Cape Byron Power 1 Pty Ltd v Downer Energy Systems Pty Ltd - [2022] QSC 294

SUPREME COURT OF QUEENSLAND

CITATION:

Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Ltd & Ors [2022] QSC 294

PARTIES:

CAPE BYRON POWER I PTY LTD ACN 074 408 923 (formerly known as Delta Electricity Australia Pty Ltd) and CAPE BYRON POWER II PTY LTD ACN 095 991 638 (formerly known as Sunshine Renewable Energy Pty Ltd) as joint venturers in the Sunshine Electricity Joint Venture

(first plaintiffs)

CAPE BYRON POWER II PTY LTD ACN 095 991 638 (formerly known as Sunshine Renewable Energy Pty Ltd)

(second plaintiff)

NEW SOUTH WALES SUGAR MILLING CO-OPERATIVE LIMITED ACN 051 052 209

(third plaintiff)

v
DOWNER ENERGY SYSTEMS PTY LIMITED ACN 067 158 954

(first defendant)

DMH PLANT SERVICES PTY LTD ACN 010 975 256 (formerly known as MHPS Plant Services Pty Ltd and Clyde Babcock-Hitachi Pty Ltd)

(second defendant)

DOWNER EDI LIMITED ACN 003 872 848

(third defendant)

FILE NO/S:

BS 11011 of 2014

DIVISION:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

22 December 2022

DELIVERED AT:

Brisbane

HEARING DATE:

30 and 31 May 2022 and 1, 2, 3, 6, 7, 8, 9, 10, 13, 14, 15, 16, 20, 21, 22 and 23 June 2022 and 31 August 2022 and 1 September 2022

JUDGE:

Applegarth J

ORDER:

1.    The plaintiffs have any further leave that may be required pursuant to rule 376(4) of the Uniform Civil Procedure Rules 1999 (Qld) in addition to the leave granted by paragraph two of the order of Douglas J made 19 September 2017 to amend paragraph 72, 73, 74 and 75 of their pleading in accordance with the Further Amended Statement of Claim filed 31 October 2017.

2.   The defendants have leave to further amend their defence by reinstating those parts of their defence to the plaintiffs’ negligence claim that were deleted in the Amended Defence to the Further Amended Statement of Claim, particularly the matters deleted in sub-paragraph 69(b) and 71 of the Amended Defence filed on 15 December 2017.

3.   The plaintiffs bring in draft minutes of judgment to reflect the judgments indicated in the reasons for judgment published on 22 December 2022.

4.    The matter be adjourned to a date to be fixed not before 30 January 2023 for the purpose of pronouncing judgment and making directions about submissions in relation to interest on the judgment sums and costs.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – where the first plaintiffs contracted for the first and second defendants to design, engineer, procure, construct, test and commission two practically identical co-generation plants at Broadwater and Condong (“the EPC Contract”) – where each plant was operated by the third plaintiff – where each plant contained a boiler system that would produce steam to generate electricity – where, in constructing the boiler at Broadwater, the first and second defendants erroneously installed and programmed a damper that controls the flow of air to the boiler’s oil burner in reverse – where overheating of the boiler’s grate caused significant damage to the boiler in July 2010 – where, in constructing and programming the boiler so that the damper operated in reverse, and then not identifying that it did, the first and second defendants breached their contract with the first plaintiffs – whether the reverse operation of the damper was a substantial cause of the overheating that resulted in the July 2010 damage

DEEDS – DEED OF RELEASE – GENERAL WORDS OF RELEASE – where, before the July 2010 damage, the first plaintiffs and the first and second defendants entered into a Disputes Resolution Deed containing mutual releases – where the deed expressly does not apply to claims of which, at the date of execution, the first plaintiffs were not aware and could not have become aware by the making of reasonable enquiries – where the defendants accept that, at the date of execution, the plaintiffs were not aware that the damper operated in reverse – whether the plaintiffs could have become aware, by the making of reasonable enquiries, that the damper operated in reverse – whether the deed releases the first and second defendants from the first plaintiffs’ claim

LIMITATION OF ACTIONS – LIMITATION OF PARTICULAR ACTIONS – SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS – ACCRUAL OF CAUSE OF ACTION AND WHEN TIME BEGINS TO RUN – SIMPLE CONTRACTS – where the damper was installed in 2007 – where the works the subject of the EPC Contract were purportedly completed on 21 November 2008 – where the proceeding was commenced on 20 November 2014 – where the defendants plead a limitation defence to the first plaintiffs’ causes of action for breach of contract and contend that they accrued at the date the damper was installed – where the plaintiffs submit that the EPC Contract was an entire contract to complete works and that the limitation period runs from the date of practical completion, not from any earlier date when the defective damper was installed – whether the relevant contractual obligation under the EPC Contract is one to “carry out and complete” the works – whether the first plaintiffs’ breach of contract claim was brought within time

Corporations Act 2001 (Cth), s 1305
Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 8, s 9
Limitation Act 1969 (NSW), s 14
Prescription and Limitation (Scotland) Act 1973 (UK), s 11
Trade Practices Act 1974 (Cth), s 52, s 82

Uniform Civil Procedure Rules 1999 (Qld), r 376, r 379

Agro Invest Overseas Ltd v Stewart Milne Group Ltd [2018] CSOH 120, considered
Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, cited
Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229, cited
BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141, cited
Blatch v Archer (1774) 98 ER 969, cited
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36, cited
Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Limited & Ors [2022] QSC 182, cited
Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, cited
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 cited
Elevate NSW Pty Ltd v Canada Bay Private Hospital Pty Ltd (2019) 138 ACSR 186; [2019] FCA 1248, cited
Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358; [2008] VSCA 26, cited
Firstmac Ltd v Hunt & Hunt (A firm) [2018] QSC 258, cited
French v QBE Insurance (Australia) Ltd (2011) 58 MVR 214; [2011] QSC 105, cited
Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506; [2010] NSWCA 69, cited
Huntaven Properties Limited v Hunter Construction (Aberdeen) Limited [2017] CSOH 57, cited
Larking v Great Western (Nepean) Gravel Ltd (in liq) (1940) 64 CLR 221, cited
Menegazzo v Pricewaterhousecoopers (A firm) [2016] QSC 94, cited
Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd [2018] NSWSC 1304, cited
Oxford Architects Partnership v Cheltenham Ladies College [2006] EWHC 3156, cited
Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529; [1985] HCA 34, cited
Siegwerk Australia Pty Ltd (in liq) v Nuplex Industries (Aus) Pty Ltd (2016) 334 ALR 443; [2016] FCA 158, cited
Swansea Stadium Management Company Ltd v City & County of Swansea [2018] EWHC 2192, cited
Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd [2019] VSCA 74, cited
Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495; [2015] QCA 50, cited

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16, cited

COUNSEL:

T P Sullivan QC and B O’Brien for the plaintiffs

P L O’Shea QC and M T Hickey for the defendants

SOLICITORS:

Carter Newell for the plaintiffs

Clayton Utz for the defendants

Contents

Background........................................................................................................................... 8

Was the reverse operation of the ATO Damper a substantial cause of the overheating that resulted in damage to the grate?............................................................................................................................. 12

As at 20 January 2010, could the plaintiffs have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse?...................................................................................... 17

The evidence........................................................................................................................ 19

The boiler at Broadwater..................................................................................................... 23

........................................................................................................................................ 26

Key events........................................................................................................................... 28

Was overheating a problem both before and after handover?............................................. 29

The metallurgical reports................................................................................................... 30

The September-November 2008 CBH email chain................................................................ 33

Expert evidence about the emails and the metallurgical reports............................................ 35

The reports of Mr Ironside................................................................................................. 36

The evidence of operators.................................................................................................. 36

Overheating after handover................................................................................................. 40

The defendants’ argument that the plaintiffs responded to overheating.............................. 44

Conclusions on overheating................................................................................................. 45

Causation............................................................................................................................ 47

The plaintiffs’ case on causation........................................................................................ 47

The defendants’ response on causation............................................................................... 49

The mechanism of failure................................................................................................... 50

Alternative causes of overheating suggested by the defendants............................................ 51

Piling............................................................................................................................... 51

Rocks and “bad fuel”........................................................................................................ 54

Grate stoppages and incorrect grate speeds........................................................................ 60

Undergrate air..................................................................................................................... 64

Secondary air dampers........................................................................................................ 67

The effect of the ATO Damper operating in reverse............................................................ 67

The quantity of undergrate air that was diverted................................................................ 68

The greater effect of the reverse operation when the boiler was not in full load................... 73

The absence of a reverse effect test...................................................................................... 74

Air and grate temperatures................................................................................................. 77

Performance and reliability tests in late 2008...................................................................... 79

The metallurgical reports.................................................................................................... 82

Differences between the Broadwater and Condong plants................................................... 83

Factual causation - conclusions............................................................................................ 84

Background to the Disputes Resolution Deed...................................................................... 87

The parties’ contentions..................................................................................................... 88

The differential pressure reading on the DCS screen........................................................... 90

Alarms.............................................................................................................................. 91

Aurecon Reports................................................................................................................ 92

Performance testing documents, particularly the air balance tests........................................ 93

Comparison with performance at Condong......................................................................... 94

Hindsight bias................................................................................................................... 95

Conclusion........................................................................................................................ 97

Breach of contract............................................................................................................... 98

Misleading or deceptive conduct claim................................................................................ 99

Did the first and second defendants also owe the first plaintiffs a duty of care in tort?...... 104

Contributory negligence.................................................................................................... 107

Aurecon Reports.............................................................................................................. 109

No formal request for the defendants to investigate............................................................ 110

Operating the grate at a higher speed than recommended.................................................. 111

Shutdown of the boiler on 5 July 2010.............................................................................. 111

Conclusion on contributory negligence............................................................................. 112

Causation in fact and in law............................................................................................... 113

Are the contractual breach claims statute-barred?............................................................ 114

Loss and damage............................................................................................................... 119

The amounts claimed....................................................................................................... 121

Proof of loss.................................................................................................................... 122

Costs of repairs............................................................................................................... 122

The exclusion of recovery for “Indirect Loss”................................................................... 124

Judgment for the first plaintiffs against the first and second defendants for repair costs.. 126

Other claims for economic loss.......................................................................................... 126

Third defendant’s liability................................................................................................. 137

Directions about form of judgment, interest and costs....................................................... 139

Summary and conclusion................................................................................................... 139

This case is about boilermakers, boiler operators and a boiler at a sugar mill at Broadwater in northern New South Wales.
The boiler that the first and second defendants built for the first plaintiffs was defective.
A damper (“the ATO Damper”) that controls the flow of air to the oil burner was erroneously installed and programmed so that it operated in reverse. For example, when the control system indicated that the damper was 15 percent open it was in fact 85 percent open.
The ATO Damper was supposed to be almost closed for most the time. But because it operated in reverse, more air than was intended to enter the furnace through the ATO Damper went by that route. This deprived the travelling grate at the base of the boiler of undergrate air that was intended to cool the grate and aid the efficient combustion of biofuel.
Overheating of the grate caused significant damage to it in early July 2010, after which the boiler needed to be shut down and repaired.
In constructing and programming the boiler so that the ATO Damper operated in reverse, and then not identifying that it did, the first and second defendants breached their contract with the first plaintiffs. In handing over the boiler in that defective condition upon completion, they breached the contract.
The plaintiffs’ case is that the reverse operation of the ATO Damper was a substantial cause of the overheating that resulted in the July 2010 damage.
The defendants accept that overheating of the grate resulted in that damage but deny that the reverse operation of the ATO Damper was a substantial cause of the overheating. They suggest other possible causes of the overheating.
Therefore, a primary issue in the case is a factual one about causation: was the reverse operation of the ATO Damper a substantial cause of the grate overheating?
Next, the first and second defendants say that even if their breach of contract in constructing, programming, commissioning and testing the ATO Damper so that it operated in reverse was a substantial cause of the grate overheating and the July 2010 damage, the effect of a Disputes Resolution Deed (“Settlement Deed”) dated 20 January 2010 is to release them from the first plaintiffs’ claim.
The plaintiffs respond that the Settlement Deed was executed against the backdrop of a dispute in relation to other claims and the release expressly does not apply to claims of which, at the date of execution of the deed, the first plaintiffs (as principal) were:
(a)not aware; and
(b)could not have become aware by the making of reasonable enquiries.
The defendants accept that the evidence supports the conclusion that, as at 20 January 2010, the plaintiffs were not aware that the ATO Damper operated in reverse and did not become aware of that matter until after the July 2010 damage. They contend, however, that as at 20 January 2010 the plaintiffs could have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse.
Therefore, two main issues in the case are:
(a)was the reverse operation of the ATO Damper a substantial cause of the overheating that resulted in damage to the grate; and
(b)as at 20 January 2010, could the plaintiffs have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse?
There are many other issues to which I will turn. Openings and the evidence in the trial occupied 18 hearing days. The evidence consists of a large volume of witness statements, expert reports, documents, and oral evidence. Written submissions from the parties run to hundreds of pages, and oral submissions occupied two days. In due course I will address the submissions and some of the more important evidence. Before doing so, I will give an overview of the case and a summary of my reasons for concluding in favour of the plaintiffs on the two main issues that I have identified.
Background

The first and second defendants (who were often referred to in the evidence as “Downer” and “CBH”) are experts in constructing and commissioning power plants. CBH was particularly experienced in the construction and optimisation of boilers for a range of biofuels including bagasse and woodchip.
The first plaintiffs formed a joint venture to construct and operate co-generation plants at Broadwater and Condong to power sugar mills that were operated by the third plaintiff (“NSWSMC”).
The idea was that the co-generation plants would operate year-round and burn biofuel in a furnace and boiler system that would produce steam to generate electricity. The biofuel would be principally bagasse (a fibrous by-product of sugar cane crushed at the mill) and wood waste, such as sawdust and woodchips, when bagasse was not available.
Any excess electricity that was not used to power the mill was to be transferred into the electricity grid and earn income for the joint venture.
In 2005, the joint venture contracted for Downer and CBH to design, engineer, procure, construct, test and commission a 30 MW co-generation plant at Broadwater and a practically identical plant at Condong. The third defendant (“DEDI”) guaranteed the performance of “the Contractor” (the first and second defendants) under the contract and agreed to indemnify “the Principal” (the first plaintiffs) against losses for any default in performing the contract.
The proper operation of the boiler depends on a complex and mainly automated system that Downer and CBH developed to control the flow of fuel and the flow of air into the boiler. The aim is to have a well-positioned fireball in the furnace that consumes fuel in an optimal way.
Biofuels enter through a fuel duct and are injected into the furnace by compressed air from plates that are set at a certain angle. When bagasse is being used, the aim is for practically all of it to be consumed in suspension in a rotating fireball and before it falls onto the grate at the bottom of the furnace. Otherwise, unburnt fuel will fall onto a slowly travelling grate, may pile in large quantities and overheat the grate.
When wood material is used instead of bagasse the fuel tends to fall onto the grate and combust there.
Ash that is the product of combustion and impurities in the fuel is removed from the boiler. It falls through the travelling grate or falls off its end as it rotates. The ash is reclaimed and impurities such as stones are disposed of.
Overall, the aim is to generate enough heat to produce steam to generate the required amount of power. At the same time, the system is designed to avoid overheating, which would damage parts of the boiler such as the metal parts of the grate and be potentially disastrous.
Irrespective of whether bagasse or wood material is used as fuel, efficient combustion in the boiler relies on the controlled input of air under the grate and through certain secondary air ducts. The undergrate air cools the grate to prevent it from overheating and aids combustion.
The undergrate air, having cooled the bottom of the grate, is injected into the boiler through small holes in the tiles of the grate and gaps between the tiles. One way it aids combustion is that it dries any moisture in unburnt fuel.
The flow of fuel and the flow of air are controlled by a Distributed Control System (“the DCS”). It was designed and commissioned by Downer and CBH to automatically control the rate at which fuel is fed into the furnace and the rate of airflow. The DCS makes automatic adjustments to fuel and air inputs to achieve optimum combustion.
Airflow is controlled by dampers in the air ducts.
One such damper is the ATO Damper which, like other parts of the system, is controlled by the DCS. The blades of the ATO Damper are supposed to be almost closed most of the time, except on rare occasions when they are opened to supply air to start an oil burner, after which the damper is returned to a practically closed position.
During the normal operation of the boiler, the ATO Damper needs to be kept slightly open to provide some cooling air to the retracted, non-firing oil burner and to keep it clean from ash.
A boiler operator seated in the control room would see, if he needed to look at the relevant figure on the DCS, that the ATO Damper was open to, say, 15 percent. The same figure would appear on an outside physical gauge as the percentage the ATO Damper was open. To the operator, the damper would seem to be, as intended, almost closed. In fact, due to the construction and programming defect at Broadwater it would be almost completely open, namely 85 percent open, allowing much more air to flow into the boiler through the damper than intended.
The ATO Damper is programmed to automatically adjust during brief periods of oil burning. Oil burning ceases once combustion of biofuels takes over. Operators are not expected to manually adjust the ATO Damper during the ordinary operation of the boiler.
Efficient combustion of biofuels is intended to be achieved by automatic controls that govern the amount of air that enters the boiler under the grate and, to a lesser extent, through certain secondary air dampers. The secondary air dampers can be adjusted by an operator if needed to alter the position of the fireball within the boiler or to otherwise improve combustion.
A boiler operator can override the automated operation of the DCS if there is some perceived problem with the boiler’s operation, and shut down the boiler in the event of an emergency.
The point of the automated system is to improve on what could be achieved by manual control of the boiler by an operator of the amount of fuel and the amount of air that is required at any particular time based on the operator’s observations of combustion and other conditions. The automated system responds more quickly and more efficiently than a manual system could to changes in conditions. If it operates as intended, the system uses the amount of biofuel and the amount of air required to achieve optimum combustion and to produce the required number of megawatts of power.
To use an analogy, the system is like cruise control on a car in which the driver aims to travel at a certain speed and the cruise control system achieves this by automatically accelerating or decelerating depending on road conditions. The driver can override the cruise control but ordinarily would not do so because the automated system is more efficient than manual controls in maintaining the required speed.
At about the same time as the Broadwater plant was being constructed and commissioned, a practically identical co-generation plant was constructed and commissioned by the first and second defendants for the first plaintiffs at Condong. Its ATO Damper was correctly programmed. The Condong boiler did not encounter the same operational and overheating problems as the Broadwater boiler.
The reverse operation of the ATO Damper at Broadwater was not detected by the defendants during the construction and programming phase, when the boiler was first fired on 20 December 2007, during subsequent testing, or during commissioning of the boiler in late 2008. Practical completion occurred at Broadwater on 21 November 2008, after which the third plaintiff’s employees assumed responsibility for the boiler’s operation.
The proposition that Downer and CBH did not detect the reverse operation of the ATO Damper in 2008 during testing and commissioning of the boiler is subject to a qualification. On 2 April 2008, one of CBH’s highly experienced operators, probably Mr Harvey, dictated an entry that was made by a trainee operator, Mr Timms, in a logbook. It records “Air/Oil Damper Control Working In Reverse”. Understandably, Mr Timms expected this matter to be addressed and corrected by the defendants. Soon after, he went on stress leave. When he returned to work on or about 31 March 2009, he assumed that the defendants had corrected the problem. Why Downer and CBH did not correct the defect that was recorded on 2 April 2008 remains unexplained by them.
Because the ATO Damper was encased within a duct, its reverse operation could not be physically observed by the third plaintiff’s boiler operators, their supervisors or the engineers who worked at the sugar mill.
That the ATO Damper operated in reverse was discovered by the plaintiffs in late August 2010, almost two months after the grate damage. By chance, a maintenance engineer, Mr Rojo, discovered that the ATO Damper was operating in reverse. Its reverse operation was corrected by a simple reprogramming exercise on a computer by a consultant, Mr Ironside.
The plaintiffs’ case is that the reverse operation of the ATO Damper caused overheating of the grate during the commissioning of the boiler and thereafter. They contend that this is evident in that heat alarms on the grate often activated and the defendants adjusted alarm settings in late 2008 so that alarms would not trigger so often. They also rely on the different operation of the practically identical boiler at Condong whose ATO Damper operated correctly rather than in reverse.
The defendants deny that the reverse operation of the ATO Damper at Broadwater caused significant overheating of the grate. They point to other possible causes. In essence, these are:
(a)piling that was not attributable to a lack of undergrate air;
(b)bad fuel and rocks in the biofuel;
(c)boiler operators stopping the grate and operating it at the wrong speed; and
(d)incorrect use of undergrate air.
The defendants contend that the predominant cause of the piling was not the reverse operation of the ATO Damper, but the manner in which the plates on the fuel spreaders were set up at the time of the damage on 5 July 2010. They contend that they were set up in a “significantly downward direction” of negative 20 degrees. This contention, however, cannot be sustained. There is no evidence that the plates were set at 20 degrees, or anything like it, on 5 July 2010. The evidence does not support the conclusion that the overheating that caused the damage was due to such misaligned feeder plates.
There is no dispute that the grate became overheated. Metallurgical reports showed that parts of the grate deteriorated, including parts that were removed in November 2008 after the boiler had gone through the commissioning process and was about to be handed over to the plaintiffs.
Eventually, parts of the grate that should not have been exposed to the temperatures to which they were exposed, failed.
This failure occurred on 5 July 2010, when a chain link in the travelling grate overheated and failed. Other parts overheated and the grate was badly damaged. This led to shutdowns of the boiler, costly repairs to it, a loss of steam production to the mill, and a loss of power generation and the sale of electricity to the grid.
The plaintiffs claim these costs and losses against the first and second defendants, and also against the third defendant which guaranteed the other defendants’ performance of the EPC Contract and indemnified the first plaintiffs against loss.
There is no dispute that in constructing and programming the boiler so that the ATO Damper operated in reverse, and then not identifying that it did, the first and second defendants breached their contract with the first plaintiffs.
Was the reverse operation of the ATO Damper a substantial cause of the overheating that resulted in damage to the grate?
The central issue in the case is about causation.
The causation question stated above involves important factual questions about the practical consequences of the ATO Damper operating in reverse. In particular, did it:
1.   deprive the grate of undergrate air, and thereby:
(a)   reduce the intended cooling effect of undergrate air;
(b)   reduce combustion of unburnt fuel on the grate and lead to increased piling?
2.   redirect air that should have entered through the grate via the ATO Damper to a higher location in the boiler, and thereby affect combustion in the furnace?
3.   by a combination of 1 and 2:
(a)   affect the intended distribution of air and fuel within the furnace;
(b)   reduce efficient combustion; and
(c)   cause an excessive accumulation of unburnt fuel (“piling”) on the grate?
4.   result in overheating of the grate over a prolonged period?
These questions require consideration of a large body of lay and expert evidence.
Predictably, the plaintiffs rely on the noticeable difference in the operation of the boiler after the defective operation of the ATO Damper was corrected. After the ATO Damper was reprogrammed by Mr Ironside so that it operated correctly, boiler operators at the Broadwater mill noticed that it operated very differently. Some of their evidence describes it as operating as a completely different boiler. Their evidence, which I accept, is that it did not overheat as frequently as it did when the ATO Damper operated in reverse. The plaintiffs also rely on expert evidence about the effect of the ATO Damper operating in reverse. Also, after the reverse operation was corrected, Mr Rojo did a test of the effects of the correction. Grate temperatures reduced by 30°C in 30 minutes.
The defendants, for their part, rely on expert opinion and other evidence to submit that the consequences of the ATO Damper operating in reverse were not as great as the plaintiffs suggest.
As part of their defence, they say that if the reverse operation of the ATO Damper was a serious problem then overheating would have been evident in 2008 and before the handover. They submit that the grate did not overheat as often as the plaintiffs and their witnesses suggest it did during this period. This argument suggests that overheating only became a serious problem after the handover and was due to factors other than the reversal of the ATO Damper, such as the way the operators conducted themselves or the presence of bad fuel and rocks in the biofuel. However, for reasons that emerge from the evidence I will later discuss, I find that overheating was a frequent problem before the handover.
Reduced to its basics, the dispute between the parties on the issue of causation goes something like this.
The plaintiffs submit that the reverse operation of the ATO Damper indisputably affected airflows within the boiler, reducing the amount of undergrate air that was available to cool the grate, to inject air through the grate to aid combustion on the grate and combustion of fuel in suspension, and, if required, to dry wet fuel.
Because of the reduced undergrate air, fuel that should have burnt either in suspension or on the grate, piled. The excessive accumulation of unburnt fuel on the grate is called “piling”. The reduced combustion led to reduced steam output. The automated system then injected more fuel into the boiler. This compounded the problem of unburnt fuel. In this and other ways there was excessive piling of unburnt fuel on the grate.
In combination, reduced cooling from reduced undergrate air, reduced combustion of materials on the grate and increased piling on the grate caused the grate to overheat.
As a result, metal parts on the grate, particularly chain links and T-bars, became overheated for prolonged periods and deteriorated over time, with a particular chain link failing on 5 July 2010, resulting in grate damage to other parts of the grate which melted.
A number of witnesses described the effect of the ATO Damper operating in reverse as “robbing” the boiler of undergrate air. This is a colourful way of describing how the unintended, increased flow of air through the ATO Damper injected air higher up the boiler rather than to the bottom of the boiler under the grate. The unintended increased flow of air through the ATO Damper made the boiler operate, unbeknownst to the operators, as an additional, secondary air damper. It reduced the efficient combustion of fuels, both in suspension and on the grate.
Incidentally, the overheating of the grate by the ATO Damper operating in reverse may have been more pronounced when the boiler was using woodchips and other wood waste than when it was using bagasse during or shortly after the crushing season. This is because, as noted, wood tends to burn on the grate rather than in suspension and unburnt wood would pile on the grate and overheat it.
The plaintiffs’ case on causation, namely that the reverse operation of the ATO Damper during 2008, 2009 and the first half of 2010 caused the overheating that resulted in damage to the grate, rests on a number of planks. The first is the obvious inference that unintended changes to a finely-balanced system that is designed to have most of the air enter the boiler under the grate, some air enter through secondary air ducts, and practically none enter through the ATO Damper during normal operation of the boiler (when the boiler does not need to be started and is burning biofuels), must reduce efficient combustion and affect grate temperatures. A second plank is that, throughout the relevant period, the practically identical Condong boiler did not experience the problems that the Broadwater boiler did with excessive piling on the grate and overheating. The main difference was that the ATO Damper at Broadwater operated in reverse, and this is said to account for the difference. A third plank consists of the observations of the boiler operators and others about the marked improvement in performance after the reverse operation of the ATO Damper was corrected. The final plank is the expert evidence in the case, particularly that of Mr Lowry.
One response by the defendants to the plaintiffs’ claims about the consequences of the ATO Damper operating in reverse is along the following lines. The defendants argue that if the reverse operation of the ATO Damper had the consequences for which the plaintiffs contend, then someone would have noted this effect and detected the defect much earlier than in August 2010 after major damage to the grate occurred. The defendants point to the fact that their engineers and operators did not detect (with the qualification earlier noted) that the ATO Damper was operating in reverse during 2008 when the boiler was being commissioned by them, that an experienced consultant like Mr Ironside did not detect the problem before or after commissioning when he was fine-tuning the boiler, and that the plaintiffs’ employees did not do so during the whole of 2009 and the first half of 2010.
The fact that no one apparently detected that the ATO Damper was operating in reverse and causing the grate to overheat is said to show that the reverse operation did not have the significant consequences for which the plaintiffs contend.
This is a superficially attractive argument. Ultimately, however, the argument and the evidence relied upon by the defendants to support it do not persuade me to reject the plaintiffs’ case on causation. For reasons that will be more fully explained after a consideration of the more important evidence in the case and the parties’ submissions, I conclude that the reverse operation of the ATO Damper was a substantial cause of the grate overheating prior to the July 2010 damage.
At this stage, I shall preview why I am not persuaded by the defendants’ argument that no one detected the ATO Damper was operating in reverse because it made little difference.
One reason that no one investigated in 2009 or in 2010 the possibility that the ATO Damper was installed and programmed so that it operated in reverse is that it was practically unthinkable that the defendants would program it in reverse, then fail to detect the error during testing of the ATO Damper (including when its blades were able to be observed), and then fail to detect the error during commissioning of the boiler. This includes air balance tests that were conducted by the defendants that recorded differential pressures when the ATO Damper was opened in different positions. If the defendants had paid proper regard to the air balance tests during commissioning of the boiler when the ATO Damper was positioned at different percentage openings, they would have realised that it was operating in reverse.

In late 2008 during commissioning and when heat alarms were regularly being triggered, and thereafter, neither the plaintiffs nor the defendants were prompted to think the practically unthinkable. This was that the defendants, including their highly experienced engineers and other employees, failed to make a physical inspection of the ATO Damper’s operation after it was programmed, failed to detect during testing of the oil burner in 2008 that the damper was programmed so that it operated in reverse, and failed to detect its reverse operation during the many months of commissioning in late 2008. They did not detect its reverse operation and its consequences. Instead, they adjusted alarm settings and, with their considerable expertise, were able to commission the boiler and have it pass performance and reliability tests in late 2008. Those tests were undertaken using fresh bagasse that was used as fuel during commissioning in late 2008. Wood materials were hardly used. There is evidence that only a couple of truckloads of wood materials were available during that period.
After handover, the plaintiffs would not reasonably suspect that such an error in programming had been made and had not been detected by the defendants during testing and commissioning. The defendants’ experienced engineers and operators apparently did not give much attention to what the DCS or the air balance tests recorded about the consequences of moving the ATO Damper during the testing and commissioning period in 2008. Unsurprisingly, the plaintiffs’ less experienced boiler operators also were not alert or alerted to the reverse operation of the ATO Damper when they looked at the control panel of the DCS.
The fact that the plaintiffs’ boiler operators and other employees did not suspect, let alone detect, that the ATO Damper had been programmed so it operated in reverse is also explained by the fact that, when problems were raised by the plaintiffs with the defendants about the boiler after it was handed over to them to operate, the defendants blamed problems on the quality of fuel being used or operator error. The defendants did not undertake a review to explain why the Condong mill was operating much better and with fewer problems than the Broadwater mill or suggest to the plaintiffs that they should do so. Instead, they cast blame on the plaintiffs’ fuel and on their operators at Broadwater. The thought did not occur to them or to the plaintiffs that the ATO Damper at Broadwater was operating in reverse, depriving the boiler of undergrate air, and injecting into the boiler what is described as “trash air”. This is the term engineers and operators use for unwanted air in a boiler.
The practically unthinkable, namely that the defendants programmed the ATO Damper to operate in reverse and then failed to detect this defect during testing and commissioning, did not occur to the defendants or the plaintiffs over this period. Similarly, that the ATO Damper had been wrongly programmed so that it operated in reverse did not occur to other people, such as Mr Ironside. He did not notice by looking at the control panel or by any other means that this was the case. Neither he nor the operators had much occasion to do so because the oil burner worked on the rare occasions when it had to be used and the oil burner was designed to be operated automatically by the DCS.
The fact that the reverse operation of the ATO Damper went undetected by the plaintiffs and the defendants until after the July 2010 damage does not mean that its reverse operation did not have real and significant effects. The evidence that I will review shows that it did. It supports the various planks in the plaintiffs’ argument that I have already identified.
In summary, the fact that no one detected the reverse operation of the ATO Damper during commissioning in late 2008, and during operation of the boiler in 2009 and the first half of 2010 does not persuade me that the reverse operation of the ATO Damper did not make much of a difference to the Broadwater boiler’s operation and overheating of the grate. The reverse operation was not detected during that time because the plaintiffs and others did not suspect that the defendants would make such a basic error and then fail to detect it. This was an understandable and reasonable response by Mr Ironside and the plaintiffs’ operators and other employees, who assumed that the damper had been properly programmed.
Because during 2009 and 2010 they reasonably assumed that the airflows and damper positions were as indicated on the DCS screen and on the outside physical scale, it was easy to assume that the unburnt fuel on the grate was of poor quality or (in Mr Ironside’s case) that the operators were not doing their job properly.
At the risk of using a somewhat strained analogy, imagine that the maker of a Ferrari erroneously routed one of the exhausts from a piston back into the engine and blamed the car’s poor performance on the fuel that the driver was using or the way that the driver operated the vehicle. Faced with those explanations, the driver would not think that the carmaker had set up the exhaust system so that one part of it operated in that way.
By way of preview, I find the following:
1.Reversal of the ATO Damper is a plausible and probable cause of overheating of the grate, excessive piling and the degradation of metal parts of the grate that led to metal failure of a chain link and major damage in July 2010.
2.The alternative causes of overheating suggested by the defendants are either not supported by the evidence or, to the extent they are, did not contribute significantly to overheating. They do not alter the fact that the reverse operation of the ATO Damper substantially contributed to overheating of the grate.
3.The proposition that the reverse operation of the ATO Damper was a substantial cause of overheating and excessive piling is supported by the expert evidence that I will address.
4.It is also supported by these facts:
·there were no similar problems of overheating at the Condong plant which had its ATO Damper correctly oriented;
·Condong used similar fuel and encountered similar problems of rocks in the fuel as the Broadwater plant did; and
·after the defect in the ATO Damper at Broadwater was corrected, it operated like a different boiler.
For these and other reasons to be developed, I conclude that the reverse operation of the ATO Damper substantially contributed to overheating of the grate prior to July 2010, when parts of the grate that should not have been subjected to prolonged overheating failed, and caused in the July 2010 damage.
As at 20 January 2010, could the plaintiffs have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse?
This issue arises for determination against the background of matters that have just been addressed in discussing the first major issue.
The plaintiffs were reasonably entitled to assume that the experts engaged by the defendants to construct, program, test, and commission the Broadwater boiler did so in a way that did not result in the ATO Damper operating in reverse.
This would include a visual inspection by the defendants of how the ATO Damper blades moved from a fully opened to a fully closed position, as controlled by an actuator arm, and that the opening and closing positions accorded with the 0 to 100 scale on the crescent-shaped indicating scale. If such an inspection of the blades’ movement did not occur before the blades were enclosed by ducting, then the fact that the blades opened and closed as indicated on the crescent scale could be established by a test of the kind undertaken by Mr Heese at the Condong plant when an entry was made into the duct so as to inspect the movement of the blades.
Next, that the ATO Damper was operating in reverse should have been established by the defendants in the course of testing the oil burner after it was first fired in December 2007 and as the ATO Damper was moved through different degrees of opening.
Next, that the ATO Damper was not operating properly should have been discovered by the defendants during commissioning of the boiler. In particular, it should have been discovered when reviewing air balance tests undertaken on or about 30 May 2007, which showed decreasing differential pressure as the ATO Damper was moved from what was indicated to be 25 percent open to 100 percent open. More generally, during testing and commissioning of the oil burner at the Broadwater boiler, the defendants’ engineers and experienced operators should have observed readings on the DCS in relation to “Air to Oil” as the ATO Damper was moved through different positions.
Overall, experts like the defendants might have been reasonably expected by the plaintiffs over a lengthy period of testing and commissioning of the boiler, and the oil burner in particular, to ensure that the ATO Damper was programmed correctly and that it did not operate in reverse.
In the circumstances, the plaintiffs had reasonable grounds to believe that the ATO Damper had been properly programmed and tested by the defendants prior to practical completion on 21 November 2008.
The issue then is what after practical completion should have placed one or more of the plaintiffs’ employees on notice that the ATO Damper operated in reverse when this fact was not seemingly noticed, investigated, or detected by the defendants.
An engineer who was an expert in tuning boilers, Mr Ironside, was engaged at different times by either the defendants or the plaintiffs to inspect the boiler and fine-tune it. During these visits the boiler was operating on biofuels. Unless Mr Ironside had occasion to re-start the boiler after a shutdown by activating the oil burner or to add oil as a fuel to increase combustion, he would not have had occasion to pay particular attention to it and the ATO Damper. Like the less experienced boiler operators and other individuals employed by the plaintiffs, he would have reasonably assumed that the damper was open to the extent indicated on the DCS (and also on the outside, crescent-shaped physical scale) and would not have had occasion to open or close it further. Any fine-tuning by him of airflows would have been by adjustments to secondary air dampers, rather than the ATO Damper, which he would reasonably have assumed was open only to the limited extent shown on the DCS.
The issue is not what might have been apparent to Mr Ironside. Still, the fact that he did not suspect, let alone detect, that the ATO Damper was operating in reverse is relevant to the issue of what could have reasonably been expected from the first plaintiffs in the circumstances.
What should have placed the plaintiffs’ employees on notice that the ATO Damper operated in reverse when this fact was not seemingly noticed or investigated by the defendants or Mr Ironside?
The plaintiffs’ boiler operators:
(a)were not trained to test whether the ATO Damper operated in reverse;
(b)were reasonably entitled to expect that the ATO Damper had been installed, programmed and tested by the defendants so that it did not operate in reverse;
(c)were reasonably entitled to assume that if the oil burner operated to start combustion or to add fuel, that (as indicated in the instructional slides during their training) it was an automated system and that they should not make manual adjustments to it;
(d)were reasonably entitled, once the oil burner ceased to operate, to leave the ATO Damper in what appeared to them to be its fixed, almost closed position and not manually adjust it; and
(e)did not have occasion to give the oil burner or the ATO Damper and the readings on the DCS screen associated with them any particular attention during the daily operation of the boiler when it used biofuels and not oil.
Other employees of the plaintiffs, such as superintendents and engineers, likewise were entitled to assume that the ATO Damper had been tested during commissioning and did not operate in reverse.
When the plaintiffs complained to the defendants after practical completion about aspects of the boiler’s operation and, in April 2009, raised the question of whether overheating had caused damage to certain parts of the grate, the defendants responded that problems with excessive piling of fuel and other problems were the result of out-of-specification fuel, impurities like rocks in the fuel, and poor operating practices.
After practical completion and in response to complaints about the boiler’s operation, the defendants did not investigate the possibility that the ATO Damper had been installed, tested and commissioned so that it operated in reverse (this seemingly being unthinkable to them). It was not reasonable in the circumstances for the plaintiffs to try to locate the air balance tests among 24 volumes of the defendants’ pre-handover test results that allegedly were delivered to them.
Overheating was something that occurred before handover, and the third plaintiff’s employees were trained by the defendants to respond to it and to bring the grate’s temperature back within limits. Overheating was understood by those employees to be a part of the boiler’s operation to which they had to respond.
It was reasonable in the circumstances for the plaintiffs to assume that the ATO Damper at Broadwater had been installed, programmed and tested in the same way as the ATO Damper at Condong and did not operate in reverse.
This remained the case up until the July 2010 damage. However, the relevant date for the purpose of the Settlement Deed is 20 January 2010. I conclude that as at 20 January 2010, the plaintiffs:
(a)were not aware that the ATO Damper operated in reverse; and
(b)could not have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse.

As a result, the defendants were not released from claims made by the plaintiffs in this proceeding relating to the reverse operation of the ATO Damper.
The evidence
The trial heard from many witnesses, including boiler operators who were employed by the third plaintiff (NSWSMC), engineers who were employed by the parties in different capacities, a consulting engineer (Mr Ironside) who was engaged by the parties, and experts who provided expert reports for the purpose of this proceeding. The evidence-in-chief of lay witnesses was reduced to statement form. Some witnesses gave supplementary statements and some of their witness statements were voluminous. The experts’ reports, including reports that responded to other experts’ reports, were many and voluminous. Areas of agreement between Mr Lowry and Dr Dixon were identified in a joint report. Due to the volume of exhibits and other documents, the trial was conducted as an electronic trial.
The parties do not suggest that the resolution of issues of substance turns on making an assessment of the credibility and reliability of each lay witness. It is unnecessary to give a witness-by-witness account of their evidence. I shall refer to their evidence only to the extent necessary to resolve a contentious issue of fact.
Naturally, my findings of fact depend upon my assessment of the reliability or otherwise of the recollections of each lay witness, and the extent to which their evidence is supported or contradicted by contemporaneous documents.
Some evidence, including metallurgical reports, was received into evidence without either party requiring the author of the report to be called as a witness. This became evidence for all purposes. Some evidence was admitted on a more limited basis.
It is appropriate that I make some general observations about the reliability of the lay witnesses. Some witnesses had better recollections than others. Lay witnesses, such as boiler operators, were being asked to recall events that occurred between 2008 and 2010. Having witness statements stand as their evidence-in-chief had the advantage of reducing the length of the trial. It did not allow the lay witnesses to tell their stories, unprompted, in evidence-in-chief. However, in circumstances in which much of the lay evidence was uncontested and findings are not sought by the parties in relation to the reliability of the evidence of most lay witnesses, not being able to hear their evidence-in-chief given orally was not a significant disadvantage. Their evidence was tested under cross-examination.
Some of the boiler operators were more suggestable than others. Some conceded that they could not recall matters. Others gave recollections that probably involved a fair degree of reconstruction, given the passage of time. I was generally impressed with the evidence of the operators. To take the first witness as an example, Mr David Timms was employed by NSWSMC as a “No 1 Operator”. This meant that he spent a large amount of time in the control room. The reference to “No 1 Operator” distinguishes him from some witnesses who were employed by NSWSMC as “No 2 Operators” or “Rovers”. They would undertake inspections and have other tasks around the boiler. Mr Timms gave reliable evidence about the training that was provided by CBH and Downer and problems that were experienced with the boiler both during the commissioning period and after. I found his evidence credible and reliable. Under cross-examination he made appropriate concessions, accepting that it was “hard to remember things from 13 years ago, but it-it’s strange, some things are more memorable than others”.
The operators and site engineers employed by NSWSMC at the plant impressed me as conscientious employees who did their best to operate the boiler under difficult circumstances.
Speaking generally, the evidence of many of these lay witnesses used terms of indeterminant reference when recalling matters such as the frequency of overheating or the amount of rock that was in the biofuel. Sometimes they were able to give more specific evidence about, for example, how often on average the travelling grate had to be stopped to address a problem and the relatively short amount of time that it had to be stopped to address such a problem.
The operators kept logbooks and the contents of some of the logbooks became exhibits. The logbooks were generally of limited utility in resolving an issue such as the frequency of overheating and piling. The logbooks were in the form of Spirax pads or books in which the operators recorded certain basic information. The DCS itself recorded data, so the logbooks were not intended to be a comprehensive record of the boiler’s operation each shift. The operators responded to what they saw on the DCS screen or what they or the No 2 Operator could observe through peep holes into the boiler. The purpose of the handwritten logbooks was not to record each occasion of overheating, or whenever piling occurred, or the occasions when the travelling grate was stopped. The main purpose of the logbook was to record significant events as an aid for the next operator whose shift was to follow. It also was a means by which the superintendents and the engineers might be alerted to maintenance that was required. An entry in a logbook on a particular shift might forewarn the next operator that problems had been encountered with bad fuel.
If an operator encountered a problem with overheating, airflow, poor combustion, the flow of biofuel into the boiler or piling, then this was a problem requiring prompt action by the No 1 Operator with the assistance of the No 2 Operator. Depending on the problem, it might call for an adjustment of the fuel input, an adjustment of the airflow, the slowing or speeding of the travelling grate and, on occasions, the No 2 Operator would “air lance” an area of piling. These activities were part and parcel of the day-to-day operation of the boiler and were not usually recorded in the logbook.

Sometimes, problems such as piling or the suspected presence of wet fuel were recorded in logbooks. However, the parties do not suggest that these entries record all such incidents. The limitations of the logbooks and the absence of historic electronic data from the system means that an assessment of the extent of overheating, piling and other problems turns largely on an assessment of the oral evidence of operators, superintendents and engineers who observed it and recall it. It also relies upon some contemporaneous documents such as emails in late 2008 which discuss the problem of overheating. Mr Ironside’s reports from time to time also serve to identify problems that he was asked to address or found.
The evidence of the lay witnesses supports the conclusion that I will later reach that overheating of the grate was a problem both before and after handover of the plant.
No evidence was given by any boiler operators from CBH or Downer. During the commissioning period and the undertaking of tests, CBH personnel operated the boiler and trained boiler operators like Mr Timms. They included CBH personnel such as Mr Keith Harvey and Mr Warren Tillitzki. The defendants did not call these individuals as witnesses.
The engineers who gave evidence included Regan Sawatzki, who was the chief engineer employed by NSWSMC and responsible for mechanical maintenance and lodging defect notices. Daniel Rojo was employed by NSWSMC as the project and maintenance engineer and was responsible for maintenance of the plant after handover in November 2008. Like Mr Sawatzki, he gave evidence about the problems that were experienced at the plant before the grate failed in July 2010. It was Mr Rojo who discovered in August 2010 that the ATO Damper had been installed and programmed so that it operated in reverse. The plaintiffs’ witnesses included operators, production and shift superintendents, and engineers who observed the operation of the boiler during commissioning and also after handover. They were on the site each day of their working lives and, in the case of the operators, in the control room or observing the boiler throughout a shift.
The defendants’ witnesses included lay and expert witnesses. Mr Ironside, in a sense, straddled both fields, but he did not provide an expert report. Instead, his evidence was based upon his being engaged at various times by either the plaintiffs or the defendants to assist in tuning the boilers at Broadwater and at Condong. He attended both sites on numerous occasions, both before and after handover and provided reports shortly after his visits. Mr Ironside is the principal of his own business and a mechanical engineer by training. He has extensive experience in the commissioning and operating of power generation plants, including expertise in controls and instrumentation. This includes the DCS that was installed at the plant. One of the operators employed by NSWSMC, Paul Stanley-Jones, described Mr Ironside as the “boiler guru”.
It will be necessary to address, in due course, Mr Ironside’s contemporaneous reports and the different opinions that he expressed, over time, about the effect of the ATO Damper’s reverse operation. I should say at this point that I was impressed by Mr Ironside’s independence and his attempts to assist the Court. He was not an advocate for any parties’ position. He made appropriate concessions under cross-examination.
Egbertus Heese is a mechanical engineer who worked for CBH between 2005 and 2018. From mid-2007 to August 2008, he was the commissioning manager for Condong and worked predominately there. He became CBH’s project manager for the Broadwater plant in around August 2008. As project manager for both plants, he mostly worked from the Brisbane office but would travel to the sites about once a week. He did not provide any training to the Broadwater boiler operators. He had a limited involvement in the day-to-day operations of the Broadwater plant during the commissioning period and very limited involvement thereafter. He gave evidence on one contentious matter, namely having delivered certain hardcopy documents to the plaintiffs.
Michael Stirling is an employee of Downer and a former employee of CBH. He gave evidence about the design and operation of the Broadwater plant and some evidence about training, fuel, the DCS and defect notices. I found Mr Stirling to be an impressive witness who assisted the Court to understand certain technical and engineering issues. As with the evidence of other engineering experts whose evidence I will briefly introduce, it will be necessary to engage in some greater detail on aspects of their opinions.
While Mr Stirling was responsible for the design of both plants, he was not directly responsible for their commissioning and he was not involved in their operation. This means that his evidence was of limited assistance in reaching conclusions about the Broadwater plant’s operation during commissioning and thereafter. He provided two days of classroom training to the Broadwater boiler operators in December 2007, but was not involved in the on-the-job training of those operators when they were in the control room using the DCS. Because of his various responsibilities, Mr Stirling spent most of his time in 2008 in the Brisbane office, rather than onsite.
Graham Lowry is the director and principal consultant of Boiler & Power Plant Services Pty Ltd. He is highly qualified as an engineer and has worked in the boiler and power plant industries for over 40 years. He gave evidence and prepared reports. He provided a joint report with Dr Dixon and gave a supplementary statement. The plaintiffs rely upon his evidence which I will discuss in greater detail.
The defendants contend that Mr Lowry was an advocate for a certain position, made speeches rather than responded to questions under cross-examination, and even went so far as to express a legal opinion at one point. This was the first time that Mr Lowry gave evidence in court or prepared a report for use in court. That should not be held against him, and I have assessed his evidence with that in mind.
Mr Lowry was slightly enthusiastic in his exchanges with cross-examining counsel. He made few concessions under cross-examination. However, neither his enthusiasm nor the absence of additional concessions under cross-examination leads me to devalue his evidence. His active engagement with counsel during cross-examination might be characterised by some as a form of advocacy. However, I found his responses to be well-intentioned and what one would expect in a symposium that was trying to find the truth. I do not assess his evidence by counting the number of concessions he made and comparing them to the number of concessions that Dr Dixon made in the course of his evidence. Depending upon the particular topic, it would have been inappropriate for Mr Lowry to make a concession that he did not accept. The fact that he maintained the opinion that the reverse operation of the ATO Damper was a substantial cause of the overheating and the July 2010 damage does not mean that his opinion should be disregarded or discounted for that reason.
Dr Terence Dixon also is a highly qualified and experienced engineer. He prepared three expert reports, a joint report with Mr Lowry, and a supplementary statement about the calculation of the quantity of diverted undergrate airflow. It will be necessary to return to his evidence, including a number of important concessions that he made during his cross-examination. The defendants submit that I should hesitate to place much weight on those answers. They submit that by this stage of his evidence, Dr Dixon had become overwhelmed by the process and began to readily agree with propositions that were put to him. I recall and have regard to the circumstances in which the concessions were made. I do not accept that Dr Dixon made them because he was overwhelmed by a protracted cross-examination and was disposed to readily agree with propositions that were put to him. Instead, Dr Dixon impressed me as someone who was prepared to make concessions, not out of tiredness, but because he was prepared to accept the force of arguments and propositions that were put to him.
I will return to some aspects of the expert evidence. It will be unnecessary to address many of the contentions made in the numerous expert reports. This is because, both by virtue of the joint expert report and through the course of the trial, some issues fell away by reason of agreement or concession.
It is sufficient to observe that I was generally impressed by all of the engineers who gave evidence. This includes engineers who were employed by the parties. As for the independent experts, I was assisted by the evidence of Mr Ironside, Mr Lowry and Dr Dixon. To the extent I need to resolve any issue that remains where their opinions differ, I will do so in the course of considering specific issues. The resolution of those issues does not depend upon some general view about the demeanour of those expert witnesses or the manner in which they gave their evidence. Each was trying to assist the Court in their own way and in their own words. Long gone are the days when conflicts between expert witnesses could be resolved by a judge saying that the manner in which an expert gave evidence instilled confidence.[1]
[1]Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 at 960.
Many other witnesses were called who addressed issues of loss and damage. It is unnecessary to discuss their evidence at this point. I will do so in the final part of these reasons.
The boiler at Broadwater
Some details about the co-generation plant at Broadwater and the operation of the boiler have been given above in the “Background” section. Some additional descriptions are necessary.
The co-generation plant at Broadwater was purpose-built to provide power for export to the electricity grid and process steam for the Broadwater sugar mill’s operations. It was designed to operate around the clock for 11 months a year, with the remaining month reserved for maintenance.
The plant is composed of a biomass-fuelled boiler and other associated systems including a fuel handling plant, a steam turbine and a generator. The plaintiffs’ claim relates to the boiler that creates heat energy. Water-filled pipes and drums make up the heat transfer surfaces inside the boiler. When biofuel is burnt in the boiler’s furnace, the water boils to form medium-pressure, high-temperature steam.
This steam is heated even further by superheaters as it exits the boiler. The resulting high-pressure, high-temperature steam flows to the steam turbine, that in turn drives the turbogenerator and produces electrical energy.
The boiler includes:
(a)a furnace;
(b)water drums;
(c)pipework;
(d)a combustion air system;
(e)two travelling grates operating in parallel (which I will refer to simply as “the travelling grate”);
(f)a biofuel handling system consisting of fuel feeders, chutes and pneumatic air distributors;
(g)an oil burner; and
(h)dampers to control airflow.
The boiler uses two kinds of fuel: bagasse and woodchip. Bagasse is a wet, fibrous by-product of the sugar cane crushing process. Woodchip is a heavier and denser fuel than bagasse, and is typically relied upon in the non-crushing season when no bagasse is being produced and after any stockpiled bagasse has been used. The boiler was designed to run predominantly on a “mixed fuel” of bagasse and cane trash (the leaves and tops of sugar cane that are disposed of pre-harvest), but the evidence is that “mixed fuel” has never been used at Broadwater.
Either bagasse or woodchip is brought into the boiler by one of five biomass feeders, and then travels through a series of chutes before being sent into the furnace by pneumatic distributors. Vertically-adjustable distributor plates enable a boiler operator to adjust the trajectory of fuel blown into the furnace.
Bagasse, being the lighter fuel, tends to burn while suspended in mid-air by airflows introduced into the furnace unless it has a particularly high moisture content. Woodchip, on the other hand, mostly lands on the travelling grate before combusting.
The travelling grate
The travelling grate sits horizontally at the bottom of the boiler and serves as the boiler’s “floor”. It roughly resembles a caterpillar track and operates as a conveyor belt for unburnt fuel within the furnace.
The parts of the grate that are most directly exposed to the furnace and have the most direct contact with unburnt fuel are known as “grate clips”, but to layman’s eyes they look like tiles. They are rectangular, heat-resistant iron tiles that contain holes and have side slots to allow air from beneath the grate (“undergrate air”) to flow through.
In constructing the grate, series of grate clips were clipped in rows onto long metal rods known as “T-bars”. These T-bars were arranged so that they lay parallel to the front and back walls of the furnace. They were then mounted to “roller chains”, which were in turn supported on “skid shoes” that run on “skid rails”.
Fuel that is not burnt in suspension lands on the travelling grate towards the rear of the furnace. The travelling grate, pulled forward by an electric motor, carries this fuel from the rear to the front of the furnace. Any unburnt fuel remaining on the travelling grate at the front of the furnace drops off into a submerged ash conveyor and is carried away from the boiler.
The travelling grate operates in a continuous loop. The grate clips and T-bars that were exposed to the furnace when carrying the unburnt fuel rotate around a drive shaft and then travel back along the underside of the grate to repeat the process. In this way, grate clips and T-bars should only be directly exposed to the furnace for half the boiler’s operational time.
Sources of combustion air to the boiler
As previewed, the introduction of airflows into the boiler enables fuel, particularly bagasse, to burn in suspension in the furnace. The ultimate source of any such introduced combustion air is the forced draft fan system (“FD Fan”). The FD Fan divides its air between the undergrate area, the secondary air nozzles and the oil burner.

Undergrate air dampers

Undergrate air is a mixture of hot and cool air that passes through the travelling grate from underneath the furnace. The holes in each grate clip are designed to allow undergrate air through. Undergrate air:
(a)cools the grate components;
(b)provides combustion air for burning fuel within the furnace; and
(c)dries any moisture in unburnt fuel.
The flow of undergrate air is controlled by two undergrate air dampers.
Secondary air dampers
The flow of air within the furnace creates a fireball in its centre. Secondary air is hot air used to rotate the fireball and affect its height and position within the furnace. Three secondary air nozzles are at different heights along the rear furnace wall, with another on the front wall.
Secondary air dampers control the amount of air fed into these secondary air nozzles.
Oil burner and the air to oil damper (“ATO Damper”)
The oil burner initially fires the boiler. While the oil burner may also be used to stabilise combustion within the boiler, it has served its primary purpose once the furnace is lit.
The oil burner sits on the rear wall of the furnace, slightly above the second of the three secondary air nozzles that are positioned on that wall. Diesel/distillate fuel is fed into the burner and combusts in the presence of combustion air. This air flows into the oil burner from the FD Fan, with the flow being regulated by the ATO Damper.
The opening and closing of the ATO Damper is effected by an actuator that is controlled by the computerised DCS.
The ATO Damper is designed to be open and supply a higher airflow to the burner on the rare occasions when the oil burner is in use. When the oil burner is not in use, the ATO Damper is not meant to be entirely closed. The DCS was supposed to be programmed to leave it at 10-15 percent open. A small amount of air should have been let through to cool the burner components and to prevent a build-up of ash.
Once combustion has started as a result of the oil burner, biofuel can take over as the source of fuel, the oil burner can be turned off, and it can be retracted into a housing. Because the boiler is intended to operate 11 months of the year on biofuels, the oil burner is rarely used. It may be used to re-fire the boiler after a stand down period, such as a maintenance period or an emergency stoppage. On rare occasions the oil burner may be used to supplement combustion from biofuels, but this would be exceptional. For most of the time the oil burner is not used, and the ATO Damper does not move from its almost closed position. The operators have no occasion to manually adjust it or to look at the computer screen to see how far it is open. The screen in the control room will record that it is, say, 15 percent open.
The parties agree that, during these periods of oil burner disuse, the ATO Damper was actually 85-90 percent open due to its reverse operation.
The DCS
The DCS is the boiler’s “computerised brain”. It is an automated system that allows boiler operators to monitor the boiler, as well as the steam turbine control system, and, if required, to make adjustments to the boiler’s operation.
The DCS connects a variety of sensors, controllers and programs, and was designed to monitor, control, display, and record aspects of the boiler’s operation, including trends in inputs and outputs. It includes alarms that are displayed on the screen or which may sound.
The DCS interfaces with computer screens in a control room. Boiler operators rely on these screens as a source of information in making decisions about the boiler’s operation. One of many scores of matters recorded on these screens is the extent that the ATO Damper is open. For example, it might record that it was 15 percent open.
The DCS automates much of the boiler’s operation. A boiler operator must be in the control room to respond to any information the DCS might provide and problems reported by others, such as the “No 2 Boiler Operator” (or “Rover”) who undertakes inspections of the plant and can observe, to some extent, the operation of the boiler through a “peep hole”.
Key events
In May 2005, the first plaintiffs (as “Principal”) entered into a contract with the first and second defendants (as “Contractor”) referred to as the “EPC Contract”. Downer and CBH agreed to design, engineer, procure, construct, test and commission the work provided for in the EPC Contract. The consideration was $69,955,669. The parties also entered into an agreement, again under the EPC Contract, to design, engineer, procure, construct, test and commission an identical 30MW co-generation plant at Condong for a consideration of $78,224,547.
Construction of the co-generation plants occurred between mid-2006 and mid-2008. This included installation of the ATO Damper.
Testing and commissioning of the plant occurred during 2007 and 2008. This included air balance tests undertaken by the first and second defendants.
The boiler at Broadwater was first fired on 20 December 2007.
During 2008, Downer and CBH provided operating and maintenance training to operators employed by NSWSMC. This included classroom-style training. Additional training occurred during commissioning (2 August to 30 September 2008) and reliability testing (1 October to 31 October 2008). During these tests and during the training, the only persons who were usually permitted in the control room by Downer and CBH were their own representatives and the boiler operators who they were training.
On 21 November 2008, practical completion occurred and the operation of the plant was handed over to employees of NSWSMC.

In the circumstances, and having regard to the report’s limitations, I am prepared to act on Mr O’Shea’s report in coming to a conclusion about the quantum of the plaintiffs’ business interruption losses.
Conclusion on economic loss claims
I use the term economic loss claims to refer to the first plaintiffs’ claimed revenue losses and NSWSMC’s claimed expenditure apart from repair costs, being the three entries in the table that I have prepared. The shortcomings in the plaintiffs’ proof of their economic loss would not result in their being denied compensation for those losses if compensation were to be awarded. Substantial losses for these kinds of claims were suffered.
The plaintiffs’ poor documentation of some parts of their claims would not necessarily warrant a discounting of the amounts claimed. The deficiencies in documentation and proof were addressed by Mr O’Shea’s work and analysis. A discount would not necessarily be applied because it is open to conclude that losses in the amounts claimed probably were suffered. Still, had I been required to award compensation for the economic loss claims, I would have discounted the claimed amounts by 10 percent because of the imprecision in some parts of the plaintiffs’ proof of quantum.
Third defendant’s liability
The first plaintiffs and the third defendant (DEDI) entered into a Deed of Guarantee. The Deed contains two separate and distinct obligations. First, in clause 1, there is an unconditional guarantee to the first plaintiffs of the “due and punctual performance… and observance by the Contractor of all of its obligations under the Contract”. Second, there is a separate undertaking in clause 2 to indemnify the first plaintiffs. Clause 7 of the Deed is a conventional provision by which the guarantor “waives any right it has of first requiring the Principal to commence proceedings or enforce any other right against the Contractor or any other person before claiming under this Guarantee and Indemnity”.
A difference between the obligation imposed by clause 1 and the obligation imposed by clause 2 is that the latter depends “on receipt of written demand from the Principal”. Clause 1 does not condition the guarantee obligation contained in it upon receipt of a written demand. It is the kind of guarantee where, upon default of the relevant primary obligation, the person having the benefit of the guarantee can sue the guarantor for damages for breach of contract.[35]
[35]Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 255; Filmana Pty Ltd v Tynan [2013] QCA 256 at [38].
Clause 2 of the Deed provides:
“As a separate undertaking, the Guarantor unconditionally and irrevocably agrees that, on receipt of written demand from the Principal, it will indemnify the Principal against all losses, damages, costs (including legal costs on a full indemnity basis and the costs of enforcing this Guarantee and Indemnity), expenses or otherwise which may be incurred by it by reason of: (a) any default on the part of the Contractor in performing and observing the agreements and provisions on its part contained in the Contract; or (b) an obligation the Contractor would otherwise have under the Contract being found to be unenforceable. The Principal need not incur expense or make payment before enforcing his right of indemnity.” (emphasis added)
Clause 2A of the Deed imposes specific requirements about the demand:
“Any demand required to be served on the Guarantor by clause 2 must:
(i) be in writing;
(ii) specify the nature of the breach or failure by the Contractor or unenforceability; and
(iii) specify the payment required to be made.”
In addition, clause 11 of the Deed, which imposes further requirements, states:
“All notices, requests, demands, consents, approvals, agreements or other communications to or by a party to this Deed:
(a)must be in writing signed by an authorised officer of the sender…”
The solicitors for the plaintiffs sent a demand letter dated 7 May 2013. It referred to the loss and damage claimed. It made a demand on DEDI for indemnity for such loss and damage. DEDI pleaded that the May 2013 demand letter was not a demand made by the Principal (as required by clauses 2A and 11(a) of the Deed). Its reasons included the fact it was formally written on behalf of Sunshine Electricity Management Pty Ltd, it included losses allegedly suffered only by the third plaintiff, and that it was not signed by an authorised officer of the Principal. The plaintiffs submit these complaints ought to be rejected and, in the alternative, submit that if the May 2013 demand letter was not a valid demand, a valid demand was made on 23 June 2022 by letter that was signed by a director and authorised officer of each of the first plaintiffs. That letter made demand on DEDI in respect of the first plaintiffs’ losses that are claimed in this proceeding.
A liability under clause 2 may only arise after the demand is made, but the obligation is to indemnify against all losses, damages and costs (including legal costs on a full indemnity basis and the costs of enforcing the guarantee and indemnity) by reason of the default of the Contractor.
There seems no issue, in the circumstances, that DEDI is liable for breach of the obligation in clause 1 of the Deed to guarantee the due and punctual performance and observance by the Contractor of its obligations under the Contract, and also is liable under clause 2 of the Deed to indemnify the first plaintiffs for the loss and damages that were incurred by the first plaintiffs by reason of the first and second defendants’ default in performing and observing the provisions of the EPC Contract. The first plaintiffs made demand on DEDI in respect of the first plaintiffs’ losses in this proceeding.
An issue remains as to the first plaintiffs’ costs. The indemnity given in clause 2 of the Deed refers to costs “including legal costs on a full indemnity basis and the costs of enforcing this Guarantee and Indemnity”. However, no written demand was made for those costs, those costs are yet to be proven and the demand did not specify the payment required to be made. The defendants submit that while clause 2 permits an entitlement to indemnity costs that might be sought for costs incurred prior to the demand, judgment for such costs cannot presently be given.
The plaintiffs’ oral submissions approached the matter on the basis that the question of costs, including indemnity costs in the exercise of a discretion, is a matter to be argued. Because a contractual provision of the kind contained in clause 2 of the Deed may be relevant to an order as to costs (as distinct from judgment based on a contractual indemnity against legal costs on a full indemnity basis), this seems a convenient course.
Accordingly, the first plaintiffs should have judgment against the third defendant in the same amount as the judgment to which they are entitled against the first and second defendants, namely $2,107,152.
Directions about form of judgment, interest and costs
Upon publication of these reasons, I will direct the plaintiffs to bring in draft minutes of judgment that should be first shown to the legal representatives of the defendants. I will formally enter judgment when the matter is next before the Court in early 2023 according to, what I expect will be, an agreed form of order. The issue of interest should be agreed, if possible.
Given the intervention of the court vacation, I will list the matter to formally give judgment at a time and date to be fixed in the first week of the court year, namely the week commencing 30 January 2023. At the same short hearing, I will make directions about written and oral submissions on costs, and any issue as to interest on the judgment sums.
Summary and conclusion
At the start of these reasons, I wrote that this is a case about boilermakers, boiler operators and a boiler. But in many ways it is a tale of two boilers. One that operated as it was supposed to. Another that was defective and never operated as it was supposed to until the defect was corrected.
The boiler at Condong operated mainly in automatic mode, with manual overrides by operators to deal with occasional episodes of overheating and piling of unburnt fuel on the grate. The boiler at Broadwater experienced frequent overheating of its grate, both before and after handover, because of the reverse operation of its ATO Damper.
The long-term exposure of parts of the moving grate to excessive temperatures progressively degraded them. Eventually, on 5 July 2010, a grate chain failed, causing other chains on the northern grate to fail, distorting the grate and causing it to stop moving. After that, some parts of the grate sustained further damage during a controlled shutdown of the boiler.
The root cause of the July 2010 grate failure was the reverse operation of the ATO Damper that deprived the grate of a significant quantity of undergrate air that was supposed to cool it and aid efficient combustion. Instead, the grate overheated because of reduced air and excessive piling of unburnt fuel. The grate overheated when there was no piling. But piling made the overheating problem worse. It prevented undergrate air from travelling into the boiler and created “hot spots” on parts of the grate. The overheating and the hot spots from piling degraded T-bars and chains that sat just below the grate tiles. The degradation and eventual failure of a chain link resulted in the July 2010 damage.
An independent expert described the July 2010 grate failure as something that was “waiting to happen”.
The defect in the Broadwater boiler was corrected in August 2010 when the ATO Damper was programmed to operate as it should always have, and the Condong boiler always did.
Before then, the operators at Broadwater had to deal, as best they could, with overheating and piling. This included manual overrides of a boiler that should usually be in automatic mode.
The effects of the reverse operation of the ATO Damper meant that personnel at Broadwater had to operate the boiler in manual mode more than they otherwise would have. During commissioning and testing, CBH’s experienced personnel encountered overheating and piling. Mr Dann recalled that during that period, the boiler was run in manual quite often, and if it was allowed to run in automatic, fuel would pile on the grate because it was not combusting. The same necessity to frequently operate the boiler by using manual overrides arose after 21 November 2008, when the plaintiffs’ operators took over. In early 2009, Mr Ironside observed that the Broadwater operators had difficulty when the boiler was operating in automatic.
The Broadwater operators faced a difficult task in responding to overheating and piling. Piling can become suddenly worse when an automated system detects a loss of output and increases the quantity of fuel to compensate. Broadwater operators would respond by reducing the load, increasing the flow of undergrate air, slowing or speeding up the travelling grate as the circumstances required, or having an operator air lance piles. But these measures were not enough to prevent the long-term consequences of overheating in degrading the moving parts of the grate.
An added problem was that when the boiler was operating at lower loads, the detrimental effect of the ATO Damper operating in reverse would be greater. When the boiler was operating at its maximum continuous rating, there was a 31 percent shortfall of undergrate air due to the reverse operation of the ATO Damper. When it was burning wood and operating at 70 percent of its maximum continuous rating, there was a shortfall of between 53 and 69 percent of undergrate air.
Overheating and piling often was worse when the boiler had to use wood products instead of the fresh bagasse that the defendants used during the performance and reliability tests in late 2008. As the independent expert, Mr Lowry, and others explained, when wood rather than bagasse is being used as fuel, it burns on the grate rather than in suspension, and the grate becomes hotter than if there had just been radiation coming from a suspension fire.
The boiler was using wood products as fuel when the grate failed on 5 July 2010.
In the investigations that followed the 5 July 2010 damage, a maintenance engineer from NSWSMC made a chance discovery. By comparing photos of the Broadwater and Condong boilers, he noticed that the Broadwater ATO Damper looked different, and that the Broadwater damper was “mechanically set up” differently to the Condong damper. He organised pressure tests and discovered that the ATO Damper at Broadwater had been installed and programmed so that it operated in reverse to the way it was supposed to operate.
The plaintiffs’ employees could not have been reasonably expected to discover that fact before the July 2010 damage occurred. Because the boiler ran almost continuously on biofuels, they rarely had occasion to use the oil burner to start the boiler. During the boiler’s continuous operation on biofuels, they did not need to adjust the ATO Damper or pay attention to readings about how far open it was. They, and an experienced consulting engineer, reasonably assumed that the readings on the DCS screen and on the physical scale were accurate. They were not to know that when the readings were 15 percent open, the ATO Damper was 85 percent open. They assumed that the ATO Damper and the DCS had been correctly installed, programmed and tested. Quite reasonably, neither the plaintiffs’ personnel nor the consulting engineer went looking for air balance tests that the defendants undertook in 2007. They reasonably assumed that the defendants had done the tests and that the readings on the screen were accurate.
In April 2009, when the plaintiffs raised a question about overheating as a possible cause of damage to T-bars in the grate, the defendants did not tell them to search for the defendants’ 2007 air balance tests or suggest that the overheating might be caused by a defect in the works that the defendants had completed. The defendants did not search for the air balance tests in order to answer the plaintiffs’ question.
After the reverse operation of the ATO Damper was discovered by Mr Rojo in late August 2010, the damper was programmed by Mr Ironside so that it operated properly for the first time.
The Broadwater operators noticed that the boiler performed like a different boiler. There were far fewer overheating and piling events. The boiler started to operate like the Condong boiler always had.
Around this time, Mr Ironside, an experienced consulting engineer, concluded that the reverse operation of the ATO Damper was the most important reason for higher grate temperatures and the grate damage. He was correct.
To this day, the defendants have not explained how they came to construct and program the Broadwater boiler so that the ATO Damper operated in reverse, then not identify that it did from their 2007 air balance tests or some other test they undertook in 2007. They have not explained why, having detected and logged in April 2008 that the ATO Damper operated in reverse, they did not correct its reverse operation.
At purported practical completion of the contract on 21 November 2008, the first and second defendants delivered a defective boiler. They therefore breached their contract in not completing the works so that, when completed, the boiler was fit for its purpose. They breached other contractual obligations and a non-contractual duty of care that obliged them to exercise due skill, care and diligence.
During 2009 and the first half of 2010, it may have been easy for some to assume, not knowing that the ATO Damper operated in reverse and deprived the grate of essential undergrate air, that the different performances of the Broadwater and the Condong boilers were because the operators at Broadwater were not so good or failed to follow procedures to combat overheating and piling. After the July 2010 damage, when fingers were being pointed, these allegations were made by the defendants. They were made in this proceeding. Before the trial, the operators were wrongly accused of resetting secondary air dampers in a way that “de-tuned” the boiler that Mr Ironside had tuned. That allegation was not persisted in since the evidence disproved it. Adjusting the secondary air dampers was what operators were expected to do to deal with changing circumstances and different fuel. It was what the operators at Condong did.
The Broadwater operators did what they were trained to do and did so in difficult circumstances to minimise, as best they could, overheating and piling.
Also, before July 2010, not knowing that the ATO Damper operated in reverse, it may have been easy to assume that problems with piling at Broadwater were the result of “bad fuel”. The boiler was designed to deal with biofuels that had a high moisture content and a certain level of impurities like rocks, stones and other ash that did not burn.
On occasions, there may have been “bad fuel” in the sense of out-of-specification fuel, just as, on occasions, there may have been bad fuel at Condong. But often, what appeared to operators and others at Broadwater to be bad fuel, sitting unburnt on the grate, was not bad fuel. It was a bad boiler that was not installed and programmed to supply the quantity of undergrate air that was required to burn fuel in suspension or on the grate. As a result, piles of what appeared to be bad fuel built up.
Rocks and gravel in the fuel caused some mechanical problems. The boiler was set up so that rocks and other ash that could not be reclaimed by the ash converter were dumped in a skip. Sometimes the grate was stopped for five or 10 minutes to allow the skip to be emptied. But more often, the operators did not stop the grate to allow this to happen, with rocks and gravel that fell on the ground during that short time being shovelled into the skip upon its return.
Rocks in the fuel feeder, the grate and other parts of the plant contributed to wear and tear and, on some occasions, mechanical damage to the grate’s T-bars. But rocks did not make a significant contribution to grate overheating. Dr Dixon and Mr Lowry agreed about that, and I accept their expert opinions.
In defending the proceeding, the defendants alleged that at the time of the 5 July 2010 damage, the fuel distributor plates were set at an excessive angle of 20 degrees. But there was no evidence that the plates were at such an angle. The evidence was that the plates and the other parts of the fuel feeder were set in a way that sprayed fuel into the boiler to best achieve combustion. The theory about a sudden piling event occurring on 5 July 2010 as the result of misaligned feeder plates remains an unproven theory.
The lay and expert evidence that I have accepted and discussed in great detail establishes that the reverse operation of the ATO Damper was a substantial cause of the overheating that caused the grate failure on 5 July 2010.
Mr Lowry’s evidence, and also the evidence that Dr Dixon gave at trial, establish this cause. Dr Dixon had earlier assumed that overheating was not a problem before handover, based on the absence of recording of overheating in certain logs. But there was abundant evidence at the trial that overheating was a problem before handover, and Dr Dixon accepted that the metallurgical reports supported this conclusion. He made appropriate concessions in his oral evidence. This is the professional approach to be expected of an independent, expert witness. Still, one admires it when one sees it.
My conclusion that the reverse operation of the ATO Damper was the substantial cause of the overheating that caused the grate failure on 5 July 2010 does not simply rest upon my acceptance of the evidence of independent, expert witnesses. It also rests on evidence that overheating of the grate was a significant problem both before and after handover. It rests on the fact that after the damper was corrected, the Broadwater boiler operated like a different boiler, and like the boiler at Condong operated, where overheating and piling was fairly rare.

In late 2008, when the defendants were under pressure to complete, they knew about overheating at Broadwater. They did not investigate the cause of the overheating, and seemingly failed to recall what they knew in April 2008 about the reverse operation of the ATO Damper. Instead, the problem of overheating and frequent alarms was addressed by raising the alarm points so that alarms would not sound so frequently. This was done by CBH “on the advice of Downer” which was then, to use an informal expression, “on the hook” for a multi-million-dollar liquidated damages claim for delay.
When those and other claims were settled on 20 January 2010, the plaintiffs were not aware of the reverse operation of the ATO Damper, and could not have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse. Therefore, the Disputes Resolution Deed did not release claims made by the first plaintiffs in this proceeding relating to the reverse operation of the ATO Damper.
Their claim for breach of contract, as well as their claim for breach of a concurrent duty of care in tort, were brought within the limitation period.
The plaintiffs’ claims for misleading or deceptive conduct have not been proven.
The third plaintiff (NSWSMC) did not press a case that it was owed a duty of care by the first and second defendants. It did not have a claim in contract. Its claim for misleading or deceptive conduct having failed, it is not entitled to judgment for the losses it proved.
The “Indirect Loss” provision in the contract excludes certain categories of economic loss. It applies to both the contract and negligence claims brought by the first plaintiffs. The first plaintiffs proved repair costs of $2,107,152, and therefore are entitled to judgment in that amount.
The third defendant is liable pursuant to guarantee and indemnity obligations that it assumed in a Deed of Guarantee in favour of the first plaintiffs. Therefore, the first plaintiffs are entitled to judgment against the third defendant.
I will formally pronounce and enter judgment in a form to be submitted on a date to be fixed, not before 30 January 2023, and make directions that day about submissions in relation to interest on the judgment sums and costs.
In conclusion, two boilers were supposed to operate the same way. They did not because the ATO Damper at the Broadwater boiler operated in reverse, and deprived the boiler of undergrate air that was required to cool the grate and aid combustion. The reverse operation of the ATO Damper caused the July 2010 damage which cost the first plaintiffs more than $2,000,000 to repair. It caused other loss and damage, but the defendants are not liable for these amounts because of a contractual provision that excluded their liability for “Indirect Loss”.
I have considered a large body of evidence and submissions. Reduced to a few sentences, the tale of two boilers is fairly simple. The two boilers were supposed to operate the same way. The only real difference between the two boilers was that the ATO Damper at Broadwater was defective. It was installed and programmed so that it operated in reverse, but no one discovered this fact until it was too late and the July 2010 damage had been done. When the defect was corrected, the two boilers operated the same way, and as they should always have. Downer and CBH’s breach of contract and breach of a duty of care in tort caused the July 2010 damage.

CITATION:	Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Ltd & Ors [2022] QSC 294
PARTIES:	CAPE BYRON POWER I PTY LTD ACN 074 408 923 (formerly known as Delta Electricity Australia Pty Ltd) and CAPE BYRON POWER II PTY LTD ACN 095 991 638 (formerly known as Sunshine Renewable Energy Pty Ltd) as joint venturers in the Sunshine Electricity Joint Venture (first plaintiffs) CAPE BYRON POWER II PTY LTD ACN 095 991 638 (formerly known as Sunshine Renewable Energy Pty Ltd) (second plaintiff) NEW SOUTH WALES SUGAR MILLING CO-OPERATIVE LIMITED ACN 051 052 209 (third plaintiff) v DOWNER ENERGY SYSTEMS PTY LIMITED ACN 067 158 954 (first defendant) DMH PLANT SERVICES PTY LTD ACN 010 975 256 (formerly known as MHPS Plant Services Pty Ltd and Clyde Babcock-Hitachi Pty Ltd) (second defendant) DOWNER EDI LIMITED ACN 003 872 848 (third defendant)
FILE NO/S:	BS 11011 of 2014
DIVISION:	Trial Division
PROCEEDING:	Trial
ORIGINATING COURT:	Supreme Court at Brisbane
DELIVERED ON:	22 December 2022
DELIVERED AT:	Brisbane
HEARING DATE:	30 and 31 May 2022 and 1, 2, 3, 6, 7, 8, 9, 10, 13, 14, 15, 16, 20, 21, 22 and 23 June 2022 and 31 August 2022 and 1 September 2022
JUDGE:	Applegarth J
ORDER:	1. The plaintiffs have any further leave that may be required pursuant to rule 376(4) of the *Uniform Civil Procedure Rules 1999* (Qld) in addition to the leave granted by paragraph two of the order of Douglas J made 19 September 2017 to amend paragraph 72, 73, 74 and 75 of their pleading in accordance with the Further Amended Statement of Claim filed 31 October 2017. 2. The defendants have leave to further amend their defence by reinstating those parts of their defence to the plaintiffs’ negligence claim that were deleted in the Amended Defence to the Further Amended Statement of Claim, particularly the matters deleted in sub-paragraph 69(b) and 71 of the Amended Defence filed on 15 December 2017. 3. The plaintiffs bring in draft minutes of judgment to reflect the judgments indicated in the reasons for judgment published on 22 December 2022. 4. The matter be adjourned to a date to be fixed not before 30 January 2023 for the purpose of pronouncing judgment and making directions about submissions in relation to interest on the judgment sums and costs.
CATCHWORDS:	CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – where the first plaintiffs contracted for the first and second defendants to design, engineer, procure, construct, test and commission two practically identical co-generation plants at Broadwater and Condong (“the EPC Contract”) – where each plant was operated by the third plaintiff – where each plant contained a boiler system that would produce steam to generate electricity – where, in constructing the boiler at Broadwater, the first and second defendants erroneously installed and programmed a damper that controls the flow of air to the boiler’s oil burner in reverse – where overheating of the boiler’s grate caused significant damage to the boiler in July 2010 – where, in constructing and programming the boiler so that the damper operated in reverse, and then not identifying that it did, the first and second defendants breached their contract with the first plaintiffs – whether the reverse operation of the damper was a substantial cause of the overheating that resulted in the July 2010 damage DEEDS – DEED OF RELEASE – GENERAL WORDS OF RELEASE – where, before the July 2010 damage, the first plaintiffs and the first and second defendants entered into a Disputes Resolution Deed containing mutual releases – where the deed expressly does not apply to claims of which, at the date of execution, the first plaintiffs were not aware and could not have become aware by the making of reasonable enquiries – where the defendants accept that, at the date of execution, the plaintiffs were not aware that the damper operated in reverse – whether the plaintiffs could have become aware, by the making of reasonable enquiries, that the damper operated in reverse – whether the deed releases the first and second defendants from the first plaintiffs’ claim LIMITATION OF ACTIONS – LIMITATION OF PARTICULAR ACTIONS – SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS – ACCRUAL OF CAUSE OF ACTION AND WHEN TIME BEGINS TO RUN – SIMPLE CONTRACTS – where the damper was installed in 2007 – where the works the subject of the EPC Contract were purportedly completed on 21 November 2008 – where the proceeding was commenced on 20 November 2014 – where the defendants plead a limitation defence to the first plaintiffs’ causes of action for breach of contract and contend that they accrued at the date the damper was installed – where the plaintiffs submit that the EPC Contract was an entire contract to complete works and that the limitation period runs from the date of practical completion, not from any earlier date when the defective damper was installed – whether the relevant contractual obligation under the EPC Contract is one to “carry out and complete” the works – whether the first plaintiffs’ breach of contract claim was brought within time Corporations Act 2001 (Cth), s 1305 Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 8, s 9 Limitation Act 1969 (NSW), s 14 Prescription and Limitation (Scotland) Act 1973 (UK), s 11 Trade Practices Act 1974 (Cth), s 52, s 82 Uniform Civil Procedure Rules 1999 (Qld), r 376, r 379 Agro Invest Overseas Ltd v Stewart Milne Group Ltd [2018] CSOH 120, considered Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, cited Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229, cited BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141, cited Blatch v Archer (1774) 98 ER 969, cited Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36, cited Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Limited & Ors [2022] QSC 182, cited Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, cited Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 cited Elevate NSW Pty Ltd v Canada Bay Private Hospital Pty Ltd (2019) 138 ACSR 186; [2019] FCA 1248, cited Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358; [2008] VSCA 26, cited Firstmac Ltd v Hunt & Hunt (A firm) [2018] QSC 258, cited French v QBE Insurance (Australia) Ltd (2011) 58 MVR 214; [2011] QSC 105, cited Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506; [2010] NSWCA 69, cited Huntaven Properties Limited v Hunter Construction (Aberdeen) Limited [2017] CSOH 57, cited Larking v Great Western (Nepean) Gravel Ltd (in liq) (1940) 64 CLR 221, cited Menegazzo v Pricewaterhousecoopers (A firm) [2016] QSC 94, cited Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd [2018] NSWSC 1304, cited Oxford Architects Partnership v Cheltenham Ladies College [2006] EWHC 3156, cited Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529; [1985] HCA 34, cited Siegwerk Australia Pty Ltd (in liq) v Nuplex Industries (Aus) Pty Ltd (2016) 334 ALR 443; [2016] FCA 158, cited Swansea Stadium Management Company Ltd v City & County of Swansea [2018] EWHC 2192, cited Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd [2019] VSCA 74, cited Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495; [2015] QCA 50, cited Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16, cited
COUNSEL:	T P Sullivan QC and B O’Brien for the plaintiffs P L O’Shea QC and M T Hickey for the defendants
SOLICITORS:	Carter Newell for the plaintiffs Clayton Utz for the defendants