 1, p 2855.
[17](1992) 176 CLR 256, 265.
As far as I am concerned I have not in the second judgment given reasons different to those found in the first judgment. However, if and insofar as any reasons in the second judgment might be thought to differ from views more or less tentatively expressed in the first judgment, this would be because the reasons in the second judgment dealing with the damages issues have been given after I have had the benefit of hearing and considering detailed submissions specifically addressing those issues.
WMC’s Damages Claim
By an amendment following an order made on 9 April 2010, WMC’s claim for the cost of replacing the HDPE lining system with an FRP lining system was deleted. This substantially reduced the quantum of WMC’s overall claim and meant that the issue of betterment disappeared. Thus, at the start of the second hearing, WMC’s claim was expressed to be as follows:
A. Cost of supplying the HDPE lining and the initial off site installation costs $1,157,154.92 B. Cost of installing the HDPE Payments to Protec $4,141,811.00 Supervision costs $204,261.40 Indirect costs $79,743.65 Labour hire
- Beltreco $199,305.24
- Merit Lining Systems $130,772.47
- RM Lee $469,327.36
- BSA Engineering $488,744.88$1,288,149.95
Indirect costs $502,893.74 Material costs
- Steuler $44,238.00
- HRL Materials ETRS $ 7,540.00
- Dotmar EPP $74,809.00
- Parbury Technologies $ 2,003.20
- Blackwood & Son $ 320.70
- Industrial Vacuum Services $ 2,188.00
- JR Engineering Services $13,278.50$144,462.40
$6,361,322.14
C. Cost of removing the HDPE and costs of preparing/reinstating the settler/mixer tanks Removal
- York Civil $460,026.54
- Olympic Dam Maintenance $114,548,48
- Ron Gee Enterprises $1,293,591.18
- Ron Gee Enterprises $1,211,241.78
- BSA Engineering $ 5,564.61
$3,084,972.59
Preparatory costs - Monadelphous Engineering $ 35,992.36
- Diversified Industrial Services $ 124,622.16
- Industrial Vacuum Services $ 123,497.50
- Stevens Resources $ 10,300.21
- Ron Gee Enterprises $ 269,358.14
- Ron Gee Enterprises $1,006,595.83
$1,570,366.20
Indirect costs $1,542,997.23 $6,198,336.02 Total
$13,716,813.08
In addition, WMC claimed interest on the above amount. It was agreed that the calculation of that claim would have to await the determination of the amount of WMC’s damages, if any, as the date from which interest might be recoverable would differ depending on when the particular entitlement in respect of each of the various categories of loss arose.
The central issue for determination in the second hearing was the amount of the loss or damage, if any, that WMC suffered as a result of Steuler’s contravention of s 52 of the TPA. At the relevant time, s 82 (1) of the TPA provided as follows:
… [A] person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
WMC submitted that it was entitled to recover from Steuler:
(a)the entire cost of installing the liners in the concrete tanks in the new copper and uranium solvent extraction plant (“the SX”) in 1998 and 1999, not just the cost of installing the Bekaplast HDPE lining, and including the costs of repair work even if such work related to problems caused not by the defective Bekaplast lining but by other companies’ poor workmanship, plus
(b)the cost of returning the SX area to its original condition in 2002 by removing the Bekaplast lining and curing its detrimental effects (principally the contamination of the concrete) so that the tanks were prepared for the installation of a second lining.
WMC relied on the High Court’s decision in Henville v Walker in seeking to claim all of the costs of installing the Bekaplast HDPE liner on the first occasion. In that case, the appellant, an architect, was induced by false and misleading representations made by a real estate agent to undertake a development project involving the purchase of land and the construction of three units in Albany, Western Australia. The representations made by the agent overestimated the likely selling price of the units and also the demand for such units in the area. The project was delayed and the costs proved to be well beyond what the appellant had estimated. Contrary to what the respondent had stated, there was little to no demand for such units in the area, and the three units eventually sold for much less than had been suggested by the estate agent.
Although the appellant had also contributed to the loss he suffered in preparing an inaccurate feasibility study, which the Court found severely underestimated the costs of the project, the High Court ultimately held that both factors - the representations as to selling price and the likely demand for such units, and the inaccurate feasibility study - were causes of the loss suffered and as such the majority held that the appellant was entitled to recover the whole of the amount lost on the project, on the ground that this was what he had suffered by way of prejudice or disadvantage in consequence of altering his position by reason of the breach of the TPA.[18]
[18](2001) 206 CLR 459, [144]-[145] (McHugh J), [153] (Gummow J) and [160] (Hayne J).
Accordingly, WMC submitted that the correct approach was to include all of the costs incurred by it in respect of supplying, installing, repairing and removing the HDPE lining in the settler/mixer tanks in the SX and all of the costs of preparing or reinstating those tanks to be ready for the installation of a new lining. WMC submitted that Steuler was liable under s 82 for all of those costs because, as a result of being misled about the suitability of Bekaplast, WMC had gone “down the wrong path”. If it had not done this, it would not have incurred these costs. Therefore, WMC submitted that all of the costs were recoverable even if:
(a)it had not been shown that the costs resulted from the unsuitability of the Bekaplast lining; or
(b)it had been shown that the costs had been incurred in respect of work related to non-Bekaplast material in the SX area; or
(c)it had been shown that the costs had been incurred in respect of work performed before the tanks had been commissioned.
Steuler submitted that WMC had failed to prove that it had suffered any loss which was caused by Steuler’s contravention of s 52 and that, accordingly, WMC’s claim should be dismissed.
Steuler’s first overriding or overarching argument, as it was variously referred to in final submissions, was that WMC should not recover any damages from Steuler, because:
(a)it had not established what it would have done if Steuler had not engaged in misleading conduct;
(b)thus WMC could not demonstrate the required comparison between the situation brought about by the contravening conduct and the situation as it would have been without the contravening conduct; and
(c)therefore WMC could not prove that it had suffered any detriment as a result of Steuler’s misleading conduct.
Steuler submitted that the facts in this proceeding were what were described as an “alternative transaction” case as opposed to a “no transaction” case. The present case was said to be an “alternative transaction” case because had the contravening conduct not occurred, WMC would still have proceeded with the expansion of the site and the lining of the tanks, but would have done so by entering into an alternative arrangement with a different supplier. On the other hand, a “no transaction case”, such as Henville v Walker, was one where the plaintiff argued that but for the contravening conduct which caused it to be misled, it would not have embarked on the project or transaction at all.
Steuler submitted that in a “no transaction” case a plaintiff could theoretically recover all of the loss it suffered as a result of entering the transaction, so that it was, in effect, put in the position it was in before it entered into the transaction. Steuler submitted, however, that in an alternative transaction case the Court was required to compare the position the plaintiff was in now with the position it would have been in had the representation not been made. It further submitted that as no evidence had been led as to what WMC would have done if not misled by Steuler, WMC had failed to prove that it had suffered any loss or damage as a result of the contravention.
Steuler’s second overriding or overarching argument was that even if one could speculate about what course WMC might have followed in the absence of Steuler’s misrepresentation, WMC would have still had to replace the favoured alternative lining, following the second fire in October 2001, because of the need to install a fire retardant and conductive lining in order to reduce the risk of yet another fire occurring.
Consideration of the Issues
In order to recover damages under s 82 of the TPA a plaintiff must prove that the loss or damage alleged was caused “by” conduct in breach of the Act. Whilst the requirement to establish causation is not specifically set out in that section, it is apparent from the authorities that the use of the word “by” in s 82 signifies that the common law principles of causation are relevant to the question of whether or not a plaintiff recovers under the section. In Wardley Australia Limited v WesternAustralia,[19] Mason CJ, Dawson, Gaudron and McHugh JJ stated that the use of the word “by” in s 82 clearly expressed the notion of causation and that the section “should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare(E & MH) Pty Ltd[20] …”.
[19](1992) 175 CLR 514, 525.
[20](1991) 171 CLR 506.
Although the “but for” test has a role to play in the determination of s 82 damages, the High Court has made it clear that it may not be the sole and exclusive test for determining whether a contravention caused the loss or damage.[21]
[21] Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, [42] (McHugh, Hayne and Callinan JJ).
While there is no specific measure of damages prescribed by s 82 of the TPA, it is apparent from the authorities that the usual measure of damages applied in cases where misleading and deceptive conduct is alleged, is the measure of damages applicable in tort. In Gates v City Mutual Life Assurance Society Ltd, Mason, Wilson and Dawson JJ, said that:
[T]here is much to be said for the view that measure of damages in tort is appropriate in most, if not all, Pt V cases, especially those involving misleading or deceptive conduct and the making of false statements. Such conduct is similar both in character and effect to tortious conduct, particularly fraudulent misrepresentation and negligent misstatement.[22]
[22](1986) 160 CLR 1, 14.
In Henville v Walker, McHugh J summarised the correct approach to the measure of damages as follows:
This Court has addressed the question of assessment of damages under s 82 on several occasions. The Court has concluded that in most cases the measure of damages in tort is the appropriate guide in determining an award of damages under s 82. However, in assessing damages under s 82, courts are not bound to choose between the measure of damages in deceit or other torts or contract. In Marks v GIO Australia Holdings Ltd, 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. As Gummow J said in Marks, "[a]nalogy, like the rules of procedure, is a servant not a master".[23] [Footnotes omitted]
[23](2001) 206 CLR 450, [130].
Steuler submitted that WMC could not prove any loss because WMC had submitted at the liability hearing, in its counsel’s words, that it was “impossible to predict” what it would have done had it not entered into the transaction with Steuler.
Steuler went further and submitted that in paragraph 528 of the first judgment I had accepted WMC’s submissions at the liability trial that the Court was unable to make any decision about what WMC would have done if Steuler had not engaged in misleading conduct. The relevant passage is as follows:
Secondly, in my opinion, WMC also relied on the singular 20 year representation, to some extent, and the suitability representation (the second and third representations) made directly by Steuler, and repeated by Protec NSW, in deciding to enter into the OSS Agreement and install the Bekaplast HDPE lining system. Obviously, WMC did favour HDPE, but I agree with the plaintiffs’ submission that if Steuler had not been prepared to represent that its HDPE material was suitable, then WMC would have looked at the issue again. Perhaps it would have stuck with HDPE by contracting with Beltreco to install Serrot’s HDPE material as the liner for the tanks. Or it may have abandoned HDPE and changed to FRP, as it did some four years later. Whatever course it might have followed, I am satisfied that if Steuler had not represented that its Bekaplast HDPE lining system was suitable, WMC would not have proceeded to enter into the OSS Agreement with Protec.[24]
[24][2009] VSC 322, [528].
Contrary to Steuler’s submission, I do not consider that in the above paragraph I accepted that it was impossible to know what WMC would have done. I merely made the comment that there were a number of possible options that WMC may have taken had the contravention not occurred. The paragraph relied upon by Steuler was concerned with the question of reliance. I was not there dealing with or considering the question of what position WMC would have been in had the contravention not occurred.
However, the meaning of paragraph 528 is an unnecessary distraction because it was not disputed that WMC’s position was that it was not possible to say what would have happened if Steuler had not made its representation about the suitability of the Bekaplast lining, other than that some other lining would have been used.
Thus, Steuler submitted that, as it was not possible for the Court to decide what alternative route WMC would have taken, it was therefore impossible for the Court to compare WMC’s present position with the position it would have been in had the representation not been made by Steuler. It followed, in Steuler’s submission, that WMC had not and could not establish whether it had incurred any loss or suffered a detriment, as a result of entering into the transaction with Steuler.
WMC accepted that the Court must compare the position the claimant was in subsequent to the contravention, with the position it would have been in had the contravention not occurred. In Henville v Walker, for example, Hayne J stated that:
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 they would have been in if, instead of relying on what they were told by the respondents, they had not undertaken the project.
This follows what was said earlier in the joint judgment of McHugh, Hayne and Callinan JJ in Marks v GIO Australia Holdings Limited:
a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct.[25]
[25](1998) 196 CLR 494, [42].
In a no transaction case, the comparison is rather easier for the plaintiff to establish because the alternative course of action is simply that the plaintiff would not have entered into the transaction at all, but for the representation. However, in the alternative transaction case, the plaintiff will need to have evidence of what it could and would have done had the contravention not occurred, in order to prove that it has suffered loss in consequence of the contravention As Mason, Wilson and Dawson JJ said in Gates:
Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed: … The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract.[26] [Emphasis added]
[26](1986) 160 CLR 1, 13.
I therefore consider that Steuler was correct in submitting that WMC had not proved that it had suffered any loss because it did not prove what it would have done had it not been misled.
In reaching that conclusion I am not ignoring the evidence given at the first hearing by Mr Blizzard and Mr Starcevich that possibly WMC would have contracted with Beltreco Limited (“Beltreco”) to install the HDPE lining supplied by Serrot Corporation.[27] On the other hand, there was evidence from Mr Weir that if WMC had decided not to proceed with HDPE, a FRP lining may have been chosen because it was known to perform satisfactorily and was cheaper than another possibility, namely high grade stainless steel.[28]
[27][2009] VSC 322, [518]-[519].
[28][2009] VSC 322, [522].
However, in my opinion, this evidence did not cure the gap in WMC’s proof. It would only have done so if I had been satisfied on the balance of probabilities which option WMC would have chosen had Steuler not misled it. It is hardly surprising that I was not persuaded that I should be so satisfied because, as I have previously said, the position adopted by WMC in its final submissions in the first hearing was that it was “impossible to predict” what WMC would have done.
Nevertheless, in case I am wrong in reaching this conclusion it is appropriate to consider what WMC’s position would have been, assuming first that it had been established by WMC that the Beltreco option would have been chosen by it in 1997. I agree with Steuler’s submission that in that case WMC would have been in the same position as it now was. There would still have been a finding that the HDPE lining was not suitable to act as a containment membrane for the liquids used in the SX tanks at Olympic Dam. There would also have been a finding that Beltreco had misled WMC about the suitability of its HDPE lining at the meeting on 14 May 1997.[29] Thus, WMC would have suffered no loss on this scenario because once again it would have installed an unsuitable HDPE lining. It seemed to me that WMC never satisfactorily met the argument that on this assumption WMC would in all probability have the same claim for damages but this time against Beltreco instead of Steuler and that therefore it would have been no better off if it had not been misled by Steuler.
[29][2009] VSC 322, [137], [140].
There is a further argument why WMC would have been no better off as a result of selecting Beltreco to provide the HDPE lining rather than Steuler. This is Steuler’s second overriding argument referred to above about the need to replace even a satisfactory lining with a fire retardant and conductive lining to reduce the risk of fire. Steuler submitted that as a result of the second fire in October 2001, WMC had to replace the HDPE lining in the SX tanks 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.[30]
[30][2009] VSC 322, [647]-[658].
In the first judgment I stated that Steuler’s contravening conduct was a cause of WMC’s loss, which would have resulted, at some time, without the second fire occurring.[31] But the fact is that the second fire did occur and it is clear, in my opinion, that even if the Beltreco installed HDPE lining had been operating satisfactorily at that time, it would have been a non-fire retardant and non-conductive lining which would have been replaced by WMC with a fire retardant and conductive lining. Therefore, WMC would have suffered no loss because it would still have incurred the cost of installing the first lining and the cost of removing that lining and preparing the tanks for the installation of the second lining after the second fire. (In all of these hypothetical comparisons one has to assume that the various costs are the same for each lining. Certainly, no attempt was made by WMC to suggest otherwise.)
[31][2009] VSC 322, [658].
The second assumption to consider is that it had been established by WMC that it would have chosen to install a FRP lining in 1997 if it had not been misled by Steuler. There was no suggestion that in such a case the lining would not have been a non-fire retardant and non-conductive lining. However, once again there is the argument that even a satisfactorily operating lining would have been replaced by WMC after the second fire with a fire retardant and conductive FRP lining. WMC sought to meet this argument by relying on the evidence of Mr Derek Gee that the initial FRP lining could have been modified rather than being completely replaced and thus the cost would not have been as great as that which WMC in fact incurred in replacing the Bekaplast HDPE lining.
Steuler tendered an expert report prepared by Peter Groch, the Operations Manager of RPC Technologies Pty Ltd (“RPC”). Mr Groch had a Masters degree in Engineering. He had worked for over 25 years in the construction industry “along with 15 years experience with all aspects of industrial GRP equipment including design, manufacture, supply, installation, commissioning and project management”. Mr Groch said in his report that RPC was
the leading Australian supplier of corrosion resistant, structural FRP (fibre reinforced plastic) fabrications, piping and ducting systems, acid resistant heavy duty linings and specialist composite products.
In his expert report, Mr Groch gave the following answer to the question whether the initial FRP lining could have been modified to meet the new fire prevention requirements:
The technical specification STSP-61 Rev 1 is very specific on the requirement for conductivity and fire retardance. Clauses 7.11.2 and 7.12.3 details out the requirements for fire retardance and conductivity and clause 7.12.5.5 stipulates the performance requirements for conductivity. The non conductive and non fire retardant FRP liner proposed in 1997 would not comply with the above requirement and could not be modified to achieve the specified requirements and would need to be removed and replaced.
Mr Groch was not cross-examined.
Mr Gee gave evidence that he was appointed the Operations Manager for Ron Gee Enterprises Pty Ltd (“RGE”) prior to that company performing work at the Olympic Dam site. After the second fire in October 2001, he visited the site with his uncle, Ron Gee, the chairman of RGE, in order to prepare a quotation of the cost of replacing the HDPE lining with a FRP lining in the uranium mixer/settler tanks. RGE was awarded that contract on 26 April 2002. It mobilised to site on or about 12 May 2002. Mr Gee said that he was the most senior RGE representative on site performing the role of construction/operations manager in charge of the day to day operations.
In his certificate dated 29 May 2010, Mr Gee said that if the SX tanks had been lined with non-fire retardant and non-conductive FRP in 1997-1998, the lining could have been modified to make it fire retardant and conductive in conformity with the intent of WMC’s specification STSP-61. However, in cross-examination, Mr Gee agreed that the specification was “a much more stringent document” than, and an improvement on, the trial and error procedures he had used in the past. He agreed that his proposed method did not satisfy the specification because it would not result in an FRP lining in which all layers were both fire retardant and conductive in accordance with that specification. Further, Mr Gee agreed that on his proposed methodology, it was not possible to spark test both the concrete surface and each layer of the FRP lining as required by section 7.13.7 of the specification. He agreed that this meant one could not know whether or not the FRP liner was defective. Steuler therefore submitted that on his own admission, Mr Gee’s suggested methodology for making the initial FRP lining fire retardant and conductive failed to satisfy the WMC specification in two respects.
WMC submitted that Mr Gee’s two aspects in which the modified liner would not comply with the specification were that:
(a) there would be four layers of a chopped strand mat instead of two, and
(b)the concrete surface could not be spark tested as required by section 7.13.7.
Nevertheless, WMC submitted that Mr Gee was correct in stating that the modified FRP lining would meet the intent of WMC’s specification STSP-61 because the requirements for conductive linings and non-conductive linings indicated that the first four layers for both were identical. It was only the final two layers that were different – carbon fibre surface veil and resin topcoat with carbon powder for the conductive lining and two resin topcoats for the non-conductive lining.
However, WMC did not explain to my satisfaction how Mr Gee’s method of modifying the FRP lining could overcome the inability to spark test the concrete and the layers of the lining. Although Mr Gee was generally an impressive witness, I am not persuaded that his method of modifying the FRP would be satisfactory or that WMC would have been prepared to take this short cut given that there had been two serious fires at the SX plant. I prefer Mr Groch’s evidence on this point.
I have therefore concluded that on this assumption, it would have been necessary to remove the existing FRP lining (assuming it was installed in 1997-1998) in order to install a new fire retardant and conductive lining. Therefore, once again WMC would have suffered no loss because it would still have incurred the cost of installing the first FRP lining and the cost of removing that lining and preparing the tanks for the installation of the second FRP lining after the second fire. In any event, Mr Gee said in cross-examination that there would be “very little cost difference” between modifying the initial FRP lining to make it fire retardant and conductive and removing the initial FRP lining and replacing it with a fire retardant and conductive FRP lining.
The result is, therefore, that in my opinion WMC has not made out its claim that it has suffered loss or damage by conduct of Steuler done in contravention of s 52 of the TPA. This means that this claim must fail. The same conclusion applies to WMC’s claim in negligence.
The Quantum of WMC’s Claim if Contrary Conclusion Reached
Nevertheless, because of the amount of attention given both before and during the second hearing to the details of the various categories of loss making up WMC’s claim, which may become relevant if my above conclusion is held on appeal to be wrong, I propose to go on to consider what the quantum of WMC’s claim would be in that event.
There were many issues in dispute between the parties as to the correct approach to calculating WMC’s alleged loss. Several should be mentioned now. First, there was the issue already discussed about whether WMC could recover all of the costs it had incurred in installing and removing the first lining. This was WMC’s approach to quantification of its damages claim (“WMC’s approach”). On the other hand, Steuler submitted that the correct approach to calculating WMC’s alleged loss was to ascertain the reasonable costs which had been incurred by WMC as a result of the unsuitability of the Bekaplast lining (“Steuler’s approach”).
Secondly, there was the question of onus of proof in situations where the cause of the incurring of costs may have been the unsuitability of the Bekaplast HDPE lining or it may have been other factors such as defective design, construction or installation of various parts of the tanks, poor workmanship and even blasting by WMC.[32] Steuler submitted that the onus lay on WMC to prove that its loss was caused by Steuler’s breach whereas WMC submitted that the onus was on Steuler to prove that the cost was not caused by its breach.
[32]For a fuller summary of such factors, see [2009] VSC 322, [609].
In Henville v Walker 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.[33]
[33](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,[34] it is the defendant who must disentangle, so far as possible, the various contributing factors.[35]
[34](1960) 108 CLR 158, 160.
[35](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.[36]
[36](2001) 206 CLR 459 [166].
Despite what was said by Gaudron J and McHugh J, in the circumstances of this case it seems to me that the correct approach is that WMC has to show on the balance of probabilities that it had incurred a particular cost “by” the conduct of Steuler in contravention of the TPA. I consider that this approach is in line with what was stated by Hayne J. That is, Steuler should not have to pay the cost of a particular piece of work unless WMC can establish on the balance of probabilities that it was caused by Steuler’s contravention of the Act.
Thirdly, Steuler submitted that it was entitled to a credit in respect of the theoretical cost of whatever lining WMC would have installed in the SX tanks in 1997-1998 if it had not installed the Bekaplast lining. Such a credit was properly included when, at the start of the first hearing, WMC was seeking to recover as part of its damages the cost of installing the new liner in 2002 (see paragraph 5 above). What this really meant was that WMC was seeking to recover the cost differential between the two liners, because the new liner was inevitably going to be more expensive, less some allowance for betterment. But the cost of the initial liner was deleted by WMC when it amended its claim to exclude the cost of the new liner (see paragraph 11 above). Steuler submitted that if WMC chose not to pursue some part of its claim, that did not affect what had to be taken into account as a matter of law in calculating the damages.
I do not agree with Steuler’s submission. In my opinion, it was not necessary for WMC to include a claim for the cost of installing the new liner in 2002 in order for it to be offset against the theoretical cost of installing that liner in 1997-1998. As WMC submitted, its reformulated claim assumed that these two costs would have been the same and therefore they could both be excluded. This was to Steuler’s advantage as the cost of the new liner would inevitably be greater. Therefore, what WMC chose not to pursue as part of its claim was only this cost differential and there was no unfairness in not allowing Steuler a credit for the cost of the initial lining.
Finally, there is the issue of nominal damages. On a few occasions, Steuler’s submissions in respect of a particular claim concluded with the statement that WMC was only entitled to nominal damages. In JLW (Vic) Pty Ltd v Tsiloglou, Brooking J (as his Honour then was) stated:
Loss or damage is the gist of the statutory cause of action for which s 82(1) provides, and accordingly there is no cause of action until actual loss or damage is sustained. … Nominal damages cannot be awarded under s 82.[37]
I have therefore treated such references as a submission that WMC is not entitled to recover any damages in respect of the particular claim.
[37][1994] 1 VR 237, 249. See also Tadgell and JD Phillips JJ at 250-251.
Because some points raised by Steuler were conceded by WMC during the second hearing, it is helpful to set out how the final claim by WMC was expressed:
1 COST OF SUPPLYING HDPE
Payments to Protec for supply and off site works
$1,157,154.92
$1,157,154.92
2 COST OF INSTALLING HDPE
Payments to Protec
$3,529,056.61
$3,529,056.61
3 COMPLETION COSTS
Supervision costs
Hannan$10,625.00
Godfrey $44,980.00 Ryan $51,696.40 Lawton $80,460.00 Malcolm $16,500.00 sub-total $204.261.40 Indirect costs on supervision $79,743.65 $79,743.65 Labour costs Beltreco $199,305.24 Merit Lining Systems $130,772.47 Ralph M Lee $469,327.36 BSA Engineering $488,744.88 sub-total $1,288,149.95 Indirect costs on labour hire $502,893.74 $502,893.74 Materials cost Steuler $44,328.00 HRL Materials ETRS $7,540.00 Dotmar EPP $74,809.00 Parbury Technologies $2,003.20 Blackwood & Son $320.70 Industrial Vacuum Services $2,188.00 JR Engineering Services $13,273.50 Sub-total $144,462.40 4 REMOVAL OF HDPE York Civil $445,043.54 Olympic Dam Maintenance $97,639.78 Ron Gee Enterprises $1,272,647.28 Ron Gee Enterprises $1,211,241.78 BSA Engineering $5,564.61 sub-total $3,032,136.99 5 PREPARATORY COSTS Monadelphous Engineering $35,992.36 Diversified Industrial Services $109,299.00 Industrial Vacuum Services $123,497.50 Stevens Resources $10,300.21 Ron Gee Enterprises $251,082.72 Ron Gee Enterprises $1,045,032.83 sub-total $1,575,204.62 Indirect costs on HDPE removal and preparatory costs $1,703,794.93 $1,703,794.93 Total claim
$13,216,858.75
$13,216,858.75
I turn then to consider what amount should be allowed for each of the above items under WMC’s approach and under Steuler’s approach.
Supply of HDPE and Initial Off-Site Installation Costs Charged by Protec
The first category contained the single claim of $1,157,154.92 for payments made by WMC to Protec for the supply of the HDPE lining and the initial off-site installation costs. I am satisfied from WMC’s Purchase Order 4000-MRE-2456-MAC revision no 3 dated 25 January 1999 and other relevant documents and from Mr Smith’s evidence in the first hearing that WMC paid this sum to Protec. However, Protec’s reconciliation of the relevant invoices and payments stated that it had been overpaid $1,383.32 and that the “total revised purchase order value” was $1,155,771.60. Although WMC did pay the larger sum to Protec, a repayment of this overpaid amount could have been taken into account in agreeing the figure of $15 million in the settlement between WMC and Protec. Therefore, I consider that the correct amount for this category under both WMC’s approach and Steuler’s approach, would be $1,155,771.60.
HDPE Installation and Repair Costs Charged by Protec
The second category contained the claim for payments made by WMC to Protec for installing the HDPE lining and repairs to that work under the OSS Agreement. The amount originally claimed by WMC for this item was $4,141,811.41. Various WMC documents, including Contractors Progress Payment Certificate no 23 dated 30 June 1999, support that this amount, or more accurately $4,141,811.45, was paid to Protec. Moreover, Protec admitted receiving this sum in its reply dated 21 September 2005. However, Mr Smith’s evidence in paragraph 139 of his witness statement was that under the OSS Agreement Protec was paid only $4,028,672.15. The difference between the two amounts is explained by the fact that WMC had retained the sum of $113,149.30 from the total amounts otherwise payable to Protec. Therefore, it appears that the arithmetically correct figure which Mr Smith should have stated was $4,028,662.15.
Nevertheless, during the second hearing WMC reduced its claim for this item to $3,529,056.61 after deducting certain items totalling $499,605.54 and the retention monies of $113,149.30. The calculation of the amount of $499,605.54 was as follows:
Dump pond liner $38,665.00 Sand filter lining $3,691.70 CCD floor area $197,607.96 Tailings disposal $62,455.74 Lasta filter area $121,438.23 CCD tunnel $35,660.38 Repairs to lasta filter area $20,939.50 CCD vinyl ester $19,147.03 Total
$499,605.54
WMC deducted the above items because it conceded that it could not press claims where, on the face of the documents, it could be shown that the work did not relate to the SX area.
WMC produced a reconciliation by cost code of all of these payments to Protec which showed that the amounts for cost code 4441 (which related to the uranium tanks or USX) was $773,342.09 and for cost code 4711 (which related to the copper tanks or CuSX) was $2,557,878.75 – a total of $3,331,220.84. But this document raised more questions than answers. For example, what justification was there then for the remaining items in WMC’s original claim totalling $349,455.71 that were not within the relevant cost codes? And, how reliable were the cost codes when 4711 included $40,700 for the dump pond liner which WMC had conceded could not be recovered from Steuler? This analysis by WMC was therefore not that helpful.
Steuler also claimed that there was an overpayment of $232,828.31 in respect of three items which appeared in paragraph 27 of WMC’s particulars of loss and damage. WMC submitted that there was no evidence before the Court of any such overpayment and that the claims had been made at a time when WMC was resisting Protec’s claim for an extra $2.1 million. In any event, I consider that the above adjustments meant that the issue of overpayment disappeared.
As I am satisfied that WMC paid Protec $4,028,662.15 as discussed above, I consider that on the balance of probabilities the correct figure for this item under WMC’s approach is the amount claimed, namely $3,529,056.61.
Steuler still submitted that WMC had not established a relevant causal connection between Steuler’s contravening conduct and the items of loss claimed. It submitted that Steuler’s contravening conduct must be the real, direct or effective cause of WMC’s loss.[38]
[38]See Elna Australia Pty Ltd v International Computers Aust Pty Ltd (No 2) (1987) 16 FCR 410, 419 (Gummow J).
Steuler argued that, insofar as the items constituting this claim related to repairs of Protec’s own work, there was no relevant causal connection with Steuler’s contravening conduct about the suitability of the Bekaplast because:
(a)this work was all performed by August 1999 before the tanks had been commissioned and used in the treatment of the process solutions at the SX plant; and
(b)the repair work would have been equally required even if Bekaplast were an ideal product.
Steuler prepared a list of the various items which it said could not be claimed against it because they did not relate to the unsuitability of the Steuler Bekaplast product. They were said to total $2,287,764.63. In the second version of the list the total was reduced to $2,119,287.22, after three items (CCD Tunnel, Additional SX raffinate area and Repairs to lasta filter area) were deleted and one reduced (Lasta filter area). However, there was some overlap between the items conceded by WMC in reducing its claim to $3,529,056.61 and the items sought to be deducted by Steuler. This meant that the following amounts had to be deleted from Steuler’s second version of the list to avoid double counting:
Dump pond liner $2,035.00[39] Sand filter lining $194.30[40] CCD floor area $197,607.96 Tailings disposal $62,455.74 Lasta filter area $39,963.30[41] CCD vinyl ester $19,147.03 Total
$321,223.33
[39]This amount is the difference between the amount sought to be deducted by Steuler and the amount conceded by WMC. The difference related to an amount retained by WMC.
[40]This amount is the difference between the amount sought to be deducted by Steuler and the amount conceded by WMC. The difference related to an amount retained by WMC.
[41]This amount was sought to be deducted by Steuler in its second version when the larger amount from the first version had been conceded by WMC.
In addition, other items were recorded twice in the first version but only one entry per item was omitted from the second version. It seems to me that both entries should have been. These items were:
CCD Tunnel $35,660.38 Additional SX raffinate area $30,375.60 Repairs to lasta filter area $20,939.50
Further, another item, Lasta filter area, was recorded twice in both versions of the list, although in different amounts. It seems to me that the second entry for $81,501.93 was a partial repetition of the first entry (which itself should be deleted as discussed above) and therefore it should also have been deleted:
Lasta filter area $81,501.93
Finally, it also seemed to me that Steuler had included some items twice in both versions of the list when they should only have appeared once. These items were:
Leak Detection Strips (USX) $15,000.00 Leak Detection Strips (CuSX) $24,000.00
These six items, which totalled $207,477.41, should also be deleted from Steuler’s second version of the list of deductions.
Then there was the item for “Additional out of scope welding on hinged weir plates in settlers”. When I pointed out to Mr Cosgrave in the hearing that the description of this item in the relevant “Daywork Summary” dated 31 December 1998 contained a reference to Bekaplast material being used, he conceded that it might not be an appropriate deduction. Later, however, he returned to this item and submitted that given the size of the sheets of material in question the reference to Bekaplast must have been a mistake and that it must have been smooth HDPE. I agree with this submission as the Bekaplast material was quite different in size.
However, WMC also made submissions dealing specifically with some of the items in Steuler’s list of deductions. Two should be mentioned. First, Protec variation notice 45 (42) dated 7 December 1998 claimed “return airfares for German welders”. WMC paid Protec $21,471.68 in respect of this claim, which was included in Steuler’s list as “Air Fares”. I consider that this cost was one incurred as part of the cost of installing the HDPE lining, which should be recoverable by WMC. The same conclusion applies to item 45(43) in Steuler’s list “German Welders”. WMC paid Protec $206,593.20 in respect of this claim. These two items, which totalled $228,064.88, should therefore be deleted from Steuler’s second version of the list of deductions.
The total amount of the deletions considered above is $756,765.62:
Paragraph 71 $321,223.33 Paragraph 72 $207,477.41 Paragraph 74 $228,064.88 $756,765.62
This means that Steuler’s list of deductions would total $1,362,521.60 rather than $2,119,287.22. Thus, I consider that the correct figure for this item, under Steuler’s approach, would be $2,166,535.01. (WMC’s claim of $3,529,056.61 less Steuler’s list of deductions totalling $1,362,521.60).
Completion Costs - Supervision
The third category of costs claimed by WMC was for the costs of completing the installation of the HDPE. The first sub-category under this heading was for supervision costs. This claim was for payments made by WMC to five of its supervisors between 14 May and 27 August 1999 as follows:
Supervisor Hours Hourly Rate Claim Hannan 125 $85.00 $ 10,625.00 Lawton 894 $90.00 $ 80,460.00 Godfrey 692 $65.00 $ 44,980.00 Ryan 998 $51.80 $ 51,696.40 Malcolm 330 $50.00 $ 16,500.00 $204,261.40
Mr Hannan gave evidence that although he was based in Adelaide he routinely spent two days a week on site. He said that when he was on site in about June or July 1999 he asked the others to start recording the amount of time they had spent, and were spending, in supervising and managing Protec issues because he could see there was going to be a “commercial discussion” with Protec about the extra costs. There were timesheets for the relevant period for Messrs Lawton, Godfrey and Ryan. Mr Hannan said that he did not fill out timesheets. There was no explanation given for there being no timesheets for Mr Malcolm. (He could not be called to give evidence because he had been severely incapacitated by a stroke.) Nevertheless, Mr Hannan gave evidence that he believed that the number of hours claimed represented a fair assessment of the time spent by each of them on the Protec completion and repair issues.
Steuler submitted Mr Hannan’s calculations assumed the accuracy of the other men’s estimates. It submitted that as none of them gave evidence on this issue, Mr Hannan’s evidence was hearsay. However, in cross-examination Mr Hannan said that whilst Mr Godfrey had worked in other areas it was his “recollection” that Mr Godfrey was “100% focussed on HDPE repair work and nothing else” in the relevant period. He was then asked whether that was the same position with respect to each of Mr Malcolm, Mr Ryan and Mr Lawton and answered “yes” on each occasion. He then said that he based his “fair assessment” statement both on the information given to him by the other men and on “my observation of what was happening at the time when I was on site”. It therefore seems to me that this evidence was admissible.
However, Steuler pointed out other problems with the timesheets of the three supervisors. The first problem raised by Steuler was that it was not apparent from the timesheets precisely what repairs were supervised, or where, within the SX tanks. Steuler submitted that it should not be liable for repairs to non-Steuler HDPE on weirs or other parts of the SX tanks, and yet such work was equally consistent with the description on the timesheets. Moreover, the descriptions on the timesheets were not consistent. One supervisor referred to “engineering process” and the other two to “commissioning”. Further, the project numbers on each of the three timesheets are different. Next, the hours and payments in WMC’s claim differed from the following figures contained in the timesheets:
Supervisor Hours Hourly Rate Total Lawton 884 $90.00 $79,560.00 Godfrey 629 $65.00 $40,885.00 Ryan 1065 $51.80 $55,167.00
Thus, the claimed amounts for Messrs Lawton and Godfrey were based on more hours than were included in the timesheets. In my opinion, in the absence of any explanation for the difference, the greater claim is unsustainable. There was no explanation for why the number of hours recorded in the timesheet of Mr Ryan was more than that claimed, but obviously WMC’s claim should be limited to the amount it had sought. Therefore, if this claim is otherwise recoverable it would be as follows:
Supervisor Hours Hourly Rate Total Hannan 125 $85.00 $ 10,625.00 Lawton 884 $90.00 $ 79,560.00 Godfrey 629 $65.00 $ 40,885.00 Ryan 998 $51.80 $ 51,696.40 Malcolm 330 $50.00 $ 16,500.00 $199,266.40
Steuler submitted that all of the above problems meant that WMC had not made out its claim for the costs of supervision.
I consider that the correct amount for this item, under WMC’s approach, would be $199,266.40. But under Steuler’s approach I consider that the correct amount for this item would be nil because I am not satisfied that all of the time spent by the supervisors related to problems caused by the unsuitability of the Bekaplast HDPE lining, rather than by other unrelated problems.
Completion Costs – Labour Hire
The next sub-category of the costs of completing the installation of the HDPE was the claim for the labour and associated costs charged to WMC by four separate contractors. Mr Hannan gave evidence that the arrangements with the labour hire companies were usually on a reimbursable rate basis. According to Mr Hannan, each contractor was to keep timesheets in respect of the labour supplied, the timesheets were to be signed off by the relevant WMC supervisor, copies of the timesheets were then attached to the invoice or payment claim, WMC checked to see that the invoice matched the timesheets and if the documentation was in order it went to Mr Hannan for approval and then to WMC’s accounts department for payment by cheque.
The first item in this sub-category was the claim of $199,305.24 in respect of work performed by Beltreco. By a facsimile dated 6 June 1999 from Vince Pansini of Beltreco to Mr Hannan, Beltreco advised that “experienced operators and supervisor to assist in the welding of HDPE linings at Olympic Dam” were then available. A handwritten note on the facsimile indicates that on 7 June 1999 Mr Hannan confirmed by telephone that Beltreco was to proceed. WMC submitted that the unchallenged and uncontradicted evidence was that Beltreco was engaged to weld HDPE linings under Purchase Order OAC-14387 dated 15 June 1999 and that from 9 June to 20 August 1999 Beltreco carried out work totalling this amount under the contract. The description of the work required in Purchase Order OAC-14387 was “Welding of HDPE linings on site …” The value of the order was then said to be $100,000. However, I reject Steuler’s submission that this figure raised doubts about the claimed amount of $199,305.24. It seems to me that the $100,000 figure was a nominal or preliminary one subject to increase or decrease depending on the quantity of labour supplied.
An amended witness statement of Mary Ock Noons was tendered in evidence by WMC. Ms Noons said that she was the credit manager for Sandvik Mining and Construction, which presumably was a reference to Sandvik Mining & Construction Perth Pty Ltd (“Sandvik”), which entity acquired Beltreco in 2001. Prior to that she had been employed by Beltreco since July 1992 and had been its Group Credit Controller. She explained that the financial records of Beltreco were imported into the computer database of Sandvik in 2001 and that although it was possible to reproduce that information it appeared in the current proforma Sandvik invoice style. The documents produced by Ms Noons purported to show that Beltreco had invoiced WMC the total sum of $199,305.24 and been paid that amount by it in respect of the work referred to above.
Mr Hannan gave evidence that “all the work done under Purchase Order OAC-14387 was related to HDPE repairs”. This evidence was not challenged. However, Steuler submitted that the records did not show any “necessary connection with the representation as to the unsuitability of Bekaplast” and did not disclose whether the welding was of Bekaplast or smooth HDPE. The job description on most field service reports (“FSRs”), “HDPE Welding”, did not assist.
Steuler also made a number of criticisms of the source documents. First, it pointed out that sometimes the hours and charges recorded on the FSRs did not match the charges on Beltreco’s invoices. For example, invoice no 58073 dated 31 August 1999 charged an amount of $5,280.48 for FSR 22517, an amount of $654.00 for FSR 22523 and an amount of $806.00 for FSR 22524. Yet the number of hours recorded on FSR 22517 is 72 which even at the overtime rate of $63.00 per hour is only $4,536.00, and the number of hours recorded on FSRs 22523 and 22524 is 12, between 0700 and 1900 hours, which at the normal rate of $44.00 per hour is $528.00, plus $50.00 each day for the hire of the extruder welder. In the absence of anyone from Beltreco giving an explanation for this discrepancy I consider that WMC’s claim must be reduced by the following amounts:
FSR Amount claimed Amount justified Discrepancy 22517 $5,280.48 $4,536.00 $ 744.48 22523 $ 654.00 $ 578.00 $ 76.00 22524 $ 806.00 $ 578.00 $ 228.00 $1,048.48
Next, it was submitted that the fact that FSR 22506 was missing was significant because of the amount involved. In order to make up the amount charged on invoice no 58320 dated 31 August 1999, the charge for the number of hours recorded on FSR 22506 would have to be $6,805, which would be about twice the normal weekly amount. However, when the extra $3,396 for hours recorded but not charged on FSRs 22507, 22508 and 22509 is taken into account, the amount of $3,409 for the missing FSR 22506 is well within the range of the other FSRs in that week.
Finally, in respect of four invoices, nos. 56883, 57332, 57334 and 57337, totalling $129,287.78, Steuler pointed out that the only description given was “T/UP Balance” and in respect of a fifth invoice, no 58319, in the sum of $29,898.74, the only description given was “FSR Details as per in 57527” and no such FSR was discovered. Steuler submitted that the Court could not be satisfied on this meagre information that the five invoices related to the unsuitability of Bekaplast.
I am satisfied that these five invoices did relate to this work of “welding of HDPE linings on site” because each of them referred to WMC’s Purchase Order OAC-14387. But the point remains that the work may have related to Bekaplast unsuitability for which Steuler was responsible or to smooth non-Bekaplast HDPE which was not Steuler’s responsibility. No one from Beltreco was called to give evidence about this point.
WMC submitted that the amount should still be allowed despite precise reconciliation between the FSRs and the invoices not being possible on the basis that:
(a) the timesheets provided substantial support;
(b)none of the deficiencies were put to Mr Hannan who may have explained the inconsistencies;
(c)it was inherently unlikely that there would be precise correlation between the FSRs and the invoices; and
(d)the critical evidence was the amount of the invoices issued under the contract, and which the evidence showed had been paid by WMC.
Most of these arguments relate to the question of the quantum of Beltreco’s claim against WMC and the amount paid to it by WMC. Apart from the unexplained discrepancy of $1,048.48 which reduced WMC’s claim to $198,256.76, I am satisfied that at least the latter amount was paid by WMC to Beltreco. The more difficult issue is that already highlighted, namely whether the work performed by Beltreco related to problems caused by the unsuitability of the Bekaplast HDPE. Mr Hannan’s evidence does not assist in this regard. Saying the Beltreco work “related to HDPE repairs” does not resolve the difficulty facing WMC.
Thus, I consider that the correct amount for this claim, under WMC’s approach, would be $198,256.76. But under Steuler’s approach I consider that the correct figure would be nil because I am not satisfied that all of the work performed by Beltreco related to problems caused by the unsuitability of the Bekaplast HDPE lining, rather than by other unrelated problems.
The second item in this sub-category was the claim of $130,772.47 in respect of work performed by Merit Lining Systems Pty Ltd (“Merit”). Stephen Hollier, the managing director of Merit, gave evidence that during the period from 12 July to 20 August 1999 Merit performed work and supplied labour in relation to the welding of HDPE corrosion protection linings for the mixer and settler tanks in the SX area. The scope of the work under contract OEP-1067 between WMC and Merit was for Merit to “provide supervision, technicians and equipment directed by WMC to carry out HDPE welding work”. The contract set out a schedule of rates. It was sent by Mr Hannan to Merit by facsimile on 20 July 1999 and was accepted by a facsimile dated the same day. Mr Hollier said that during this period he was “actively involved in the management of Merit’s operations and finances” under its contract with WMC “including the rendering of invoices and payment of invoices by WMC”. Merit’s four invoices for a sum totalling $130,772.47 in respect of the periods from 12 July to 31 July 1999 and 6 August to 20 August 1999 were identified by Mr Hollier as accurate and relating to the work described above. He further said that whilst he had been “unable to locate any confirmation of payment of the invoices from Merit’s computerised or source document records”, he was confident that Merit had been paid for all of the amounts invoiced to WMC. The fact of payment was also supported by WMC’s Contractors Progress Payment Certificate for Merit dated 3 September 1999 which stated that the first two invoices for $57,551.87 and $19,061.00 respectively had been paid and that the remaining amounts of $36,128.70 and $18,030.90 had been approved for payment.
Steuler submitted that the source documents did not make clear what area was being worked upon and whether the work concerned the unsuitability of Bekaplast. For example, Merit’s Daily Field Report for 14 July 1999 records 50 man hours on the “Copper SX”. However, the following was written in the “Comments” part of the document:
Working in Copper SX attaching and welding top to weir.
Some initial problems getting familiar with German techniques, recutting shoes etc. but managed to get approx 70% of weir top plate welded.
Merit’s Daily Field Report for the following day records 40 man hours on the “Copper SX”. The first comment was:
Crew completed first weir top started yesterday in reasonable time.
Moved all welding equipment over to next section in Train B.
These comments suggest that the work was related to smooth non-Bekaplast HDPE. Steuler also sought to make something of a second comment about “TG” meeting Leigh Cowan about evaporation ponds, but as TG was not one of the workman whose time was included in the 40 hours it seems to me that this comment is not relevant.
Another example of the source documents not making it clear whether the work being charged for related to Bekaplast unsuitability was a document listing the hours being charged under the heading “OEP Tank Remediation”. One column in the document contained a description or place of the work. For the days from 9 to 15 August 1999 the relevant entry was “Copper Raffinate”. Steuler submitted that other evidence showed that the work done in this area may have related to a different product, Oxydure PTBE, and not Bekaplast. A second document headed “OEP Tank Remediation” showed the description or place of work for the days from 16 to 20 August 1999 was “Copper Raffinate”. The Merit charges concerning “Copper Raffinate” totalled $44,566.30. If they are all deleted, WMC’s claim in respect of Merit is reduced to $86,206.17.
However, I consider that, under WMC’s approach, the correct amount for this item is the whole of the amount claimed, namely $130,772.47. Under Steuler’s approach, I consider that the correct figure would be nil, because the evidence did not demonstrate that any of Merit’s charges related to the unsuitability of Bekaplast.
The third item in this sub-category was the claim of $469,327.36 in respect of work performed by Ralph M Lee Pty Ltd (“RML”). WMC submitted that RML carried out a variety of works at the Olympic Dam expansion project site pursuant to contract OEP-1035. It submitted that the documents showed that under Work Code 9154, “HDPE Repairs Post 18 May 1999”, RML invoiced WMC the sum of $419,042.29 for work performed between 10 May and 29 August 1999. However, this figure was only reached after a confusing series of adjustments based on unverified assumptions. RML also charged WMC a 12% Overhead and Fee charge, thus leading to the claim of $469,327.36. WMC’s Contractors Progress Payment Certificates 19, 20 and 21 showed that the sum of $367,642.29 had been paid by WMC in respect of work code 9154 for work performed up to 1 August 1999. WMC submitted that the claim and supporting documents had been proved by Ms Maddern and Mr Hannan. The latter had deposed to the work performed by RML.
Steuler pointed out that none of the documents purportedly emanating from RML was proved by any representative of that company. Again the principal issue was whether the work charged for had anything to do with the unsuitability of Bekaplast. Steuler submitted that the RML documents did not identify with any precision what was being done in respect of the Bekaplast and how that claim was referable to the unsuitability of Bekaplast.
In the absence of anyone from RML explaining how the figure of $419,042.29 referred to above was calculated and justified, I am not prepared to allow WMC to recover, under WMC’s approach, any more than the amount of $367,642.29, which I am satisfied has been paid by WMC to RML in respect of work code 9154. But under Steuler’s approach I consider that the correct amount would be nil.
The fourth item in this sub-category was the claim of $488,744.88 in respect of work performed by BSA Engineering Pty Ltd (“BSA”). Robert Edwards, the former General Manager (Operations) and a director of BSA gave evidence that during the period from 2 February to 27 August 1999 BSA supplied labour and equipment in connection with the welding of HDPE in the mixer and settler tanks in the SX area. He said that during this time he was “actively involved in the management of BSA’s operations and finances” under its contract with WMC including “the rendering of invoices and payment of invoices by WMC”. Although he was based in Adelaide he visited the Olympic Dam site once or twice a month for an average of two or three days at a time. He produced 24 invoices issued by BSA to WMC which he said were accurate and were in respect of the work described above. Mr Edwards further said that whilst he had been “unable to locate any confirmation of payment of the invoices from BSA’s computerised or source document records”, he was confident that BSA had been paid for all of the amounts invoiced to WMC and that no amounts remained outstanding.
WMC’s Contractors Progress Payment Certificate no 30 dated 10 September 1999 showed the following information:
Item Description Total Amount to Date 9154 SX HDPE Repairs $425,120.22 9159 CU Raffinate Strip Repair $ 56,082.17 9906 Mob/Demob Flights $ 5,084.68
Relying on the details contained in BSA’s weekly “Hours Summary by Task Code” forms, WMC submitted that the correct figure for travel and equipment hire should be $7,542.28 and not the third amount listed above. Adding this figure to the first two gave a total of $488,744.67.
Steuler mounted a number of criticisms about the documents, such as limited detail, uninformative descriptions, transposed item numbers and handwritten changes.
However, I am satisfied by WMC’s analysis of BSA’s weekly “Hours Summary by Task Code” forms, BSA’s invoices, BSA’s timesheets and its Contractors Progress Payment Certificates and by the evidence of Mr Edwards and Mr Hannan that the quantum of this claim is made out, if it is otherwise recoverable.
Thus, I consider that the correct figure for this claim, under WMC’s approach, would be $488,744.88. But under Steuler’s approach the correct figure would be nil, because once again the evidence did not demonstrate that any of BSA’s charges related to the unsuitability of Bekaplast.
Completion Costs - Materials
The third sub-category of the costs of completing the installation of the HDPE was the claim for the costs of materials paid by WMC to seven suppliers.
The first item in this sub-category was for the charge by Steuler of $44,328 for Bekaplast material supplied to WMC. WMC produced four Field Requisitions, two, nos 41027 and 41028 both dated 7 June 1999, and two, nos 41031 and 41032 both dated 10 June 1999. They related to orders for Bekaplast material for use in the tanks in the Copper SX Trains A and B and the Uranium SX. WMC relied on what were said to be four Steuler invoices, two, nos 60/20242 and 60/20243 both dated 7 September 1999, one of uncertain number dated 9 July 1999 and another one of uncertain number dated 25 August 1999. However, I consider that the latter two documents, which were in a different format to the invoices, may well have been statements or repeat invoices.
It was clear from the contents of Steuler invoice no 60/20242 that it related to WMC’s Field Requisitions Nos. 41027 and 41028. It was in the sum of DM 10,229 for goods sent by air freight on 25 June 1999. Steuler invoice no 60/20243 was in the sum of DM 8,034 for goods sent by air freight on 6 July 1999 and although it probably related to WMC’s Field Requisitions nos 41031 and 41032 this was not clear as there was no cross references. Steuler also made the point that invoice no 60/20243 referred to WMC order no 14358 which was not one of the order numbers listed in WMC’s particulars of claim. Further, the Steuler invoice/statement dated 9 July 1999 in the sum of DM 6,695 appears to relate to the same types and quantities of goods as those sent on 6 July 1999 although the amounts charged are different. However, this invoice also contained no cross reference to Field Requisitions. The Steuler invoice/statement dated 25 August 1999 in the sum of DM 28,953.80 relates to goods sent on 25 August 1999.
Steuler submitted that there was no evidence explaining how the documents interrelated and justified the claim and therefore that the Court could not be satisfied that the claim was related to the dispute between WMC and Steuler. On the other hand, WMC submitted that in the absence of any cross-examination of Mr Hannan and the failure to call any witness from Steuler or provide any document contradicting WMC’s claim, the claim should be accepted. In my opinion, the failure by Steuler to call any evidence about these orders means that one can more confidently conclude that they all related to work in the SX area. But I would not conclude that it had been established that the extra Bekaplast material was required because of the unsuitability of the earlier liner. For example, it might have been required to replace lining damaged by workmen’s ladders and dropped tools.
A second objection raised by Steuler was the lack of evidence about applicable currency conversion rates. However, Mr Hannan gave evidence that the amount of $44,328 had been paid in respect of these invoices from Steuler. If Steuler regarded that amount as an inaccurate conversion of DM 53,911.80 then it could have led evidence on that topic.
IVS decontamination cleaning work in SX2.
Maint. Tanks, vessels etc.
… This PO is for the work involving decontamination cleaning of the USX and CuSX mixer settlers under the direction of Brian Hombsch.
and
IVS vessel cleaning CuSX2.
Maint. Tanks, vessels etc.
… This PO is for the initial cleaning of process solutions from the CuSX mixer settlers at the direction of Andy Nunan.
The second Purchase Order, no 4500501248, was dated 19 June 2002. It referred to the following item at a cost of $61,000:
Decontamination cleaning
Maint. Tanks, vessels etc.
… IVS labour and equipment hire to clean all vessels and steelwork removed from the mixer settler area for the EPE project.
The description of the work in IVS’s invoices was consistent with that in the purchase orders. WMC’s Remittance Advice Summaries dated 14 and 21 November 2002 established the payment of IVS’s relevant invoices.
It is not clear to me that all of the work the subject of those invoices was a result of the mess left after the removal of the HDPE lining, rather than the result of the mess left after the fire. Again, no one was called from IVS to give first hand evidence of this work and what it entailed. I therefore consider that the correct amount for this claim, under WMC’s approach, would be $123,497.50. But under Steuler’s approach the correct amount would be nil.
The fourth claim in this category was for the amount of $10,300.21 charged by Stevens Resources Pty Ltd (“Stevens”) for labour hire between April and June 2002. (Items 185 to 193 in Appendix G.) Purchase Order no 4500476106 dated 2 April 2002 referred to labour hire for “General/Sentry” in the sum of $49,964.20. Four Stevens’ invoices dated 21 April, 28 April, 5 May and 12 May 2002 respectively related to that Purchase Order (items 185 to 188). The description of the work in two of those invoices was “New Copper SX Sentry”, one was “Sentry for New Copper SX” and the fourth was “Sentry for IVS at SX Compound – K Nunan”. WMC’s Remittance Advice Summaries and the “Paid” stamp on each of Stevens’ four invoices indicated that the sum of $4,175.02 had been paid by WMC in respect of these invoices.
Purchase Order no 4500502046 dated 21 June 2002 referred to the following work in the sum of $15,228:
Sentries for mixer settler preps EPE
… Sentry work in Cu&USX for EPE project in respect to agitator removal and decontamination work. Job has been completed.
Five invoices dated 19 May, 26 May, 2 June, 9 June and 16 June 2002 respectively related to that Purchase Order (items 189 to 193). The description of the work in two of those invoices was “SX Compound Sentry for IVS”, one was “SX Compound Sentry (IVS)”, and the last two was “SX Compound Sentries ordered by Dave Gibson”. WMC’s Remittance Advice Summaries indicated that the sum of $6,125.19 had been paid by WMC in respect of Stevens’ five invoices. Adding the two amounts together results in the claimed sum of $10,300,21.
Mr Gee said in his witness statement that:
OH&S requirements meant that we had to employ extra confined space sentries. A labour hire company, Stevens Resources, supplied the sentries for the areas around the USX and the CuSX trains, while work was being carried out. The sentries’ role was to ensure that workers were under constant observation for signs of strain, fatigue or heat from working in the confined conditions.
Mr Klaebe gave evidence that these charges related to sentries for workers going into the fenced off areas in the USX and the CuSX. He said that he had concluded that they were in connection with the FRP installation works because of the dates of the work. However, Mr Klaebe agreed that the people who went into the fenced area at this time were not just those working on the decontamination.
Steuler submitted that there was no proof that the sentry services were provided in relation to the preparation of the tanks for the removal of the HDPE rather than in relation to cleaning up works that were going on in the CuSX and USX areas generally following the second fire. Steuler also repeated the lack of evidence of reasonableness submission. It pointed out that WMC could have led evidence from a Stevens’ employee or from one of KBR’s on site staff.
I agree with Steuler’s submission about the lack of proof that the charges for the sentries all related to removal of the HDPE. Given Mr Gee’s evidence, it seems clear that some of the charges by Stevens did so, but what was not established was whether all of them did. Therefore, I do not consider that even under WMC’s approach the inclusion in the damages assessment of the cost of work that was performed for reasons not connected with the removal of the HDPE can be justified.
This conclusion means that Steuler does not have to rely on the lack of evidence of reasonableness submission in respect of this claim. I note in passing, however, that I would not have upheld that submission in this case because, in my opinion, Stevens’ invoices gave sufficient information about the quantum of the claim in that the hourly rates and the number of hours were specified. Steuler could have challenged those rates if they were thought to be unreasonable. Further, I am satisfied that the number of hours would have been reasonable as the sentries would only have been ordered if actually required.
I therefore consider that the correct amount for this claim under both approaches would be nil.
The fifth claim in this category was for the amount of $251,082.72 charged by RGE for preparatory work in the uranium tanks under contract no M-CC-106A. (Items 198 to 200, 206 to 209, 214 to 216, 220 to 222, 227 to 229, 234 to 236, 242 to 244, 249 to 251, 255 to 264 and 283 in Appendix G.) Initially, the amount claimed by WMC was $269,358.14.
All of the above items (apart from items 255 to 264 and 283) related to the replacement of the HDPE nozzles with stainless steel nozzles, lined with FRP, as a fire prevention measure. In line with Mr Gee’s estimate, WMC again claimed 30% of the cost of installing the more expensive stainless steel nozzles. This totalled $10,484.
Although Steuler disputed liability it did not dispute the quantum of the reduced claim. Steuler submitted that WMC should not recover even the reduced claim because there was no causal link between the unsuitability of Bekaplast and the replacement of the nozzles. I do not agree. The nozzles had to be replaced because the unsuitable Bekaplast lining had caused the need to install the FRP lining. Therefore, the amount of $10,484 would be recoverable by WMC under both approaches.
Of the remaining items, Steuler said nothing against items 255 to 262 and 283. According to Mr Gee, item 255 resulted from a meeting of RGE workers being called to enable WMC’s safety officer to address them on their concerns about the effects of radioactive contamination. Mr Gee said that this item was a cost of removing the HDPE and reinstating the USX tanks. The amount claimed was $1,086.
Items 256 to 259 resulted from KBR site instruction no 13062. RGE was instructed to supply two light towers to light the night shift work areas in the USX mixer settlers and to supply fuel for the lighting plants and generators for the period between 16 June and 30 July 2002. Mr Gee said that these items related to the cost of removing the HDPE and reinstating the USX tanks. The amounts claimed totalled $24,754.03.
Items 260 and 261 resulted from KBR site instruction no 13063. RGE was instructed to perform an adhesion test after removing 5mm of concrete so that an assessment could be made of the level at which the contaminant was still affecting the adhesion levels of the concrete. Mr Gee said that these items were part of a cost of reinstating the USX tanks. The amounts claimed totalled $2,549.26.
Item 262 resulted from KBR site instruction no 13067. RGE was instructed to perform a repeat adhesion test after removing more concrete from the floor. Mr Gee said that this item was part of a cost of reinstating the USX tanks. The amount claimed was $1,955.36.
Originally, item 283 was a claim for $96,598.63 for “additional costs of acceleration”. This was another prolongation claim where WMC accepted the figure of 30% add on, rather than Ms Gee’s revised 37%. This reduced the claim to $78,323. If Steuler was correct in arguing that much of the delay was caused by contamination then the amount would be further reduced by two-thirds to $26,107.67.
Steuler did make a separate submission concerning items 263 to 264. This claim related to the failure of polymer concrete laid on the floors of USX tanks AC1 and S4. As a result, the FRP lining had to be carried out twice. Mr Gee agreed that the claim was in respect of the second lining after the first lining had failed and been removed.
Steuler said that it did not dispute the quantum of this claim, which totalled $131,930.86, if its submissions on liability were not upheld.
Apart from its overarching submissions, Steuler disputed the claim on the basis that it was caused by contamination. It submitted that Mr Gee made that clear in his witness statement when he said of this claim:
This was part of the cost thrown away because the contamination of the first two tanks caused the first attempts at relining with FRP to be unsuccessful.
I consider, therefore, that the correct amount for this fifth claim, under WMC’s approach, would be $251,082.51, being all of the items in the claim. But under Steuler’s approach the correct figure would be $66,936.32, because of the reduction in item 283 and the nil outcome for items 263 to 264.
The sixth claim in this category was for the amount of $1,045,032.83 charged by RGE for preparatory work in the copper tanks under contract no M-CC-106B. (Items 289 to 292, 296, 302 to 305, 312 to 314, 319, 326 to 329, 336 to 339, 346 to 348, 355 to 358, 365 to 368, 370 and 403 to 408 in Appendix G.) Initially, the amount claimed by WMC was $1,006,595.83. But item 319 was then added back in, which explained the extra $38,437.
All of the above items (apart from items 296, 319, 370 and 403 to 408) related to the replacement of the HDPE nozzles with stainless steel nozzles. The claim by WMC, being 30% of the cost of installing the stainless steel nozzles, was $267,044. This amount would be recoverable by WMC under both approaches.
Items 296 and 319 were described as “E2B-S&I Polymer Concrete floor grout”. Each was a claim for $38,437, making a total of $76,874. Steuler said nothing about these items, other than it did not dispute the quantum.
Item 370 was described as “Further pull tests for CuSX Mixer Settlers”. It was a claim for $14,709.60. Mr Gee said in his witness statement that “this was standard testing of the concrete introduced because of the contamination problems, which had been identified in the uranium tanks”. Steuler therefore disputed this item on the ground that it was contamination related.
Items 403 to 408 were prolongation claims. They totalled $686,406.23. Item 403 was a claim for increased labour costs for increased hours of work under the CuSX contract. RGE made a claim for $262,789 of which only $107,582.09 was paid. Ms Gee identified that $98,975.52 of the amount paid to RGE related to the removal of HDPE and reinstatement of the CuSX tanks and the balance to the cost of FRP lining work which WMC did not seek to recover. Steuler did not challenge that assertion by Ms Gee.
Item 404 was a claim described in RGE’s letter dated 14 April 2003 as “additional indirect personnel … to manage the … contract and manage the larger workforce than anticipated in our tender response”. RGE made a claim for $452,193.36 of which only $254,016 was paid. WMC claimed only $217,743.39 of the amount paid, as it did not seek to recover the cost of FRP lining work. Steuler did not challenge that breakdown of the amount paid.
Items 405 to 407 were claims for accommodation costs of $103,230.79, R&R costs of $111,821.36 and overhead expenses of $151,384.17. RGE claimed that additional costs had been incurred by it as a result of the delays, disruption and loss of productivity identified by it in its letter of 14 April 2003. The period in respect of which RGE’s claim was made was between 29 July 2002 (date of commencement of work on contract no M-CC-106B) and 24 February 2003 (the date of suspension of work under that contract, due to cracking in the CuSX concrete tanks). Like items 403 and 404, these claims were made only in respect of the period during which the HDPE liner in the CuSX tanks was being removed and the tanks were being restored to receive the FRP lining. Ms Gee identified that period as ending on 29 January 2003, which was 85.7% of the whole period. Steuler did not challenge that percentage or the consequent calculations.
Item 408 was a claim for a change in the condition in which the tanks were provided to RGE due to the removal of the tank lining. RGE made a claim for $65,000 for extra costs it incurred (sentry hut, vehicle support for area personnel and fire watch personnel) during the period the HDPE lining was removed from the tanks. It asserted that after the HDPE lining was removed, “solvent pockets” or contamination was exposed in the concrete, contrary to WMC’s contractual obligation to provide the tanks to RGE in a drained and clean condition. Only $3,250 was paid. Steuler did not challenge this figure.
However, Steuler again submitted that the prolongation claims (items 403 to 408) should be reduced by between 60 to 70% because of Mr Gee’s evidence that the two dominant causes of the delays comprising these prolongation claims were the contamination of the concrete and the cracking of the copper tanks. Mr Gee said in his witness statement that in February 2003:
It was discovered that there were cracks in the concrete of the walls extending down the wall and along the concrete floors. To the best of my recollection the cause of the cracking was never definitively determined. It may have been due to cracks in the concrete floors caused by underground blasting, from cracks due to a central concrete pillar being installed to support the new tank roofs or contaminated concrete in the tanks.
Applying the two-thirds reduction approach means that the claim for items 403 to 408 is reduced from $686,405.23 to $228,801.74.
I therefore consider that the correct amount for this claim under WMC’s approach, would be $1,045,032.83. But under Steuler’s approach the correct amount would be $572,719.74.
Removal and Preparatory Costs - Indirect Costs
The final claim was for the indirect costs relating to both the removal and the preparatory costs. The calculation for these indirect costs, which had been incurred in 2002, was done by Ruben Pinder in June 2004. He deposed that 27% of all of the costs incurred on the EPE/CSX project were indirect costs. The indirect costs he included were broken up into the following individual and group categories:
EPCM [Engineering, Procurement and Contract Management]
Home Office Services
Field Office Services
WMC “Owner’s Costs”
Management Personnel
Olympic Dam Operations Support
Travel
Accommodation
Training
Expenses, personnel transport, safety (partial)
Insurance
Commissioning Management
Temporary Facilities
Construction Service Buildings and Utilities
Temporary Camps and Fencing
Operation and Maintenance of Temporary Facilities
Site Maintenance.
Mr Pinder’s method meant that in order to calculate the amount to be added on in respect of WMC’s damages one multiplied the extra costs by 27 and divided by 73. The resulting figure used by WMC was 36.98%, although by my calculation the correct figure was actually 36.99%. However, I propose to use a rounded figure of 37%. By my calculations, the correct amount for this claim under WMC’s approach, would be $1,484,736.43. But under Steuler’s approach, the correct amount would be $747,690.56.
Quantification of the Competing Approaches
The result of the above analysis of the two approaches on a claim by claim basis is set out in the following two tables. The first is my quantification of WMC’s claim on the basis that WMC’s approach is the correct one:
1 COST OF SUPPLYING HDPE
Payments to Protec for supply and off site works
$1,155,771.60
$1,155,771.60
2 COST OF INSTALLING HDPE
Payments to Protec
$3,529,056.61
$3,529,056.61
3 COMPLETION COSTS
Supervision costs
Hannan$10,625.00
Lawton $79,560.00 Godfrey $40,885.00 Ryan $51,696.40 Malcolm $16,500.00 sub-total $199,266.40 Indirect costs on supervision $77,713.90 $77,713.90 Labour costs Beltreco $198,256.76 Merit $130,772.47 RML $367,642.29 BSA $488,744.88 sub-total $1,185,416.40 Indirect costs on labour hire $462,312.39 $462,312.39 Materials cost Steuler $44,238.00 ETRS $7,540.00 Dotmar $74,809.00 Parbury $2003.20 Blackwood $320.70 IVS $2,118.00 JRE $13,273.50 sub-total $144,462.40 4 REMOVAL OF HDPE York $0.00 ODM $0.00 RGE $1,272,647.68 RGE $1,211,241.78 BSA $0.00 sub-total $2,483,889.46 5 PREPARATORY COSTS Monadelphous $0.00 DIS $109,299.00 IVS $123,497.50 Stevens $0.00 RGE $251,082.51 RGE $1,045,032.83 sub-total $1,528,911.84 Indirect costs on HDPE removal and preparatory costs $1,484,736.43 $1,484,736.43 Total claim
$12,251,537.43
The second table is my quantification of WMC’s claim on the basis that Steuler’s approach is the correct one. It can be set out rather more simply:
1 COST OF SUPPLYING HDPE
Payments to Protec for supply and off site works
$1,155,771.60
$1,155,771.60
2 COST OF INSTALLING HDPE
Payments to Protec
$2,166,235.01
$2,166,535.01
3 COMPLETION COSTS
Supervision costs$0.00
$0.00
Indirect costs on supervision $0.00 $0.00 Labour costs $0.00 $0.00 Indirect costs on labour hire $0.00 $0.00 Materials cost $0.00 $0.00 4 REMOVAL OF HDPE York $0.00 ODM $0.00 RGE $292,444.76 RGE $1,073,975.00 BSA $0.00 sub-total $1,366,419.76 5 PREPARATORY COSTS Monadelphous $0.00 DIS $0.00 IVS $0.00 Stevens $0.00 RGE $66,936.32 RGE $572,719.74 sub-total $639,656.06 Indirect costs on HDPE removal and preparatory costs $742,248.00 $742,248.00 Total claim
$6,070,630.40
There would have to be added to each of the above totals damages in the nature of interest. Such amounts would probably be at least 120% of the respective principal amounts. However, because of my conclusion in respect of Steuler’s overriding submissions, it is not necessary to hear further from the parties about the calculation of interest.
I have already concluded that WMC’s claim against Steuler must fail because WMC had not established what it would have done had it not been misled by Steuler and therefore that it had suffered any loss and because the supervening event of the second fire meant that any alternative lining would have had to be replaced in any event by a fire retardant and conductive lining. If I am wrong in that conclusion, the damages which I would have awarded to WMC is the amount calculated according to Steuler’s approach, namely $6,070,630.40. In the further alternative, the amount which I have concluded would be awarded should WMC’s approach be the correct one is $12,251,537.43.
Protec’s Damages Claim
As stated above, Protec sought to recover from Steuler as its damages the amount for which it settled WMC’s claim against it, namely $15 million. In addition, Protec claimed interest on the above amount from either 16 July 2007 when it commenced its current proceeding against Steuler (no 7268 of 2007) or from 3 August 2007 when WMC entered judgment against Protec in the WMC proceeding (no 5797 of 2000).
Steuler first submitted that the Protec claim should be dismissed because I had found in the first judgment that Protec had not relied upon Steuler’s representations in entering into the OSS Agreement because the representations were made to Protec NSW and not Protec.[42] This submission completely ignored my earlier judgment[43] refusing 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[44] and the following conclusion in the first judgment that:
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.
[42][2009] VSC 322, [356], [382] and [670]-[674].
[43]Protec Pacific Pty Ltd v WMC (Olympic Dam Corporation) Pty Ltd (No 2) [2007] VSC 152.
[44]See [2009] VSC 322, [15].
Despite an explanation by me in the second hearing of what I intended by the reference to possible amendments to Protec’s statement of claim in the Protec proceeding, no such application was made by Protec. Nevertheless, I repeat my view that in both proceedings, the dispute has been argued on the basis that no distinction is to be drawn between Protec and Protec NSW. In any event, it is unnecessary to consider this issue further, given my conclusion about proof of the reasonableness of the settlement, to which issue I now turn.
Counsel for the plaintiffs submitted that the Court should conclude that this settlement was reasonable. Counsel submitted that it must be inferred that by the time the settlement was made in May 2007 Protec had a very good understanding of the claims made and the risks it faced. At the first hearing, Protec’s director, Howard Smith, gave evidence that he entered into the settlement having been warned by his solicitor, Alex McKellar, that:
there was a risk there but I either was going to become insolvent trying to fight this case or else they would accept a figure which – well, BHP would have to try and recover if they could. That was the risk I was running. I sort of had no choice.
Mr Smith also said that he considered the settlement was his best option because he was “between a rock and a hard place”. Counsel for the plaintiffs submitted that it could be inferred that the Deed of Settlement was the product of negotiation involving the solicitors for the relevant parties. Counsel further submitted that the reasonableness of the settlement was supported by comparing the amount of the settlement with the potential exposure which Protec faced at that time. Even taking into account that WMC had since significantly reduced its claim, the settlement was justified when one also considered the costs of preparation and trial which Protec would have had to incur.
Steuler submitted that the Court should hold that Protec had not proved that the settlement was reasonable. It submitted that Protec should have led evidence of the legal advice Mr Smith, on behalf of Protec, had received. All that was led was Mr Smith’s evidence that his solicitor, Mr McKellar, warned him at the time of signing the Deed that there was a risk that notwithstanding the terms of the Deed the judgment might be executed against Protec. In particular, Steuler submitted, Protec should have led evidence as to the reasoning of Protec’s legal advisers which supported any advice given by them. Instead, the Court was left to speculate as to what factors were considered by Mr Smith and Protec’s legal advisers in deciding to enter into the settlement. It was further submitted that evidence of the negotiations between Protec and WMC which resulted in the settlement would have assisted in deciding whether the settlement was reasonable. Finally, Steuler submitted that the fact that the sum of $15 million was approximately one third of WMC’s total claim including interest, as at the date of settlement, did not prove that it was a reasonable one. Moreover, Steuler submitted, such a contention assumed that it was a genuine settlement in the sense that both parties knew and intended that Protec had the capacity to pay, and was going to pay the agreed sum. Yet no one could conclude that this was the position in this case. Protec had little or no assets, no personal guarantee was asked for or given, and the terms of the Deed gave rise to a clear inference that Protec was only going to have to pay the $15 million to WMC if it recovered that sum from Steuler in its proposed action against Steuler.
Just what a plaintiff is required to prove in a situation such as this was considered by the High Court of Australia in Unity Insurance Brokers Pty Ld v Rocco Pezzano Pty Ltd.[45] In that case, an insurance broker breached its contract with the insured by failing to make proper disclosure to the insurer of the insured’s claims history or was negligent in that failure. The insured’s premises were damaged by fire and it made a claim against the insurer for approximately $1.72 million. The insurer refused the claim made by the insured. In the circumstances of this case, s 28(3) of the Insurance Contracts Act 1984 (Cth) meant that the liability of the insurer was reduced to the amount that would place it in a position in which it would have been if the failure had not occurred. The insured sued the insurer and the broker. The insured then settled the proceeding against the insurer for $900,000. It pursued its claim against the broker arguing that its recoverable damage was the difference between the loss it suffered from the fire and the amount for which it had settled with the insurer.
[45](1998) 192 CLR 603.
The trial judge and the Full Court of the Supreme Court of Western Australia held that as the amount settled with the insurer was reasonable, the damage recoverable by the insured against the broker was the difference as claimed. In the High Court, the broker argued that to establish compensable loss, the insured needed to prove what sum it would have received if it had litigated the matter against the insurer, and that it could not rely on the settlement sum in calculating the difference. Brennan CJ, McHugh and Hayne JJ rejected the broker’s contention and dismissed the appeal. Gummow and Kirby JJ dissented.
Brennan CJ considered that the ultimate question of what loss the insured had suffered, as against the broker, was one of causation and remoteness, that is, the position which the insured would be in had the broker not breached its contract with the insured was that it would have had an enforceable policy against the insurer. The notion of the “reasonableness” of the insured’s settlement with the insurer was relevant to the inquiry as to whether the amount of difference was caused by the broker and whether it was not too remote. If the settlement sum with the insurer was too low as to be unreasonable, the larger difference in damage claimed against the broker would not have been caused by the broker or was too remote.[46]
[46](1998) 192 CLR 603, [3]-[5].
By parity of reasoning, if a plaintiff is claiming against a defendant for a sum, which it has settled with a third party, that was too high as to be unreasonable, the unreasonable amount would not have been caused by the defendant or was too remote. Consequently, an unreasonable settlement sum would not be recoverable.
McHugh J also considered causation and remoteness to be the essential questions to be asked. His Honour held that these principles governed what a plaintiff needed to prove to demonstrate compensable loss.[47]
[47](1998) 192 CLR 603, [22]-[27], [33]-[34].
Hayne J also analysed it as a question of remoteness and causation.[48] As his Honour made clear, the role of “reasonableness” informed the assessment of damages for breach.[49] Reasonableness was not, of itself, a separate criterion that a plaintiff needed to prove to demonstrate compensable loss.
[48](1998) 192 CLR 603, [119], [121]-[122].
[49](1998) 192 CLR 603, [134].
The principle that emerges from the majority judgment in Unity Insurance Brokers is that a plaintiff needs to establish that a loss, as represented by a settlement sum, was caused by the defendant’s breach which was not too remote. There is no additional requirement of “reasonableness”. However, the inquiry into causation and remoteness questions may be informed by the “reasonableness” of a settlement sum.
Unity Insurance Brokers has been applied in a number of subsequent cases, which tend to interpret the case as standing for the proposition that, generally, once the settlement sum is shown to be “reasonable”, it will satisfy the requirements of causation and remoteness.[50]
[50]See McLaughlins (A firm) v Stanton Hiller Parker (Qld) Pty Ltd [2002] QCA 122; Hurlock v Council of Shire of Johnston [2002] QCA 256; BNP Paribas v Pacific Carriers Limited [2005] NSWCA 72; Rail Corporation New South Wales v Fluor Australia Pty Ltd [2009] NSWCA 344.
What is required in demonstrating the “reasonableness” of a settlement sum was also discussed in Unity Insurance Brokers. The test of reasonableness is objective.[51] The plaintiff bears the onus of proving that the settlement sum was reasonable.[52] This is to be assessed at the time of settlement,[53] provided that the plaintiff has acted reasonably in discovering the circumstances material to the settlement at that time.[54]
[51](1998) 192 CLR 603, [6] (Brennan CJ) and [129] (Hayne J).
[52]BNP Paribas at [14] and [17] (Handley JA).
[53](1998) 192 CLR 603, [7] (Brennan CJ) and [130] (Hayne J).
[54](1998) 192 CLR 603, [7] (Brennan CJ).
The following passages from the judgments of the majority in Unity Insurance Brokers are important when considering whether the relevant evidence proves that the settlement was reasonable. According to Brennan CJ:
The plaintiff must show that the sum accepted in settlement was reasonable (Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 at 321, per Somervell LJ; at 326, per Singleton LJ). The test of reasonableness is, as Hayne J says, an objective one. Evidence of the advice which the insured received to induce it to accept the settlement is not proof in itself of the reasonableness of the settlement advised. The factors which lead to the giving of the advice are factors relevant to the reasonableness of the settlement but the only relevance of advice given by the insured's legal advisers to settle is that it tends to negative the hypothesis that the insured acted unreasonably in accepting the settlement.[55] [Emphasis added]
[55](1998) 192 CLR 603, [6].
McHugh J’s view was even stronger:
One further point should be made about the Court of Appeal's judgment in Biggin. Somervell LJ expressed the opinion that, while the client can prove that the settlement was made as the result of legal advice, the evidence of the advisers is not ordinarily relevant or admissible. With great respect, I am unable to accept that the evidence of the legal advisers is not normally relevant or admissible in such a case. On the contrary, in most cases where the settlement is made on legal advice, the evidence of the relevant legal advisers is vital. This is because the risk involved in the litigation and the reasoning which led to the settlement are the factors that will determine whether or not the settlement was reasonable. If an unreasonable settlement is made on bad legal advice, the innocent party's remedy is against the legal adviser, not the contract breaker.[56] [Emphasis added]
[56](1998) 192 CLR 603, [35].
Hayne J was equally firm on this point:
Whether the compromise of a claim was reasonable must be judged objectively, not subjectively. Thus whether a party to litigation has received advice to settle may be important in deciding whether that person's conduct in settling the case was reasonable but, standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable. This is not to say that evidence may not be led that such advice was given and adopted; it may. But evidence of that kind does not conclude the issue. What will usually be much more important is the reasoning that supported the advice that was given for that will ordinarily reveal why it was thought reasonable to compromise the claim as it was.
…
How, then, is the reasonableness of the settlement to be established? The Court of Appeal in Biggin & Co Ltd held that it was relevant for the client that had compromised to give evidence that this step had been "made under advice legally taken" (Biggin [1951] 2 KB 314 at 321, per Somervell LJ; at 325, per Singleton LJ), but Somervell LJ went on to suggest (Biggin [1951] 2 KB 314 at 321; see also at 325, per Singleton LJ) that the advisers would not "normally" be relevant as admissible witnesses. It may be that calling legal advisers to give evidence about the settlement may present some question about legal professional privilege but I do not accept that the evidence of the advisers would be irrelevant or inadmissible. Often it is the advisers who will be best placed to give evidence about the matters that were taken into account in deciding to settle the case and it is they who may well be able to deal with such matters as what investigations had been made or why particular investigations had not been pursued. Sometimes there may be questions about the course of negotiations: why was this offer accepted; why was no counter offer made? Sometimes that course of negotiations may reveal why a settlement was reached when it was reached and that, in turn, may bear upon whether it was reasonable. Again, it will be those who conducted the negotiations, often the legal advisers, who will be able to speak of these matters.[57] [Emphasis added]
[57](1998) 192 CLR 603, [129] and [135].
In my opinion, there was a fatal omission in Protec’s case in that no evidence was led from its legal advisers about the course of negotiations, the reasoning which led to the settlement or the matters that were taken into account in deciding to settle. Without such evidence one can only speculate about how the figure of $15 million was reached. I do not consider that I can be satisfied that the settlement amount was reasonable without some understanding of these matters. In the first judgment I expressed the view that the settlement for $15 million as against a potential claim of $45.8 million plus costs “might be considered to be a persuasive argument in favour of the reasonableness of the settlement”.[58] Nevertheless, I agree with Steuler’s submission that this fact alone is not decisive given all of the unusual features of this settlement which possibly give rise to the inference that Protec was only going to have to pay the $15 million to WMC if it recovered that sum from Steuler.
[58][2009] VSC 322, [676].
If Protec has failed to prove that the settlement sum was reasonable, then it has not made out its case that the quantum of its loss and damage caused by the contravention by Steuler was $15 million or any other sum. This means, in my opinion, that Protec’s claim against Steuler under the TPA must fail. The same conclusion applies to Protec’s claim in negligence.
Limitation Defences
In response to a question from me at the conclusion of the second hearing, senior counsel for WMC gave an answer which senior counsel for Steuler immediately seized on as being inconsistent with the position previously adopted by WMC in respect of that issue. Senior counsel for Steuler also submitted that the answer might involve it reviving the question of limitation defences. Accordingly, I gave the parties leave to file short submissions dealing with the point should they wish to so after considering the issue further.
Submissions were filed but they revealed that the issue had gone away. WMC accepted that the answer given by its senior counsel was “not correct”. Nevertheless, WMC made the point that Steuler had expressly abandoned reliance upon any limitation defence during the first hearing. Steuler agreed that it had not pressed the limitation defence at the liability trial. But Steuler made the point that it was “puzzling” that WMC had submitted that the answer was not correct, as well as submitting that the position of WMC and Protec had been “consistent throughout”.
It seems that both sides wanted to have the last word in this long drawn out litigation. However that may be, I do not need to consider further the question of limitation defences.
Final Orders
In accordance with the above reasons, there will be judgment for Steuler in each of these proceedings. I will hear from the parties on the question of costs.
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