Londsdale Investments Pty Ltd v Om (Manganese) Ltd [No 3]

[2012] WASC 185

LONDSDALE INVESTMENTS PTY LTD -v- OM (MANGANESE) LTD [No 3] [2012] WASC 185

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2012] WASC 185
Case No:	CIV:1830/2006	Heard:	5-7, 10-14, 17-21, 24-27, 31 MAY, 1-4 JUNE, 12, 13, 17 & 18 AUGUST 2010
Coram:	CORBOY J	Delivered:	5/06/12
No of pages:	448	Judgment Part:	1 of 9
Result:	First defendant by counterclaim found to have breached duty of care and contract.  Damages assessed at $5,474,450.59. Second defendant by counterclaim found to have breached duty of care.  Damages assessed at $256,425. First plaintiff entitled to $1,999.02 on account of work done at the request of the plaintiff.
Category:	B
PDF Version

Parties:	LONDSDALE INVESTMENTS PTY LTD PROMET ENGINEERS PTY LTD OM (MANGANESE) LTD JAMES DINSDALE CRIBBES DEREK MACAULEY
Catchwords:	Contract Contract for the design of a mineral processing plant Whether design engineer breached the design contract by failing to investigate the characteristics of the ore to be processed and by designing on an assumption about those characteristics Whether there was a reasonable basis for the assumption made about the characteristics of the ore to be processed Whether engineer required to give advice about the assumptions that it had made Whether design assumptions had been agreed Effect of changes in the arrangements by which the design work was performed Tort Whether design engineer owed a duty of care in designing process plant to process manganese ore to investigate the characteristics of the ore to be processed Scope of duty owed Whether engineer negligent in making assumptions about the characteristics of the ore to be processed or in failing to advise about design assumptions that had been made Content of the duty owed Trade practices Whether engineer engaged in misleading or deceptive conduct  by making representations as to the state of the design work Whether engineer engaged in misleading or deceptive conduct by making representations about exercising skill and competence in performing design work in the future Restitution Whether design engineer requested to perform variation work Whether a claim on a quantum meruit could be made for the benefit of work accepted Whether request made to perform work Whether the amounts claimed were reasonable
Legislation:	Civil Liability Act 2002 (WA) Fair Trading Act 1987 (WA), s 9 and s 10 Trade Practices Act 1974 (Cth), s 51A and s 52
Case References:	Bellgrove v Eldridge (1954) 90 CLR 613 Brickfield Properties Ltd v Newton [1971] 1 WLR 862 Brown Falconer Group Pty Ltd v South Parklands Hockey & Tennis Centre Inc [2005] SASC 75; 91 SASR 152 Coles Supermarkets Australia Pty Ltd v FKP Ltd [2008] FCA 1915 Damberg v Damberg (2001) 52 NSWLR 492 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 Drexel London (a firm) v Gove (Blackman) [2009] WASCA 181 Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; 19 VR 358 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217; Hadley v Baxendale (1854) 9 Ex 341 Longdon v Kenalda Nominees Pty Ltd [2003] VSCA 128 Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; 232 CLR 635 MGC Properties Pty Ltd v Tang [2009] QSC 322 Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Stack v Coast Securities No 9 Pty Ltd (1983) 46 ALR 451 The World Beauty [1970] P.144; [1969] 3 WLR 110 University of Glasgow v Whitfield & John Laing (Construction) Ltd (1988) 42 BLR 66 Yorke v Lucas (1985) 158 CLR 661

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION : LONDSDALE INVESTMENTS PTY LTD -v- OM (MANGANESE) LTD [No 3] [2012] WASC 185 CORAM : CORBOY J HEARD : 5-7, 10-14, 17-21, 24-27, 31 MAY, 1-4 JUNE, 12, 13, 17 & 18 AUGUST 2010 DELIVERED : 5 JUNE 2012 FILE NO/S : CIV 1830 of 2006

Consolidated by Order dated 1 May 2007

BETWEEN : LONDSDALE INVESTMENTS PTY LTD

First Plaintiff

PROMET ENGINEERS PTY LTD
Second Plaintiff

AND

OM (MANGANESE) LTD
Defendant

(BY ORIGINAL ACTION)

OM (MANGANESE) LTD
Plaintiff by Counterclaim

AND

LONDSDALE INVESTMENTS PTY LTD
First Defendant by Counterclaim

PROMET ENGINEERS PTY LTD
Second Defendant by Counterclaim

JAMES DINSDALE CRIBBES
Third Defendant by Counterclaim

(Page 2)

(BY COUNTERCLAIM)

FILE NO/S : CIV 2283 of 2006 BETWEEN : OM (MANGANESE) LTD

Plaintiff

AND

LONDSDALE INVESTMENTS PTY LTD
First Defendant

JAMES DINSDALE CRIBBES
Second Defendant

DEREK MACAULEY
Third Defendant

FILE NO/S : CIV 1227 of 2010 BETWEEN : LONDSDALE INVESTMENTS PTY LTD

Plaintiff

AND

OM (MANGANESE) LTD
Defendant

Catchwords:

Contract - Contract for the design of a mineral processing plant - Whether design engineer breached the design contract by failing to investigate the characteristics of the ore to be processed and by designing on an assumption about those characteristics - Whether there was a reasonable basis for the assumption made about the characteristics of the ore to be processed - Whether engineer required to give advice about the assumptions that it had made - Whether design assumptions had been agreed - Effect of changes in the arrangements by which the design work was performed

(Page 3)


Tort - Whether design engineer owed a duty of care in designing process plant to process manganese ore to investigate the characteristics of the ore to be processed - Scope of duty owed - Whether engineer negligent in making assumptions about the characteristics of the ore to be processed or in failing to advise about design assumptions that had been made - Content of the duty owed

Trade practices - Whether engineer engaged in misleading or deceptive conduct by making representations as to the state of the design work - Whether engineer engaged in misleading or deceptive conduct by making representations about exercising skill and competence in performing design work in the future

Restitution - Whether design engineer requested to perform variation work - Whether a claim on a quantum meruit could be made for the benefit of work accepted - Whether request made to perform work - Whether the amounts claimed were reasonable

Legislation:

Civil Liability Act 2002 (WA)

Fair Trading Act 1987 (WA), s 9 and s 10
Trade Practices Act 1974 (Cth), s 51A and s 52

Result:

First defendant by counterclaim found to have breached duty of care and contract. Damages assessed at $5,474,450.59.

Second defendant by counterclaim found to have breached duty of care. Damages assessed at $256,425.

First plaintiff entitled to $1,999.02 on account of work done at the request of the plaintiff.

(Page 4)

Category: B

Representation:

CIV 1830 of 2006

Consolidated by Order dated 1 May 2007

Original Action

Counsel:

First Plaintiff : Mr G R Hancy
Second Plaintiff : Mr G R Hancy
Defendant : Ms P E Cahill SC &
Mr J C Vaughan

Solicitors:

First Plaintiff : Sparke Helmore
Second Plaintiff : Sparke Helmore
Defendant : Middletons

Counterclaim

Counsel:

Plaintiff by Counterclaim : Ms P E Cahill SC &
Mr J C Vaughan
First Defendant by Counterclaim : Mr G R Hancy
Second Defendant by Counterclaim : Mr G R Hancy
Third Defendant by Counterclaim : Mr G R Hancy

Solicitors:

Plaintiff by Counterclaim : Middletons
First Defendant by Counterclaim : Sparke Helmore
Second Defendant by Counterclaim : Sparke Helmore
Third Defendant by Counterclaim : Sparke Helmore

(Page 5)

<mpr>

CIV 2283 of 2006

Counsel:

Plaintiff : Ms P E Cahill SC &
Mr J C Vaughan
First Defendant : Mr G R Hancy
Second Defendant : Mr G R Hancy
Third Defendant : Mr G R Hancy

Solicitors:

Plaintiff : Middletons
First Defendant : Sparke Helmore
Second Defendant : Sparke Helmore
Third Defendant : Sparke Helmore

CIV 1227 of 2010

Counsel:

Plaintiff : Mr G R Hancy
Defendant : Ms P E Cahill SC & Mr J C Vaughan

Solicitors:

Plaintiff : Sparke Helmore
Defendant : Middletons

Case(s) referred to in judgment(s):

Bellgrove v Eldridge (1954) 90 CLR 613
Brickfield Properties Ltd v Newton [1971] 1 WLR 862
Brown Falconer Group Pty Ltd v South Parklands Hockey & Tennis Centre Inc [2005] SASC 75; 91 SASR 152
Coles Supermarkets Australia Pty Ltd v FKP Ltd [2008] FCA 1915
Damberg v Damberg (2001) 52 NSWLR 492
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Drexel London (a firm) v Gove (Blackman) [2009] WASCA 181
Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; 19 VR 358

(Page 6)

Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217;
Hadley v Baxendale (1854) 9 Ex 341
Longdon v Kenalda Nominees Pty Ltd [2003] VSCA 128
Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; 232 CLR 635
MGC Properties Pty Ltd v Tang [2009] QSC 322
Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Stack v Coast Securities No 9 Pty Ltd (1983) 46 ALR 451
The World Beauty [1970] P.144; [1969] 3 WLR 110
University of Glasgow v Whitfield & John Laing (Construction) Ltd (1988) 42 BLR 66
Yorke v Lucas (1985) 158 CLR 661


(Page 7)

CORBOY J:

The action and the result

1 The Bootu Creek mine is a manganese mine operated by OM (Manganese) Ltd (OMM). It is located approximately 110 km north of Tennant Creek in the Northern Territory.

2 In mid 2004, OMM requested tenders for the mining and processing of ore at the Bootu Creek mine. The invitation required the successful tenderer to construct a process plant and to mine and process manganese ore at the mine site. The process plant was to achieve specified operating criteria.

3 The design and construction of the process plant had been discussed by OMM with ProMet Engineers Pty Ltd (ProMet) prior to the request for tenders. Prospective tenderers were advised that they could, if they wished, incorporate in their tender a proposal for ProMet to be involved in the design and construction of the plant.

4 Henry Walker Eltin Contracting Pty Ltd (HWE) submitted a tender in response to OMM's request. The tender stated that HWE had formed a consortium with ProMet and Dowding Reynard Associates Pacific Pty Ltd (DRA) to carry out the scope of the work contemplated by the request. In late 2004, OMM and HWE agreed the terms of a letter of intent to award a contract to HWE for the mining and processing of ore at the Bootu Creek mine. The contract included the design and construction of the process plant. ProMet commenced design work for the process plant following the letter of intent. That work was undertaken according to a proposal made by ProMet to HWE (designated 'E1151 Rev P3') that contained the terms of a contract between HWE and ProMet for the design of the process plant (the E1151 Rev P3 contract).

5 Administrators were appointed to HWE on 1 February 2005. HWE, OMM and ProMet subsequently entered into a deed of release and novation (the deed of novation) by which OMM agreed to perform HWE's obligations under the E1151 Rev P3 contract and ProMet agreed to perform its obligations under the contract and to be bound to OMM as if the provisions of the contract were incorporated into the deed of novation. Later still, OMM and ProMet agreed that the design of the process plant would be completed by ProMet pursuant to another proposal (designated 'E1184 Rev P7'). That proposal contained the terms of a further contract made between OMM and ProMet (the E1184 Rev P7 contract).

(Page 8)

6 In August 2005 (after the deed of novation and the E1184 Rev P7 contract had been made but while the design work for the process plant was incomplete), ProMet changed its name to Londsdale Investments Pty Ltd. A new company named ProMet Engineers Pty Ltd was registered at the same time. The parties referred to the original ProMet as ProMet 1 and to the new company as ProMet 2. Those designations are adopted in these reasons; ProMet 1 and ProMet 2 are also collectively referred to as the ProMet parties.

7 The change in the structure of the ProMet parties gave effect to an agreement by which:

(a) Thiess Pty Ltd (Thiess) acquired a 50% interest in the assets that comprised the engineering consultancy business that had been conducted by ProMet 1;

(b) ProMet 2 was incorporated, with ProMet 1 and Thiess each holding 50% of the shares issued in the company;

(c) ProMet 2 commenced carrying on the engineering consultancy business formerly conducted by ProMet 1. It has been found that ProMet 2 commenced operating the business on 1 August 2005.

8 It was not in issue that ProMet 2 undertook the design work for the process plant after 1 August 2005. However, OMM did not know of the agreement between ProMet 1 and Thiess and was not aware that ProMet 2 had performed the design work after that date. That work included variations to the design that had been requested by OMM.

9 The process plant was commissioned in May 2006. It did not achieve certain operating criteria following commissioning. It was not in issue that there were problems in processing the type of ore that had been mined at that time. The mined ore was moist and sticky (due to the presence of fines and clay material) and inclined to pack up in the materials handling components of the process plant. It was common to each party's case that the plant had been designed to handle and process ore that was dry and free flowing.

10 OMM alleged that the design work performed by the ProMet parties was 'defective' with the result that components of the process plant - the crushed ore stockpile and the ROM (run of mine) bin and associated equipment - were unsuitable for handling and processing the feed ore (ROM ore fed to the process plant). The ProMet parties contended that the plant was designed according to assumptions about the characteristics

(Page 9)

of the feed ore that were expressly identified and agreed (that the ore was dry, contained minimal clay and was consequently, free flowing) and that the design was appropriate for a plant that was intended to process ore possessing those characteristics. They also pointed to advice given by HWE and ProMet 1 to OMM that drawing 'sticky/wet/clay material' from the crushed ore stockpile might be a problem and that additional 'material handling test work' (test work to better describe the flow properties of the ore) was recommended. Tests of the kind recommended by HWE and ProMet 1 were not undertaken until mid 2006; that is, after the process plant had been commissioned.

11 Two actions were commenced by the parties. Those actions were consolidated prior to trial. In the first action (the ProMet Action), the ProMet parties sought to recover the cost of variations to the design that they alleged were requested by OMM.

12 In the second action (the OMM Action), OMM alleged that the ProMet parties had failed to exercise reasonable skill and care in designing the process plant with the result that the plant did not satisfactorily handle the ore presented for processing and did not achieve operating criteria that had been specified in the E1151 Rev P3 contract and the deed of novation. It also claimed that other aspects of the design for the process plant were 'defective' - the location of a rockbreaker and the provision for access to sump pumps located under a scrubber.

13 The losses claimed by OMM in the OMM Action comprised the cost of modifying the process plant by replacing the ROM bin and the crushed ore stockpile; the cost of obtaining engineering advice about those modifications; the costs incurred in implementing temporary measures to overcome the difficulties experienced in processing feed ore following commissioning and profits said to have been lost for a period during which it was alleged that the process plant was unable to process ore at the rates specified in the operating criteria.

14 Various causes of action were alleged in the alternative in respect of those losses: that the ProMet parties had breached duties of skill and care owed in contract and tort; that ProMet 1 had breached warranties contained in the deed of novation and the E1184 Rev P7 contract and that ProMet 1 had engaged in misleading or deceptive conduct by representing that it would exercise the skill and competence necessary to design the process plant so as to achieve various design and operating criteria.

(Page 10)

15 OMM also claimed in the OMM Action that ProMet 1 had engaged in conduct that was misleading or deceptive following the appointment of the administrators to HWE by misleading OMM about the extent to which design was complete at that time. The primary allegation was that ProMet 1 represented at a meeting held on 2 February 2005 that the design work was 90% complete when the true position was that the design was substantially incomplete. OMM alleged that it made payments to ProMet 1 in reliance on the representations made following the appointment of the administrators to HWE. It sought to recover those amounts as its loss and damage.

16 I have found that:

(a) ProMet 1 breached a duty of care that it owed to OMM in tort and a duty to exercise reasonable skill and care in contract. Damages for those breaches have been assessed at $5,474,450.59, comprising:

(i) the cost of modifying the process plant: $4,129,504;

(ii) the costs of installing and operating a temporary system to bypass the crushed ore stockpile: $1,189,625.34;

(iii) the cost of rehandling screened fines: $18,000;

(iv) the cost of relocating sump pumps: $50,371.40;

(v) the cost of having obtained engineering advice about modifications to the process plant: $86,949.85.


(b) ProMet 2 breached a duty of care that it owed to OMM in designing the location of the rockbreaker. Damages have been assessed at $256,425.

(c) ProMet 1 breached the warranties that it gave in the deed of novation and the E1184 Rev P7 contract but OMM has failed to prove that it suffered loss or damage as a result of those breaches.

(d) ProMet 1 did not engage in conduct that was misleading or deceptive; further, OMM has failed to prove that loss or damage was caused by any contravention of the Trade Practices Act 1974 (Cth) (TPA) or the Fair Trading Act 1987 (WA) (FTA) that was alleged.

(Page 11)

(e) ProMet 1 is entitled to $1,999.02 for variation work that it performed but the ProMet parties are not otherwise entitled to recover the value of the variations claimed in the ProMet Action.

17 OMM is entitled to interest on the money that it expended on modifying the process plant and the measures that it implemented to temporarily overcome the problems that were experienced in handling the ore presented for processing following commissioning of the plant. ProMet 1 is entitled to set-off the amount awarded in the ProMet Action against its liability to OMM.

The structure of the reasons and the approach that has been taken to the expert evidence

18 The reasons have been divided between the OMM Action and the ProMet Action. The OMM Action is considered first as it occupied most of the trial.

19 Numerous issues arose on the pleadings in the OMM Action and in the course of the trial. Many of those issues involved expert evidence concerning engineering design practice and the assessment of the likely characteristics and flow properties of ore to be processed by plants similar to that designed and constructed for the Bootu Creek mining project. The experts who gave evidence were:

(a) Dr Tobias Krull - Dr Krull is the operations manager and senior mechanical engineer of TUNRA Bulk Solids Handling Research Associates, a division of The University of Newcastle Research Associates Ltd Inc (hence the acronym, TUNRA). He provided two expert statements: 27 July 2009 [CRT.0007.0001] and 10 August 2010 [CRT.0206.0001]. He was called by OMM to give evidence on aspects of the flow properties of the Bootu Creek ore and on tests performed by TUNRA to assess those properties.

(b) Laurence Brian Huck - Mr Huck is an engineer with experience in the design, construction and commissioning of mineral processing plants. He provided an expert witness statement dated August 2009 [CRT.0006.0001]. He was called by OMM to give evidence on a number of the allegations that it made about the design work performed by the ProMet parties and the operation of the process plant. His consultancy business was engaged by OMM in mid 2006 to advise on the problems experienced with the process plant following commissioning.

(Page 12)

(c) Mirek Banaczkowski - Mr Banaczkowski is a metallurgist who was called by OMM to give evidence on the properties of the Bootu Creek ore and on aspects of the design and operation of the process plant (witness statement dated 1 February 2010 [CRT.0010.0001]).

(d) Jeremy Francis Chambers - Mr Chambers is an engineer with experience in reviewing structural and civil drawings and performing material take-off calculations from those drawings. He was instructed by the solicitors for OMM to review structural and mechanical drawings prepared by Pacer Engineers for work undertaken to modify the process plant. His witness statement dated 26 September 2008 was tendered by consent [CRT.0002.0001].

(e) Keith Cameron - Mr Cameron is an engineer who has experience in the design and construction of mineral processing plants. He provided a report dated November 2008 in which he expressed his opinion on the cost of some work undertaken to modify the process plant at the Bootu Creek mine following construction and commissioning [CRT.0001.0001]. His report was prepared on instructions from OMM's solicitors and was tendered by consent.

(f) Phillip Baden Hearse - Mr Hearse is a process engineer and metallurgist. He provided two expert reports: November 2008 [CRT.0004.0001] and 1 July 2009 [CRT.0005.0001]. His evidence concerned a number of the allegations made by OMM about the manner in which the ProMet parties had performed the design work and the alleged defects in the design of the process plant. He was called by OMM.

(g) Bruce James Wedderburn - Mr Wedderburn is a chemical engineer. He is the managing director of a company that carries on a process engineering business. Mr Wedderburn provided two reports: December 2008 [CRT.0008.0001] and July 2009 [CRT.0009.0001]. Those reports concerned the extent to which the design drawings necessary for the design and construction of the process plant had been completed in early to mid 2005. He was called by OMM.

(h) Mark James Davidson - Mr Davidson is a chartered accountant. He was called by OMM to provide evidence on its claim for loss and damage allegedly suffered as a result of the process plant

(Page 13)

failing to achieve the specified operating criteria in the period 1 June to 31 October 2006. Mr Davidson provided two reports on which OMM relied: 12 May 2010 [CRT.0204.0001] and 6 August 2010 [CRT.0205.0001].

(i) Ian James Foster - Dr Foster is a climatologist. He provided a report dated 31 March 2009 on the climatic conditions at the Bootu Creek mine site between 2003 and 2008 [CRT.0042.0001]. His report was prepared on instructions from the solicitors for the ProMet parties and was tendered by consent.

(j) Martin Ooms - Mr Ooms is an engineer who has experience in the operation, design and project management, construction and optimisation of materials handling and mineral processing plants. He provided two reports: March 2009 [CRT.0046.0001] and September 2009 [CRT.0047.0001]. Those reports considered in much detail the design work performed by the ProMet parties and the operation of the process plant. He was called by the ProMet parties.

(k) Trevor Brian Williams - Mr Williams is a chartered accountant. He provided two reports: 12 July 2010 [CRT.0090.0001] and 12 August 2010 [CRT.0091.0001]. Those reports reviewed the reports provided by Mr Davidson. He was called by the ProMet parties.

(l) Trevor Ivan Williams - Mr Williams is a chartered professional engineer (I will refer to him as Mr T I Williams to distinguish him from the other Trevor Williams who gave evidence in this matter). He provided a report on the state of the design work performed by ProMet 1 as at 2 February 2005 and the significance of changes to the design of the process plant directed by OMM following a 'value engineering workshop' held in mid March 2005 [CRT.0045.0001].

20 Broadly, the expert evidence was directed to three issues: the design and operation of the process plant, the extent to which the design work had been completed by ProMet 1 by early 2005 and OMM's claim for lost profits. The expert evidence on those issues was extensive. For example, Mr Ooms and Mr Hearse gave evidence about the engineering of a process plant. Mr Ooms' first report was 171 closely typed pages; his second report was 49 pages. Mr Hearse's first report was 144 pages and his second report was 47 pages.

(Page 14)

21 Mr Hearse and Mr Ooms disagreed over much of the detail in their respective reports. Mr Ooms' reports, in particular, were argumentative in style and at least some of the differences between Mr Hearse and Mr Ooms reflected an inclination in their reports to focus on those points that were favourable to the party on whose behalf they had been instructed. There was also little common ground between the evidence given by Mr Wedderburn and Mr T I Williams on the extent to which ProMet 1 had completed the design of the process plant by the time that the administrators were appointed HWE.

22 In an attempt to avoid replicating much of the detail of the expert reports provided by Mr Ooms and Mr Hearse on the design of the process plant, I provided the parties with a set of propositions that it was anticipated might capture what was common ground between them or, at least, would assist in identifying those matters that were truly in issue. The parties' responses to those propositions are annexed to the reasons - annexure A is OMM's response and annexure B is the ProMet parties' response. Each party's response incorporated the propositions that were put.

23 Where possible, I have referred in the reasons to a proposition rather than to a particular body of expert evidence. It will be seen from the parties' responses that the evidence from which a proposition was extracted was identified so that a reference in the reasons to a proposition is to be taken as a reference to that evidence. Generally, a proposition has been referred to in the reasons where the parties agreed or substantially agreed with the proposition. Consequently, a reference to a proposition without qualification is to be taken as a finding in terms of the proposition based on the evidence cited and the parties' agreement.

24 That approach could not be adopted with the evidence of Mr Wedderburn and Mr T I Williams. It was not possible to bridge the gap between them by propositions extracted from their evidence. The principle difference between Mr Williams and Mr Davidson turned on a particular question of fact and methodology.

25 Finally, it should be noted that in his March 2009 report Mr Ooms commented at length on Mr Hearse's first and primary report. The approach adopted by Mr Ooms was to address his comments to a particular paragraph in Mr Hearse's report. I inferred from the meticulous way in which that was done (this part of Mr Ooms' report extended from pars 831 to 1053) that Mr Ooms agreed without any relevant qualification to an opinion expressed by Mr Hearse that was not specifically addressed.

(Page 15)

Accordingly, I have occasionally noted in the reasons that Mr Ooms did not comment on a particular statement made by Mr Hearse. The purpose of that reference is to indicate that the fact that Mr Ooms did not comment on a statement made by Mr Hearse is a matter that had been taken into account in making a finding about a proposition.

26 The reasons are divided into parts: Part A provides the factual background to the parties' claims; Part B considers OMM's allegations concerning the design of the process plant; Part C primarily deals with OMM's claim that ProMet 1 engaged in conduct that was misleading or deceptive by misrepresenting the state of the design work in early 2005; Part D considers OMM's allegations concerning specific design defects in the process plant; Part E considers various defences raised by the ProMet parties to the claims made by OMM; Part F concerns OMM's claims that it suffered loss and damage as a consequence of the ProMet parties' alleged breaches of duty and/or contract or as a result of ProMet 1 engaging in conduct that was allegedly misleading or deceptive; and Part G concerns the ProMet Action.

27 Finally, there were a very large number of documents tendered in evidence (over 2,700 exhibits according to the electronic database). Many of the documents were lengthy and they often contained considerable technical or operating detail. It has not been possible to review every document to ascertain whether it included evidence that might be relevant to a matter. It has been necessary in a case of this magnitude to rely heavily on the parties to identify the relevant documents in the witness statements that were received as evidence-in-chief, by cross-examination and in submissions. I have identified where the lack of evidence was a relevant consideration in making a finding on a matter.

PART A: Background

The process plant constructed at the Bootu Creek mine

28 A process plant is designed to process a particular type of ore to produce a specific product (proposition 1). The process plant constructed at Bootu Creek was designed and constructed to process ore to produce a commercially viable manganese product suitable for export. The plant can be divided into materials handling and processing components (proposition 2).

29 The materials handling components for the process plant as designed and constructed comprised stockpiles; bins (ROM bin, UBL (unbeneficiated lump) bin and UBF (unbeneficiated fines) bin); chutes;

(Page 16)

hoppers; feeders and conveyors. The steps involved in the materials handling processes incorporated in the Bootu Creek process plant were as detailed in par 115 of Mr Ooms' March 2009 report (proposition 4). The processing components comprised crushers (which could also be regarded as forming part of the materials handling components); scrubber; wet screen trommel; tails disposal system and a heavy media separation plant (proposition 3).

30 The processing plant as designed and constructed was depicted in a flow diagram that was prepared by Mr Hearse (Hearse November 2008, figure E.1) and which is annexed to these reasons (annexure C; and see the flow diagram [OMM.099.00939] and the general arrangement drawing [OMM.123.06182] that also form part of annexure C). Exhibit 1 was a DVD that contained a three-dimensional depiction of the process plant prepared by the ProMet parties.

31 The plant involved the following components and stages (proposition 6):

(a) The ROM bin was located at the start of the processing circuit. Ore was deposited in the ROM bin from the ROM pad by a front-end loader.

(b) At the bottom of the ROM bin was a horizontal opening. Beneath the bin was an apron feeder that was a moving track that dragged ore from the bottom of the ROM bin and transferred it to a vibrating grizzly feeder.

(c) The vibrating grizzly feeder was a series of parallel bars that acted as a sieve to separate the different sizes of material to be fed into the process plant. Fine material of less than 10 mm dropped through the bars of the grizzly while material of more than 10 mm in size was shaken off and transferred to the primary jaw crusher.

(d) The ore was deposited after crushing on to conveyor CV 001 from which it was discharged onto a vibrating screen. The screen separated material according to size (above and below 75 mm).

(e) Material that was above 75 mm was discharged on to conveyor CV 002 and transferred to a secondary feed bin and jaw crusher for further crushing and return to the vibrating screen.

(Page 17)

(f) Ore that was below 75 mm was discharged from the vibrating screen to a third conveyor, CV 003. That conveyor transferred ore to the crushed ore stockpile.

(g) Three vibrating feeders were located beneath the crushed ore stockpile. Ore was drawn from the stockpile through the feeders. The ore was transferred to and transported by conveyor CV 004 to the scrubber.

(h) The ore was washed with water in the scrubber to remove fines and clay (the scrubber is a rotating cylinder).

(i) The fines and clay were discharged from the scrubber and pumped to a tailings dam.

(j) Ore was discharged from the scrubber on to a trommel that separated lump and fines products. The lump and fines products were placed in separate feed storage bins.

(k) Ore was drawn from the feed storage bins and transferred by conveyor to the heavy media separation plant (conveyors CV 006 and CV 007 for lump product and CV 008 and CV 009 for fines). The heavy media separation plant increased the grade (concentration) of manganese in the ore so as to produce a product that could be sold and exported.

(l) After passing through the heavy media separation plant, lump product was transported by conveyor CV 010 to the lump product stockpile; fines product was transported by conveyor CV 012 to the fines product stockpile; and waste material was transported by conveyor CV 015 to the waste stockpile.

32 The ProMet parties were responsible for the general design arrangement of the process plant and for much of its individual components. However, DRA was responsible for the design and supply of the heavy media separation plant.

33 Certain aspects of the process plant as designed and constructed require further explanation.

34 A ROM bin is the term given to an engineered structure used to receive, store and feed run of mine ore (Ooms March 2009, par 126). The functions of a ROM bin are to (proposition 76):

(Page 18)

(a) receive ROM ore from the front-end loader delivering the ROM ore;

(b) provide a means for controlling the discharge of ROM ore to the downstream process plant; that is, to the vibrating grizzly and primary crusher;

(c) provide 'surge' capacity sufficient to accommodate the intermittent delivery of ROM ore from the front-end loader delivering the ore and allow for continuous feed to the primary crusher.

35 The ROM bin must be designed to accommodate the variable physical properties of the feed ore. Those physical properties include (proposition 77):

(a) the top size (largest lump or largest particle size) of the ROM feed ore;

(b) the particle size distribution;

(c) the nominal moisture content;

(d) the bulk density and the flow properties of the ROM feed ore for the nominal moisture content;

(e) the solids density of the lump ore.

36 The crushed ore stockpile was located over a reclaim tunnel (the term 'reclaim' is used to refer to removing material from the stored capacity of a stockpile or bin; Ooms March 2009, par 218). Three reclaim chutes incorporating vibrating feeders were built into the floor of the stockpile (see figure J.2 in the September 2008 report of Hearse; note, however, that there were three not two reclaim chutes and vibrating feeders). The chutes and feeders provided the means by which ore was reclaimed from the crushed ore stockpile for transfer to the next stage in the processing operation (scrubbing) via the conveyor passing through the reclaim tunnel.

37 The primary purpose of a crushed ore stockpile is to (proposition 85):

(a) store crushed ore until it is required as feed ore for further processing;

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(b) provide buffer storage capacity (surge capacity) between parts of the processing plant that are required to operate for different periods of time and require different rates of feed for processing;

(c) provide surge capacity to feed a 'downstream process' (the scrubbing circuit) when maintenance is required on equipment in the upstream (crushing circuit) or feed part of the processing plant;

(d) enable stored crushed ore to be reclaimed when required as feed ore for further processing.

38 Reclaim from stockpiles may be achieved by machine, gravity reclaim or a combination of gravity and machine reclaim (Ooms March 2009, par 218). 'Gravity reclaim' is the term used to describe a process where bulk materials flow from a bin or stockpile under the influence of gravity alone. The crushed ore stockpile designed by the ProMet parties relied on gravity reclaim; that is, material in the stockpile was intended to pass down through the reclaim chutes under the influence of gravity to the conveyor located in the reclaim tunnel beneath the stockpile. The vibrating feeders were intended to control the flow of the material (proposition 88; and see Ooms March 2009, pars 218 - 226).

39 A stockpile is designed for 'live ore' that will flow into the reclaim chute at the bottom of the stockpile and 'dead ore' that does not move once initially stacked on to the stockpile but provides a 'funnel' through which the live ore can flow (proposition 89). Gravity reclaim is achieved when the feeders located under the reclaim chutes are activated to start the flow of crushed ore stored on the stockpile (proposition 82). The size and shape of the 'flow channel' in the stockpile is determined by the flow properties of the crushed ore and the size and shape of the reclaim chutes under the stockpile (proposition 93).

40 Accordingly, a stockpile has a 'live capacity': the quantity of ore stored in the stockpile that can be reclaimed by gravity flow (Ooms March 2009, par 84). A bin that relies on gravity reclaim will also have a live capacity. The ROM bin designed by the ProMet parties relied on gravity reclaim assisted by the apron feeder.

41 The design of a gravity reclaim system for an ore bin or stockpile requires knowledge of the flow properties of the ore (particularly, its moisture content) at known or assumed operating conditions (proposition 94). Knowledge of the flow properties of the feed ore enables the reclaim chutes to be designed in a way that the live gravity reclaim capacity can be confidently predicted for the expected operating

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conditions (proposition 90). For example, the live capacity of a stockpile will generally be reduced if the ore is wet or if there is a lot of clay material unless the gravity reclaim system has been designed specifically for ore with those properties (proposition 91).

42 As previously noted, vibrating feeders were located at the bottom of the reclaim chutes beneath the crushed ore stockpile. The feeders controlled the flow of crushed ore from the stockpile to the reclaim conveyor. The selection of the type and size of the feeder is an integral part of the design for a bin or stockpile reclaim chute and is based on the bulk material to be reclaimed and its flow properties (proposition 101). Vibrating feeders are often the most appropriate and lowest cost feeder available for dry bulk materials that do not compact under the influence of vibrations (proposition 100).

43 The process plant as designed and constructed included a vibrating grizzly and vibrating screen for screening dry ore. The vibrating grizzly was used to separate the -75 mm particles from the ROM ore so that only particles over 75 mm were fed to the primary crusher. The function of the dry screen was to separate -75 mm particles from primary crushed ore to avoid over-crushing through the secondary crusher (proposition 78).

44 Dry screening is a process that relies on gravity for size separation aided by the vibrating action of the screen. It is usually carried out on materials that are relatively dry (proposition 79).

45 The process plant also incorporated a wet screen and a trommel on the scrubber. The trommel separated the unbeneficiated lump from the unbeneficiated fines and the wet screen separated the unbeneficiated fines from the tailings (proposition 78).

46 Mr Hearse defined a scrubber as a 'piece of equipment used in mineral processing applications used for washing ore'. He also stated that a scrubber consisted of a rotating drum in which water and ore were added (Hearse September 2008, table C1). The ore and water form a slurry. The rotating action of the scrubber cleans the ore particles. Fine particles and clay (gangue material) are removed from the surface of the rocks and larger particles in the scrubber (par 53). The process of removing fine clay and slimes from the surface of ore particles was known as 'wet scrubbing' (par 78).

47 Mr Ooms gave similar evidence regarding the function of a scrubber: 'the function of the scrubber is to wash the gangue material out of the pores [in the ore] and to "wet" the ore to prevent the heavy media, the

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ferrosilicon used in the [heavy media separation] plant, being absorbed and retained in the pores and being lost from the [heavy media separation] plant' (Ooms March 2009, par 297; see also the document entitled, 'Process Design' [PRO.026.003.0446] that was prepared by ProMet 1 and which is referred to later in this part of the reasons).

The flow properties of ore and the design of a process plant

The flow properties of ore

48 The flow properties of ore refer to a set of characteristic properties that describe the behaviour of the bulk material (that is, the ore) during storage (in bins and stockpiles) and flow. The flow properties reflect the moisture content of the ore and the effect of clay and fines present in the ore (propositions 10 and 11).

49 In the presence of moisture, fines and clay bond other particles in the bulk material together to increase the material's resistance to shearing. That is evidenced by an increase in bulk material strength. Small changes in moisture content can lead to substantial increases in the bulk material strength of ore containing fines and clay (proposition 12; the reservation to that proposition made by the ProMet parties has been noted). Mr Ooms and Mr Hearse agreed in their expert conferral that the moisture content of the feed ore was an important consideration in the design of a process plant (supplementary report on expert conferral [CRT.0203.0001], proposition 5).

50 'Clay' is the term given to very fine material that has a particle size of less than 0.002 mm (the definition is taken from Australian Standard AS 1726). Clay generally becomes very sticky and cohesive when wet (proposition 13). 'Fines' refers to material that is larger than clay and is sized from 0.002 mm to 0.06 mm (as defined in Australian Standard AS 1726) (proposition 14; both Mr Ooms and Mr Hearse defined fines by reference to AS 1726). Fines will influence the flow properties of bulk materials such as ore if the fines are in a sufficiently high proportion and the bulk material is wet (proposition 13).

51 Mr Hearse and Mr Ooms also agreed in their expert conferral that the presence of clays and fines may have an effect on the flow properties if the ore is wet (supplementary report on expert conferral, proposition 6).

Moisture content

52 The moisture content of mined ore depends on the porosity and fineness of the ore and the presence of ground water. According to

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Mr Hearse and Dr Krull, it also depends on climate conditions. However, the ProMet parties contended that the moisture content of ore mined at Bootu Creek was not significantly affected by the prevailing climate (see their response to proposition 22). The various factors that might have affected the moisture content of the ore mined at Bootu Creek - climate, mining above and below the water table and measures designed to dewater ground water - are considered later in the reasons.

53 Sedimentary ores that contain sandstone, siltstone and clays in wet climates are likely to have high porosity and hence, moisture content. Clays have high porosities due to their structure but low hydraulic conductivity (hydraulic conductivity is a measure of open area in a material for the flow of water) which means that clays can hold a large volume of water but do not release water quickly. A number of other factors will determine the moisture content of feed ore. Those factors were listed at par 326 of Mr Ooms' report of March 2009 and in table B1 of Mr Hearse's July 2009 report (proposition 23).

Rat holes

54 A 'rat hole' is a term used to describe the appearance of ore in a stockpile or funnel flow bin when a stable hole forms over the bin or hopper outlet (reclaim chute) within the stored bulk material and gravity flow stops. The 'live' capacity of the bin or stockpile is reduced to the capacity of the rat hole (proposition 38). A stable rat hole is common for wet cohesive bulk material but rare for dry bulk material even if clay is present. Bulk material containing clay that is also wet and is consolidated (that is, put under pressure such as when it is stored in a bin or stockpile) can possess sufficient cohesive strength to retain its shape under pressure. That possibility is exacerbated if the bulk material is stored for a period of time under pressure and not moved, as is often the case in stockpiles. The strength of the bulk material increases due to chemical reaction bonding or adhesion and the material will not flow. When that happens, the ore can form a stable arch or stable rat hole and either not flow at all or provide only limited gravity reclaim equivalent to the capacity of the stable rat hole (proposition 39).

TUNRA test work

55 The Bulk Solids Handling Research Division of TUNRA performs tests on samples of bulk materials such as ores. So far as is relevant to this matter, the purpose of TUNRA testing is to determine the flow properties of bulk materials for the design and selection of materials handling equipment (proposition 24). Among other things, TUNRA tests

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provide information on the moisture content and the bulk material strength of the sampled ore and predictions about the likely increase in the bulk strength of the ore after being stored in, for example, a stockpile for a period of time (proposition 25). The moisture content of the sampled ore is measured and the flow properties of the ore at the measured levels of moisture are assessed. The tests can be undertaken at different moisture contents to determine sensitivity. Worst case moisture scenarios as determined by the test work can then be incorporated into the design and selection of materials handling equipment (proposition 26).

56 TUNRA testing is ordinarily undertaken prior to or at the commencement of the design process; indeed, according to Mr Ooms the test work is usually performed during the feasibility stage to 'provide design data for preliminary engineering design, or front end design, of the materials handling plant and the processing plant' (March 2009, par 562). To undertake the test work it is obviously necessary to obtain samples of the ore that are considered to be representative of the material likely to be handled and processed (par 564).

57 TUNRA test work was not performed on samples of the ore to be mined at Bootu Creek either prior to or during the design of the process plant. It was only performed after problems were encountered in processing feed ore on commissioning the plant in May 2006.

The flow properties of ore and the design of a process plant

58 The likely flow properties of feed ore are relevant to the design of the process plant. In particular, bulk handling plant must be designed to handle the types of ore, compositions (that is, solids, clays and fines) and moisture contents that are likely to be experienced during the operation of the process plant if the plant is to perform reliably. Consequently, it is necessary for a design engineer to have an understanding of, or make assumptions about, the likely flow properties of the ore to be mined and processed when designing the materials handling components of a process plant of the type that was designed and constructed for the Bootu Creek mining project (propositions 15 and 17).

59 The operation of a process plant can be adversely affected by feed ore that is not free flowing in a variety of ways (proposition 53; Ooms September 2009, par 207):

(a) hang up of wet and cohesive feed ore in the ROM bin sticking to the walls can cause a reduction in live ROM bin capacity and

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contribute to operator spillage around the bin and potential blockage from very large lumps of ore;

(b) wet cohesive ore containing a lot of fines can stick to the vibrating grizzly and to larger particles of ore causing a reduction in screening efficiency and possible over-crushing and spillage around the apron feeder, grizzly and crusher;

(c) large lumps of agglomerated clay can cause blockages of the crusher or a reduction in crusher throughput capacity;

(d) wet fine feed ore can stick to the feed chutes and conveyor transfer points and cause chute blockage and spillage of ore around the chute and conveyor transfer;

(e) a high proportion of wet fines in the feed ore can reduce the screening efficiency of the dry screen in the crushing circuit and reduce the throughput capacity of the crushing circuit;

(f) wet cohesive feed ore can cause a 'cohesive arc' to form over the outlet of the ROM bin and the outlet of the stockpile reclaim hoppers;

(g) wet cohesive feed ore that has a higher percentage of fines and a lower percentage of lumps is likely to form stable rat holes in the stockpile or ROM bin during gravity reclaim;

(h) a high to very high proportion of tails can overload the tails pump and tailing line and restrict feed rate to the scrubber;

(i) a high proportion of fines can block screens and reduce yield across the plant;

(j) a high proportion of fines that has the effect of reducing yield will require higher feed rates to the process plant in order to achieve a production target.

60 As has been explained, the moisture content of ore will have a significant effect on its flow properties. Consequently, the moisture content of feed ore is an important factor to be taken into account when designing a process plant. The moisture content will be relevant to establishing (proposition 18):
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(a) the operating conditions for the plant, the flow properties of the ore and the parameters for the design and selection of materials handling plant and equipment;

(b) the mass and water balances required for the process plant (the significance of a mass balance for the design of a process plant is explained later in the reasons).

61 The known presence of clay in the mined ore will also be important for the design of the materials handling components of a process plant. The concern is not so much with the type and quality of the clay but with the effect that the presence of fines and clay has on the 'flowability' of the ore (proposition 16).

The role of TUNRA testing in the design of a process plant

62 The parties agreed that TUNRA-type test work is required to accurately and confidently predict the flow behaviour of a cohesive bulk material that is wet and contains a lot of clay, particularly with regard to predicting live capacity and flow from a stockpile or funnel flow bin (such as a ROM bin) (proposition 40; and see proposition 41). They further agreed that materials handling test work such as TUNRA testing (proposition 42):

(a) provides critical information to a design engineer;

(b) is essential for the design of stockpiles and bins where it is anticipated that the feed ore will be wet and cohesive.

63 The propositions put to the parties included that it was desirable for TUNRA-type tests to be undertaken where it was anticipated that the ore to be processed will be dry and free flowing (proposition 41). OMM agreed with that proposition; it formed part of its case. However, the ProMet parties disputed the proposition and referred to the opinion of Mr Ooms expressed at par 849 of his March 2009 report:

In my opinion TUNRA test-work should be recommended and undertaken, even for non-cohesive or dry free-flowing material, however if the owner does not accept the recommendation of the engineer, as was the case at Bootu Creek, it is necessary, and possible, to make assumptions for the design of materials handling equipment based on ore that is agreed by OMM and its expert consultants to be dry and free-flowing and to contain minimal clay.

64 That opinion identified an issue that was central to OMM's allegations that ProMet 1 failed to exercise skill and care in designing the
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process plant. ProMet 1 contended that, in effect, it agreed with OMM that the ore to be processed at Bootu Creek would be dry and free flowing. The process plant was designed on that assumption. In Mr Ooms' opinion, a process design engineer could make reasonable assumptions for the purpose of designing a process plant where it was anticipated that the feed ore would be dry and free flowing. While TUNRA-type testing was still desirable, an engineer would not act unreasonably in proceeding to design a process plant without test work where the feed ore was anticipated to be dry and free flowing.

65 OMM disputed that the process plant was to be designed on an agreed assumption that feed ore would be dry and free flowing. It alleged that it was negligent for the ProMet parties to have made that assumption in the absence of data that established the likely flow properties of the feed ore. The ProMet parties were obliged to investigate and ascertain those properties and they ought to have assumed that the ore would be difficult to handle if they were unable to assess its characteristics for any reason.

66 Mr Hearse and Mr Ooms agreed in their expert conferral that:

(a) TUNRA test work was considered necessary to design the ROM bin and the crushed ore stockpile for cohesive ore (for example, wet ore containing clay) and is highly desirable for free flowing ore (for example, relatively dry ore at 2% moisture content containing minimal clay) (supplementary report on expert conferral, proposition 4);

(b) it was normal practice for an engineer to verify, or attempt to verify, the information provided for the process plant design (proposition 7).

67 Those propositions were particularly important for the findings made in Part B of the reasons concerning whether the ProMet parties exercised reasonable skill and care. I make findings in terms of the propositions; the opinion expressed by Mr Ooms at par 849 of his March 2009 report that was relied on by the ProMet parties went to a different point. The propositions were not only agreed by Mr Hearse and Mr Ooms but they were also consistent with the whole of the evidence about the relationship between the flow properties of feed ore and the design of the materials handling components of a process plant and the purpose of TUNRA testing.

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68 There was further evidence given by Mr Ooms on the effect of adopting an assumption that the feed ore would be dry and free flowing that I accept and which I regarded as being relevant to the findings made in Part B of the reasons:

(a) a 'careful and competent engineer' would seek to validate or verify assumptions (ts 1835);

(b) it was reasonable to proceed according to assumptions at the early stages of engineering work (ts 1846);

(c) however, a process/design engineer would not know the likely 'worst case' characteristics and flow properties of feed ore for design purposes in the absence of suitable test work. Mr Ooms added that a 'careful and competent design engineer would design conservatively for a range of flow conditions if the owner allowed him' (ts 1835). The qualification in that statement reflected a view that Mr Ooms had formed that OMM had prevented ProMet 1 from designing conservatively by not acting on a recommendation that had been made by HWE that TUNRA-type test work be undertaken. That was a view that was reflected in much of Mr Ooms' expert reports.

69 OMM relied on evidence given by Mr Ooms about the steps that he considered a 'competent and careful' design engineer would take in designing a plant to process manganese ore (see, for example, OMM's closing submissions [CRT.0212.0001], par 74). The ProMet parties objected to that evidence as resting on a misstatement of the relevant test for liability; as reflecting a personal view and as trespassing on the ultimate issue. That objection reflected difficulties in the way in which Mr Ooms had been instructed and the content of much of his reports (the irony in the objection being that it was the ProMet parties who instructed Mr Ooms and tendered his reports). However, I regarded Mr Ooms' evidence on the matters referred to above as reflecting engineering practice in the light of the propositions and findings made in this part of the reasons concerning the relationship between the likely characteristics and flow properties of feed ore and the design of a process plant (including the consequences for the operation of a process plant where the materials handling components have not been designed to handle the kind of ore presented for processing). There is usually no 'bright line' between evidence of accepted practices and the ultimate issue in professional negligence cases.

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Metallurgical test work

70 Metallurgical test work is undertaken to evaluate and understand the physical and chemical properties of an ore. Its primary purpose is to enable the most appropriate unit processors and equipment to modify the chemical and/or physical properties of the ore to be selected so as to increase the value and marketability of the processed product (proposition 63). A feasibility study into a mining project at Bootu Creek was undertaken by OMM prior to its request for tenders. Metallurgical test work was undertaken by Amdel Limited (Amdel) as part of the feasibility work. It produced six reports between December 2003 and June 2004.

71 Trevor Tennant (who was the managing director of OMM between early 2003 and 2005) stated that the purpose of the Amdel test work was to ascertain whether the manganese ore identified at Bootu Creek could be beneficiated to a grade of product that would be attractive to buyers (Tennant, par 20). The tests were also intended to determine the yield that would be achieved from processing the ore (the yield is the amount of processed product obtained compared to the quantity of feed ore processed) (Tennant, pars 21 - 23). Mr Tennant was not cross-examined about the purpose of the Amdel test work and I accept his evidence on that matter.

72 In his expert evidence, Mr Ooms linked the metallurgical test work undertaken on the Bootu Creek ore with the design of the process plant (March 2009, pars 599 - 603). In particular, he stated that 'in the case of Bootu Creek the purpose of the metallurgical test work was to evaluate samples of the ROM ore and scrubber feed ore to determine the design parameters for the design and selection of the crushers, screens, wet scrubber and [heavy media separation] plant' (par 599). Mr Ooms did not identify how he reached that conclusion but I accept from their contents and timing that the Amdel reports provided data that was used in devising the process design criteria that were provided by OMM to prospective tenderers with a letter of enquiry dated 9 April 2004, a request for tender dated 11 June 2004 and a further letter dated 11 August 2004 that was addressed to ProMet 1.

73 However, there was no evidence that the Amdel reports were provided to ProMet 1 or that ProMet 1 requested either that metallurgical test work be undertaken or that it be provided with the results of any test work that had been performed. It was common ground that the Amdel reports did not state that the ore sampled contained a lot of clay or was

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wet or would contain a high moisture content (proposition 66). The reports did, however, refer to fine particles present in the ore but the nature of the fines was not further identified (proposition 67; the qualification contained in the response from the ProMet parties to that proposition is accepted).

Mass balance

74 A mass balance is a calculated balance of all solids and liquids that are introduced to and extracted from the processing circuit as well as the mass and grades of the process streams internal to the circuit (proposition 19). Mr Hearse described a mass balance as a 'calculated balance of all of the solids and liquids that go into and out of the process (eg, mass and grade of manganese ore, water in, Dump Product and Fines Product mass and manganese grade out, tailings and manganese grade out) as well as the mass and grades of the process streams internal to the circuit (eg, ore feed to the scrubber)' (November 2008, par 136(c); see proposition 19).

75 ProMet 1 used a feed ore moisture content estimate of 2% for the mass balance calculations undertaken as part of its design work. It was not in issue that the value of 2% reflected an assumption about the moisture content of the feed ore likely to be mined and processed at the Bootu Creek mine (see proposition 20). That followed from the purpose of a mass balance calculation. It was also not in issue that 2% moisture content represented dry ore (see proposition 49, noting the qualified response given by the ProMet parties).

76 However, at issue between the parties was the derivation of that figure in circumstances where no TUNRA-type test work had been undertaken. The difference between the parties was captured by their responses to proposition 20. OMM contended that the 2% figure represented an assumption made by ProMet 1 for the purpose of the mass and water balance calculations that it had prepared but that there was no evidence establishing the basis upon which the assumption had been made or what it reflected. It further contended that there was no reasonable basis for assuming that the feed moisture content of the ore to be mined and processed at Bootu Creek would approximate 2%.

77 The ProMet parties, on the other hand, contended that the 2% value for the moisture content of the feed ore utilised in mass and water balance calculations had been assumed and agreed between the parties as part of the process design criteria for the process plant in circumstances where

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ProMet 1 had recommended that TUNRA-type test work be undertaken but OMM had not acted on that recommendation.

Process design criteria

78 The term 'process design criteria' refers to a set of data contained in a document that describes the fundamental project input data (also known as operating and process criteria) that is used for the design of a process plant (proposition 68). Mr Ooms and Mr Hearse agreed in the conferral that (supplementary report on expert conferral, proposition 2):

The Process Design Criteria (PDC) is the basis for process plant design, commonly referred to as the 'bible', and should contain the information on which the process plant design is to be based. It may also contain information on input process streams for unit operations design purposes throughout the circuit.

79 Consequently, the criteria are provided to enable detailed design of the process operation, including materials handling equipment and systems (proposition 72). They form the basis for designing the process plant to handle and process the ore described in the criteria (proposition 70). The most important functions of the process design criteria are to define the properties of the feed ore, provide test work results for processing the feed ore described and to specify the proposed operating hours of the plant (proposition 69). The process design criteria will also identify the source of the information provided in the criteria and the reference documents used to provide the design data (proposition 71). I accept Mr Hearse's evidence that process design criteria will 'contain information that covers a range of ores and circumstances that the plant could reasonably be expected to have deal with' (Hearse November 2008, par 136(d). That statement was not disputed by Mr Ooms.

80 OMM's request for tender included a statement of process design criteria. However, it was agreed between the parties that the process design criteria did not include fundamental data such as the moisture and clay content of the ore to be mined and processed (proposition 73; see also Mr Ooms evidence at ts 1850, 1869 and 1871 - 1873).

81 James Cribbes is an engineer and a director of each of the ProMet parties (see pars 3 - 20 of his witness statement dated 22 March 2010 [CRT.0036.0001]). He was the principal witness of fact called by those parties. He accepted that material provided by OMM to HWE and ProMet 1 prior to the E1151 Rev P3 contract did not contain information about the moisture or clay content of the Bootu Creek (ts 1528 - 1529 and 1552 - 1556).

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The relationship between mass balance calculations and process design criteria

82 Mass balance calculations and process design criteria perform different functions in the design process (and see Hearse November 2008, par 136(d); Ooms March 2009, par 855; Cribbes ts 1542). It is necessary to ascribe a value for the likely moisture content of feed ore in undertaking a mass balance calculation. The value will reflect what is known or assumed about the likely characteristics of the feed ore - in this instance, a value of 2% reflected an assumption that the ore was dry. However, that assumption has different implications for the design of the process plant.

83 An estimated or assumed value of 2% feed ore moisture content for mass balance purposes is a 'conservative' estimate or assumption for a wet processing plant such as the process plant designed for the Bootu Creek mine. As Mr Ooms explained (Ooms March 2009, par 308):

The worst condition for a wet process is when the feed ore is dry and the temperature is hot. These operating conditions require the largest water demand for process, dust control and potable purposes. (emphasis added)

84 Mr Ooms stated further that (par 695):

At Bootu Creek there is an extended dry period. A low moisture content of ROM ore was required to be assumed to estimate the maximum quantity of water required for the overall processing plant to develop the water balance. In my opinion an assumption of 2% moisture content for feed ore was a reasonable and most appropriate assumption.

85 Mr Cribbes agreed that an assumed value of 2% moisture content for the feed ore was a conservative assumption from a 'water assumption or water availability point of view' (ts 1543).

86 I accept the evidence given by Mr Ooms and Mr Cribbes that a value of 2% for the moisture content of feed ore was a conservative value for calculating mass and water balances. I also accept Mr Ooms' explanation as to why that was so. Those matters were not challenged by OMM; indeed, it relied on Mr Ooms' evidence (OMM's closing submissions, section C.2).

87 However, an assumption that the feed ore will be dry is not a 'conservative' assumption when considering the flow properties of the ore and the design of the materials handling components of a process plant. That follows from the relationship between those properties and moisture:

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the higher the moisture content, the more likely that the feed ore will be sticky if clay and fines are present. Problems may be experienced with handling sticky material if a process plant is not designed to accommodate such material. Accordingly, a 'conservative' assumption when designing the materials handling components of a process plant would be to assume that the feed ore was wet and sticky.

88 OMM submitted in closing that (OMM's closing submissions, par 121):

Feed ore moisture content has different implications for the [process design criteria] and the Mass Balance. There is an inverse relationship between what is conservative as an estimate of moisture content for Mass/Water Balance purposes and what is conservative for assessing flow properties in developing [process design criteria].

89 I accept that submission. It expressed a conclusion that logically followed from the evidence concerning the relationships between moisture content and the flow properties of ore and the characteristics of ore and the design of a process plant.

90 The ProMet parties submitted that the value attributed to the moisture content for feed ore should be the same in the process design criteria and the mass balance calculations - see their answers to propositions 72, 74 and 75 (OMM agreed with the matters stated in those propositions). They contended that the value should be derived from the same source for each purpose. It was not necessary to make a finding about that contention. It was sufficient to note that if it was correct, the contention emphasised the need to ensure that the value used for the moisture content of feed ore was carefully chosen given that it might have different consequences for mass balance and materials handling purposes.

The steps involved in designing a process plant and the role of the design engineer

91 Mr Hearse explained his views on the role of a process engineer in the design of a process plant in section F.2 of his November 2008 report. Mr Ooms commented on Mr Hearse's evidence at par 853 and following of his March 2009 report. I accept the evidence given by Mr Hearse and Mr Ooms that a process engineer:

(a) Is responsible for managing or reviewing and validating the metallurgical test work; assumptions are to be tested to ensure that they are valid when designing a process flowsheet (Hearse November 2008, par 136(1); no comment by Mr Ooms).

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(b) Develops a process flowsheet based on the metallurgical test work, the engineer's understanding of characteristics of the ore and the engineer's experience (Hearse, par 136(b); no comment by Mr Ooms on this aspect of Mr Hearse's evidence).

(c) Prepares a mass balance (Hearse, par 136(c); no comment by Mr Ooms).

(d) Prepares process design criteria (Hearse, par 136(d)). Mr Ooms did not dispute that the process engineer prepared the process design criteria but he added that the design criteria included values for matters such as feed ore moisture content and that the criteria were typically agreed with the process owner/operator (Ooms March 2009, par 855).

(e) Refines the flowsheets to produce process flow diagrams that diagrammatically show the process flowsheet (Hearse, par 136(e); no comment by Mr Ooms).

(f) Prepares data sheets that provide information for equipment suppliers (Hearse, par 136(f); the qualification introduced by Mr Ooms at par 857 of his March 2009 report was also accepted).

92 According to Mr Hearse, the process engineer and/or a mechanical engineer can then prepare equipment lists, piping and instrumentation diagrams, process control diagrams and 'control philosophy' (par 137). The engineer will use that information to 'go forward' with detailed mechanical, electrical and instrumentation design and structure and civil design (par 138).

93 Mr Ooms considered that a further step was required: the preparation of preliminary plant layouts and elevations and preliminary designs for specific areas (Ooms March 2009, pars 858 - 859). I accept that evidence.

94 The significance of the evidence given by Mr Hearse, and with which Mr Ooms agreed, was that the sequence of steps involved:

(a) the development of process flowsheets utilising, among other things, the engineer's understanding of the ore characteristics at an early stage;

(b) the refinement of the process flowsheets after developing the process design criteria and mass balances;

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(c) more detailed design after the process flowsheets had been refined.

The design of the materials handling components of a process plant

95 Mr Ooms accepted as a correct statement of engineering practice a passage in D. McGlinchey, Characterisation of Bulk Solids (2004) [OMM.13400349] at 9 (and see Mr Ooms' evidence at ts 1828):

The procedures for the design of handling plant such as storage bins, gravity reclaim stockpiles, feeders and chutes are well established and follow four basic steps:

(1) determination of the strength and flow properties of the bulk solids for the worst likely flow conditions expected to occur in practice;

(2) determination of the bin, stockpile, feeder or chute geometry to give the desired capacity, to provide a flow pattern with acceptable characteristics and to ensure that discharge is reliable and predictable;

(3) estimation of the loading of the bin and hopper walls and on the feeders and chute under operating conditions;

(4) design and detailing of the handling plant including the structure and equipment.

96 The first two steps in that statement of design procedure were particularly relevant to the issues to be determined in this matter. The sequence of steps was also relevant in that it indicated that detailed design was the final step in the design process. In my view, the procedure identified by Mr McGlinchey and accepted by Mr Ooms reflected the effect of the evidence on the relationship between the likely characteristics and flow properties of feed ore and the design of a process plant and the steps involved in designing a process plant that have been described in the previous section of the reasons. Mr Cribbes accepted that it was normal engineering practice in 2004 and 2005 for an engineer designing mineral processing plants to (ts 1550-1551):

(a) conduct some investigations into the likely characteristics of the ore;

(b) take into account the likely characteristics of the feed ore in designing a process plant 'insofar as they were able to determine' those characteristics;

(c) consult with the mining engineer as to what type of ore was expected to be presented for processing; to make reasonable

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design assumptions as to the likely characteristics of the ore in the absence of any other information and to design conservatively 'in accordance with the circumstances'.

97 Mr Cribbes also agreed that it was common for at least one of the 'responsible parties' to visit the site (by which he meant one of the engineering firms or other professionals that were involved in the project).

The Bootu Creek Manganese Project

98 This section of the reasons is in narrative form as it concerns matters that were generally not in issue. The primary focus is on the contractual arrangements for the design and construction of the process plant for the Bootu Creek mine. Evidence on those matters was given by Mr Tennant, John Albert Brodziak, Kenneth James Houghton and Mr Cribbes. Mr Brodziak was the project manager for OMM between 1 June 2004 and 26 May 2006 and Mr Houghton was the contracts manager for OMM between October 2004 and January 2008.

99 I make findings according to the narrative that follows.

The early stages in the development of the Bootu Creek project

100 In September 2002, OMM entered into a memorandum of agreement [OMM.132.00290] with Groote Eylandt Mining Company Pty Ltd (Gemco) by which:

(a) Gemco could earn a 25% interest in the tenements that comprised the Bootu Creek mine by expending $3 million (the expenditure was to be incurred according to a program and budget that was annexed to the agreement as schedule 4);

(b) a joint venture was formed between OMM and Gemco (Tennant [CRT.0024.0001], par 13).

101 According to Mr Tennant, the first stage of the Bootu Creek project involved drilling 'campaigns' on the ore body. The results of those campaigns indicated the presence of manganese in sufficient quantities to sustain mining (Tennant, pars 17 - 18).

102 The next stage of the project involved determining whether the manganese ore could be beneficiated to a grade of product that was commercially viable. OMM engaged Amdel to undertake metallurgical test work for that purpose. Amdel produced six reports between late 2003 and mid 2004 (Tennant, pars 19 - 26):

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(a) report entitled, 'Costean Scrubbing' and dated 5 December 2003 [OMM.004.00852];

(b) report entitled, 'Part A: Densimetric Fragment Analysis' and dated 5 December 2003 [OMM.004.00909];

(c) report entitled, 'Part B: Densimetric Fragment Analysis' and dated 20 February 2004 [OMM.004.01063];

(d) report entitled, 'Part A: Sample Preparation and Analysis - Bootu Creek' and dated 30 March 2004 [OMM.004.00993] (Amdel Sample Preparation Report);

(e) report entitled, 'Comminution and Specific Gravity Testing - Bootu Creek' and dated 30 March 2004 [OMM.004.01135]; and

(f) report entitled, 'Lump/Fines/Slimes Determinations on Bootu Creek Ore' and dated 10 June 2004 [OMM.004.01150] (Amdel Determination Report).

103 Other tests were commissioned by OMM during this stage (Tennant, par 29):

(a) report by Mineral Processors (WA) Pty Ltd (MP(WA)) entitled, 'Bootu Creek - Metallurgy of Manganese Ore Beneficiation - Metallurgical Design Criteria' and dated 12 December 2003 [OMM.003.00466];

(b) report by Steffen, Robertson and Kirsten (Australia) Pty Ltd (SRK Consulting) entitled, 'Bootu Creek Manganese Project - Geotechnical Investigations' and dated December 2003 [OMM.003.00759] (SRK Report);

(c) report by URS Australia Pty Ltd (URS) entitled, 'Dewatering and Water Supply Investigation - Bootu Creek Manganese Project' and dated 14 January 2004 [OMM.005.01205] (URS Report); and

(d) report by RSG Global (RSG) entitled, 'Bootu Creek Manganese Project - Mineral Resource Model' and dated May 2004 [OMM.003.00567].

The letter of enquiry

104 OMM wrote to ProMet 1 (and others) by letter dated 9 April 2004 [OMM.001.00001] advising that it proposed to open a manganese ore

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production facility at Bootu Creek (the letter is referred to throughout the reasons as the 'letter of enquiry'). The production facility was to consist of a crushing and feed preparation plant and was to include a rotary drum scrubber, beneficiation feed stockpiles, heavy metal drum and heavy metal cyclone beneficiation (the heavy metal drum and cyclone together comprised the heavy media separation plant). Prospective tenderers were invited to 'furnish firm prices for the necessary engineering, project management, design, manufacture, delivery and construction of the plants necessary to fulfil [OMM's] requirements'.

105 Enclosed with the letter were 'general design criteria' for each component of the beneficiation plants. Prospective tenderers were advised that they could 'make variations to any component of the plants to improve the metallurgical performance or cost effectiveness of their offer'. It was also said that OMM had performed detailed densimetric analyses on significant components of the ore reserve and it was confident that the numbers specified in the design criteria were correct. The letter concluded by stating, '[t]his letter serves to allow the selected tenderers to proceed with the detail process flow diagrams and engineering design necessary for producing a tender'. The letter did not include any process flow sheets or diagrams.

106 The design criteria accompanying the letter were prepared by MP(WA). The design criteria included criteria for 'feed preparation'. The feed preparation criteria concerned the crushing and scrubbing components of the process plant and incorporated criteria for expected ore particle and ore bulk densities. However, the feed preparation criteria did not provide any information about the moisture or clay/fines content or other characteristics of the feed ore that were relevant to the design of the materials handling components of the process plant (Cribbes, ts 1,527; Ooms, ts 1,872; annexure B to the letter of enquiry; OMM did not contend otherwise).

Early documents prepared by ProMet 1

107 ProMet 1 prepared in April or May 2004 a document entitled 'Process Design' [PRO.026.003.0446] that contained a description of a process plant. The process described included a 'static' stockpile of crushed material prior to the scrubber. The description also noted that the material would be washed in the scrubber to remove clays and to fill any pores with water to reduce the loss of ferrosilium in the main plant.

108 In late May 2004, ProMet 1 prepared a further document entitled 'Bootu Creek Site Conditions' apparently in anticipation of a tender in

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relation to the Bootu Creek project [PRO.026.003.0433]. The document referred to rainfall records from Tennant Creek and noted the significant difference between the mean monthly rainfall for January and November. An annexure to the document summarised a considerable amount of information relating to the climatic conditions at Tennant Creek.

The request for tender

109 By letter dated 11 June 2004 [PRO.026.003.0455], OMM invited HWE and others to tender for the mining and processing of ore at Bootu Creek. The letter of invitation indicated that the scope of the project included the design, construction, commissioning, operation and maintenance of the process plant; that is, it was intended that the successful tenderer would be responsible for supplying the plant and for mining and processing ore over the life of the mine. The letter further stated that two companies experienced in the design of similar process plants (ProMet 1 and Senet (South Africa)) had expressed an interest in the design and construction contract and had undertaken initial work on the design and/or pricing of the proposed process plant. Prospective tenderers were advised that they could approach either company to be involved in the tender.

110 The letter of invitation was accompanied by several documents (the letter and the accompanying documents are collectively referred to as 'the request for tender'):

(a) A project schedule [PRO.019.003.0421] that identified the steps involved in developing the project and also provided estimates of the time for completion of each step.

(b) A mining schedule and summary [PRO.019.003.0484], [PRO.019.003.0483] that showed forecast rates of mining and production between January 2005 and December 2007. The schedule also indicated that it was anticipated that mining would be conducted between the surface and 240 RL.

(c) A draft contract to be made between OMM as principal and the successful tenderer as contractor [PRO.019.003.0423].

111 The draft contract comprised a 'formal' agreement that incorporated by reference the terms of the General Conditions of Contract AS 4000-1997 and a series of annexures. The formal agreement stated that:
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(a) the contract provided for the mining, processing and stockpiling of nominated amounts of manganese ore to agreed schedules and included the supply of the infrastructure necessary for 'the Works';

(b) the contractor had the resources, expertise and experience to carry out the Works.

112 Annexure A to the agreement proposed that:

(a) the term of the contract would be three years;

(b) the Works comprised the mining and processing of manganese ore from the Bootu Creek Manganese Project;

(c) OMM would acquire ownership of the crushing, screening, scrubbing and beneficiation plants at the end of the contract term;

(d) the timing of the design and construction of the process plant was for commissioning of the plant to commence by no later than 1 February 2005 and production of lump and fines to commence by no later than 7 February 2005;

(e) mining activities were to commence by no later than 5 January 2005 so that a ROM stockpile of no less than 10,000 tonnes of ore would be created by 31 January 2005.

113 Annexure C contained the scope of works. It covered the requirements for mining manganese ore and waste and the crushing, beneficiating and stockpiling of lump and fines product at the mine site.

114 The scope of works provided, among other things, that the contractor was to design, procure, transport, erect and commission a process plant in accordance with annexure D to the proposed agreement and to operate and maintain the plant throughout the contract term. The proposed scope further provided that:

(a) The contractor was to be responsible for keeping the pits dry enough for mining to proceed in an orderly and timely way. Reference was made to pumping out water from rain or rainwater run-off but not to ground water. The in-pit pumps were not to discharge in a manner and at places that interfered with mining operations and were to discharge into ponds that had at least two days' holding capacity. Dewatering ground water was to be carried out ahead of mining by pumping from bores located

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generally outside the perimeter of the pit being mined (cl 8.11 of the scope of works).

(b) The contractor was to provide dust suppression in the mining operations by way of water spraying from a water cart (cl 8.13).

(c) The circuits of the process plant were to process ore at rates that met the principal's production schedule (cl 9.1).

(d) The crushing/scrubbing circuit was to reduce the ore feed to the product sizes specified in cl 9.3 while maximising the production of lump.

(e) The primary and secondary crushing and primary dry screening circuit was to be fitted with high pressure, low volume water sprays for dust suppression. The ROM bin was to be fitted with a hood that contained water sprays to prevent dust emission from dumped ore and the volume of water distributed on the ore at any point was to be the minimum required to achieve dust suppression (cl 9.2).

(f) The contractor was to keep dust to acceptable levels by spraying water on working areas including pit floors, stockpiles and waste dump areas (cl 16).

115 Annexure D to the proposed agreement contained the design criteria for the design of the process plant. The criteria commenced with a 'general' specification that stipulated that:

(a) The process plant was to be designed to produce a nominal 500,000 tonnes per year of product. Expected nominal yields dictated that the feed to the plant would be 1,150,000 tonnes per annum.

(b) The proposed 'operating philosophy' was to run the crushing circuit as a single shift operation and the drum and cyclone plants on a double shift. Surge capacity was required for feed in front of each of the drum and cyclone plants to account for the intermittent operation of the crushing circuit.

(c) It was proposed to feed the crusher ROM bin using a front-end loader. The drum and cyclone circuits were to be designed to be operated without requiring a front-end loader to feed them;

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however, each was to be fitted with an emergency feed system using a loader.

116 The general section of the process design criteria was followed by a statement of operating criteria. That statement included criteria for feed preparation that were different in their detail to those that had been annexed to the letter of enquiry. The design criteria and the statement of operating criteria contained no information about the moisture or clay content of the ore. However, the criteria referred to the presence of fines (the information conveyed by the criteria is further considered later in the reasons).

117 The operating criteria included:

(a) operating days per annum - 350 days;

(b) scrubber feed - maximum of 4,200 tonnes per day and an average of 2,856 tonnes per day;

(c) scrubber assistance time - a minimum of 36 seconds and a maximum of 42 seconds.

118 Section 9.2 of the scope of work dealt with the 'crushing/scrubbing plant'. It stated that the 'crushing/scrubbing circuit' was to reduce the ore feed to the product sizes specified in section 9.3. Those product sizes distinguished between lump and fines. Section 9.2 also stated that as part of the crushing/scrubbing circuit, the ore was to be washed to separate lump from fines and also to remove clay from the unbeneficiated lump and fines.

119 The request for tender made no provision for a crushed ore stockpile. According to Mr Brodziak, it was intended by section 9.2 of the scope of work that the scrubbing of the feed ore would form part of the crushing circuit and that the ore would then be stockpiled in 'individual' stockpiles (by which I understood Mr Brodziak to mean, separate stockpiles for unbeneficiated lump and unbeneficiated fines) having had the 'finer material' washed away (ts 697).

120 Mr Brodziak's evidence concerning OMM's intentions in respect of the processes described in section 9.2 of the request for tender was not contentious (see, for example, the question to Mr Brodziak put by counsel for the ProMet parties at ts 731.4). The effect of the evidence was that the request for tender described a process in which the crushed ore was stockpiled (as lump and fines) after it had been both crushed and scrubbed

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and prior to it being beneficiated in the heavy media separation plant. The stockpiled ore would, therefore, have had any clay and fines washed away and it would be stockpiled while wet.

121 As will be seen, that process differed from the process subsequently recommended by HWE and ProMet 1. Their proposal provided for the ore to be stockpiled following crushing and prior to scrubbing. Under that design, crushed ore, incorporating any clay and fines, was stockpiled and then conveyed to the scrubber (and see proposition 7; the response of the ProMet parties to that proposition accepted that the request for tender did not provide for a crushed ore stockpile and merely pointed out that the request did not expressly exclude such a stockpile being incorporated into the design).

122 It should also be noted that:

(a) the scope of works described the mining area as comprising two ore bodies to be mined by separate pits: the Shekuma and the Gogo ore bodies (see section 3 of the scope of works);

(b) although the draft contract referred generally to aspects of the design of the process plant, the request for tender did not include any process flow sheets or diagrams or any other design work.

HWE's tender

123 Under cover of a letter dated 12 July 2004 [OMM.062.00005], HWE provided a tender submission in response to OMM's invitation. The letter stated:

We have endeavoured to make our tender as comprehensive as possible, but there are areas where we have had to make certain assumptions or qualifications and these have been identified in our submission for your information.

124 The tender included a document, 'Proposal Clarification' [OMM.062.00007], that contained the following statements (in the context of clarifying the schedule of rates proposed by HWE):

(a) The clarifications outlined HWE's rationale behind the tender rates provided in its proposal.

(b) Ownership of the infrastructure would revert to the principal on completion of the contract.

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(c) HWE had made certain assumptions in relation to the design, supply, construction and operation of the ore processing facilities. Those assumptions included that:

(i) HWE had not allowed in its schedule of rates for variations arising from operating conditions encountered other than those assumed in the OMM invitation to tender dated 11 June 2004 and supplementary document, 'General design criteria', prepared by MP(WA) and dated 9 April 2004.

(ii) HWE had assumed for process plant design and throughput rates an average moisture content of 4% water in ore fed to the crushing plant. That value had been used in assessing the 'handleability and flowability of ore in the process circuit up to the scrubber feed chute'.

125 The proposal clarification document also stated in relation to the scope of works:

HWE has allowed to pump water from rain and rainwater runoff from open sumps in the open pits to the Tailings Storage Facility for settling. This water will then be used for dust suppression and process water.

126 The tender incorporated a document entitled, 'Process Plant Design and Construction Methodology' that was said to outline HWE's proposed method for establishing and constructing the process plant and associated infrastructure. As has been noted, the document stated that HWE, ProMet 1 and DRA had formed a consortium for the purpose of completing the requested scope of work. That statement was made under the heading 'process plant design and procurement'. It was said in the same section that ProMet 1 was experienced in the design of mineral processing plants and that DRA was the wholly owned Australian subsidiary of the leading international supplier of heavy media separation plants. The section ended with the statement that HWE would 'overview engineering and design, and will manage the construction, procurement and commissioning activities of the complete process facilities including all areas from the ROM pad to the product stockpile conveyors'.

127 It was stated under the heading 'design basis and assumptions' in the design and construction methodology document that 'the process plant design has been based on the design criteria included within the Request for Tender - Contract for the Mining and Processing of Ore documentation and other relevant information supplied by Mineral

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Processors (WA) Pty Ltd and data provided by [OMM]'. The tender also included a table that was said to state the 'major plant assumptions' [OMM.062.00026]. The table included a mass balance value for 'feed moisture' of 2%.

128 The design and construction document incorporated a section on crushing and screening that stated that:

In the absence of appropriate data, it has been assumed that the feed contains minimal clay (less than 6%). If the clay content is substantially higher some production limitations to the circuit may be encountered

Undersize material from the primary screen (-75mm) will by conveyed via CV 04 and stacked on the crushed ore stockpile. The discharge head of CV 04 is positioned at a nominal 13 m height above the stockpile reclaim tunnel. This is calculated to provide a nominal live stockpile capacity,(based on freeflowing material and a 50º internal angle), of approximately 24 hours feed to the scrubber plant. Withdrawal of sticky/wet/clay material from the stockpile may be encountered, impacting production throughput rates. HWE recommend to [OMM] that additional material handling test work (eg Tunra type test work) is completed prior to final design in this critical area. (emphasis added)

129 Those statements and similar statements made in documents prepared by ProMet 1 were central to the ProMet parties' defence to the claims made by OMM. They emphasised that the statements made about moisture and clay content were described as assumptions. They also emphasised that it was recommended that materials handling test work be undertaken and that a 'warning' had been given that 'some production limitations' to the circuit might be encountered if the clay content was substantially higher than the assumed percentage.

130 The section in the design and construction document describing the crushing and scrubbing circuits also stated that HWE believed that a crushed ore stockpile should be incorporated into the configuration of the process plant for the following reasons:

• Logical separation of the 'dry' plant areas from the 'wet' plant areas;

• Provides suitable surge facility to absorb any process plant perturbations;

• Reduces the material handling of wet sticky material and potential hang up inside bins, feeders, chutes, etc; and

• Halves the size of the ore scrubber plant, as this will be operated 24 hours per day, as per the drum and cyclone plants.

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131 Mr Brodziak stated that the tender submission from HWE was accompanied by a document entitled, 'Proposal for Engineering, Procurement and Construction of the Process Plant for the Bootu Creek Manganese Project by ProMet/DRA Pacific' and which was designated E1151 Rev P1 (Brodziak March 2010 [CRT.0012.0001], par 28). The document was not referred to in HWE's covering letter. However, E1151 Rev P1 was dated 9 July 2004 and was said to have been prepared in response to the letter of enquiry as modified by the request for tender. Mr Cribbes stated that the proposal was provided to OMM in July 2004 (Cribbes 22 March 2010 [CRT.0036.0001], par 37). Further, cross-examination of Mr Brodziak proceeded on the basis that E1151 Rev P1 had accompanied HWE's tender submission and no witness called by the ProMet parties suggested that the proposal had not accompanied the tender. Accordingly, I find that E1151 Rev P1 was provided to OMM with HWE's tender submission.

132 It was apparent from its contents that E1151 Rev P1 [OMM.094.00023] was a proposal by ProMet 1 to HWE (and possibly others) as an intending tenderer to OMM. The introduction to the proposal described ProMet 1 as being experienced in the design of mineral processing plants. The proposal also stated that, in performing their services, ProMet/DRA would exercise the degree of skill, care and diligence 'which could reasonably be expected of it as an experienced and professional consulting engineer in the circumstances'. It was said that DRA would be responsible for the design of the drum and cyclone plant (that is, the heavy media separation plant) and that ProMet 1 would be responsible for the design of 'plant areas' outside the drum and cyclone plant (see s 4 of E1151 Rev P1).

133 The introduction to E1151 Rev P1 also stated that the process plant would be designed by ProMet and DRA to produce a nominal 500,000 tpa product, comprising 380,000 tonnes of -75 mm +10 mm manganese lump and 120,000 tonnes of -10 mm +0.63 mm manganese fines. The preliminary design of the process plant had been based on the design criteria included with OMM's letter of enquiry, its request for tender and 'other information and data' that had been provided. The request for tender was considered to supersede the letter of enquiry.

134 As with HWE's tender submission:

(a) E1151 Rev P1 noted that a key difference between the request for tender and the proposal made by ProMet/DRA was the inclusion of a crushed ore stockpile in lieu of wet stockpiles of the feed to

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both the drum and cyclone plant. It was said that a crushed ore stockpile had been included for reasons that were similar to those given by HWE in its tender except that the reference to providing surge capacity was omitted.

(b) The proposal included the same table setting out the 'major plant assumptions' as had been incorporated in the tender submission by HWE (the table that indicated that a mass balance value of 2% had been assumed for feed moisture);

(c) The proposal also stated that, 'in the absence of appropriate data, it has been assumed that the feed contains minimal clay which will cause crushing problems in the circuit' and that 'withdrawal of sticky/wet/clay material may be a problem and additional materials handling test work (eg TUNRA-type test work) is recommended'.

135 The statements referred to in pars (b) and (c) above were repeated in subsequent proposals prepared by ProMet 1 - E1151 Rev P2 and Rev P3.

136 The description of the scrubbing plant contained in E1151 Rev P1 referred to the tunnel under the stockpile and the conveyor transporting feed ore out of the tunnel. It was said that this conveyor would feed another conveyor for transport of the material to the rotary drum scrubber. An emergency hopper would be included to enable a front end loader to load the conveyor in the event that the tunnel feeders could not be operated or to load material from the 'dead' stockpile volumes (s 2.4).

137 The proposal to include an emergency reclaim hopper was ultimately deleted from the design on the instruction of OMM. The ProMet parties alleged that OMM failed to exercise reasonable care in giving that instruction and that the decision to remove the emergency hopper contributed to the loss and damage that was claimed.

138 It was also relevant in this context that it was stated in the section of E1151 Rev P1 that described the scrubbing plant (s 2.4) that:

The ore will be mixed with water in a slurry at 55% solids in the scrubber and the material washed for an average of 42 seconds (36 in RFT). The residence time is based on data provided within the RFT and could be problematic if large amounts of clay are present in the ore … Undersize material from the scrubber trommel will be fed to the secondary screen with a screen size of 0.63 mm. Consideration could be given to the use of a double deck if large amounts of clay are expected. (emphasis added)

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139 That statement was repeated in E1151 Rev P2 and E1151 Rev P3.

140 Appendix B to the proposal was entitled 'Mass Balance'. It contained a table of 'mass balance' assumptions that incorporated operating and production assumptions, including (as for the table setting out the major plant assumptions) a value of 2% for 'feed moisture'.

Feasibility studies

141 A feasibility study was undertaken for OMM by Mr Stewart of Board Level Pty Ltd (Board Level) (see the evidence given by Mr Brodziak at ts 710 and ts 720 and following). In July 2004, Mr Stewart sent to OMM various reports that had been received from MP(WA) during the compilation of the feasibility study [OMM.003.00488]. The documents included design criteria and a letter dated 5 July 2004 from MP(WA) entitled, 'The manganese minerals at Bootu Creek'. The letter, among other things, commented on the metallurgical test work and the 'porosity' of the ore:

It has been demonstrated from the known 'apparently dry' moisture content of some particles that the ore is significantly porous. The porosity of particles appeared to be predominantly as fine pores which should not result in difficulty with either HM separation or in rinsing ferrosilicon from particles.

142 The feasibility study by Board Level was dated August 2004 [OMM.002.00221] (the August Feasibility Study). Section 6 of the study concerned 'processing'. It repeated the comments on the porosity of the ore reproduced above from the MP(WA) letter. It should be noted that the feasibility study also:

(a) stated that 'very extensive water displacement pyknometry was performed to determine the likely behaviour of ore particles in the heavy media separation plant' (page 44);

(b) included a process plant flow sheet that described a process in which ROM ore was crushed and then scrubbed to produce lump material (which would then be sent to the drum plant) and fines (which would be sent to the cyclone); that is, the process did not include a crushed ore stockpile.

143 An updated feasibility study was provided by Board Level in October 2004 [OOM.002.00334] (the October Feasibility Report). There was no change in the study to the matters referred to above.

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144 Mr Brodziak confirmed in cross-examination that he would have read the feasibility studies but he was not questioned about his understanding of the matters to which I have referred (ts 720 and following). As would be expected, Mr Tennant also reviewed the feasibility study. However, he was also not cross-examined on the detail of the reports.

145 Mr Hearse and Mr Ooms agreed in their expert conferral that 'OMM's Feasibility Study Report was not of the standard needed for design of a processing plant. There was no design or engineering included as part of the Feasibility Study Report' (supplementary report on expert conferral, proposition 3).

Amendment of the process design criteria and E1151 Rev P2

146 OMM advised ProMet 1 by letter dated 11 August 2004 [OMM.001.00112] that it had decided to amend the process design criteria to increase the specified production capacity of the plant from 500,000 tonnes to 600,000 tonnes per annum. Consequential amendments were made to the process design criteria but it was not suggested by the parties that those amendments were material to any of the issues to be determined. In particular, the criteria for operating days and scrubber feed and residence time remained unchanged.

147 The letter from OMM indicated, however, that it was proposed to independently mine the Shekuma and Gogo ore bodies and that it was intended to process the two types of ore separately. It was said that 'their differing yield characteristics will require some flexibility in the plant design which may or may not be covered by the existing design'. The letter enclosed what was described as a spreadsheet 'showing the characteristics of the two ores'. The spreadsheet was entitled 'Mass Balance Calculations: Worksheet "Mas Bal"' [PRO.019.003.0322]. Mr Cribbes accepted in cross-examination that the spreadsheet contained no information on the moisture or clay content of the ores (ts 1556 - 1557).

148 The revision to the process design criteria generated a corresponding revision to the ProMet/DRA proposal: E1151 Rev P2 [OMM.094.00156]. It is not necessary to refer to the changes to the proposal except to note that it was stated that:

(a) The revised proposal had been prepared following discussions and in response to OMM's letter of 11 August 2004 and the attachments to that letter.

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(b) The revised plant had been designed to cater for the Shekuma and Gogo deposits and was based on data provided by OMM within the spreadsheet 'Mass Balance.XLS' issued on 11 August 2004. That statement was made in s 2.2 which was headed 'Design Basis and Assumptions'. What was described as a 'summary of the feed and product mass balance and design criteria' followed the statement. There was no reference to the feed ore moisture content.

(c) The plant was designed to cater for both ore types and the higher throughput values required by OMM.

(d) While the proposed plant would cater for a variety of ore material and differing yield characteristics, the recoveries and yields were based on data provided and were not guaranteed or inferred. The plant would not cater for the complete range of criteria identified within the OMM process plant design criteria (annexure B to the request for tender), in particular the range of yields for the drum and cyclone plant and the maximum crushing plant feed rate.

(e) A detailed mass balance had been developed for both the Shekuma and Gogo ore bodies. It was said that the 'major design criteria' were identified 'together with estimated values and assumptions that provide the input to the mass balance, flow sheet and equipment selection and sizing. The estimated values and assumptions require confirmation prior to detailed design proceeding'.

(f) A detailed water balance had also been developed for both ore types encompassing water requirements for the process plant and dust suppression requirements for the crusher area and for the mining contractor. It was stated that the water balance was based on process plant requirements and information provided by HWE with assumptions being made as to rainfall, evaporation, seepage, water retained in the tails and water recovery from the tailings storage facility. The parties did not identify what information had been provided by HWE and to which ProMet 1 had referred.

149 It was also stated at the conclusion of the discussion on water balances that 'the design assumptions require confirmation prior to detailed design'.

150 Appendix B to the proposal contained the mass balance and water balance calculations. As with E1151 Rev P1, the feed moisture for each

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ore body was stated to be 2%. There was, however, one difference between the mass balance tables in E1151 Rev P1 and Rev P2. Each table incorporated a column headed 'Reference'. In E1151 Rev P1, there was no entry in that column against the feed moisture item. In E1151 Rev P2, the word 'assumed' appeared in the reference column for feed moisture. That entry contrasted with the entries for the items that immediately followed feed moisture in the mass balance tables: 'scrubber feed density'; 'lump moisture'; 'fines moisture'; 'water from drum plant' and 'water from cyclone plant'. The entry in the reference column for each of those items was 'estimated'.

Appointment of HWE

151 In mid September 2004, Mr Brodziak recommended to Mr Tennant that HWE be awarded the contract for the mining and processing of ore at the Bootu Creek mine [OMM.062.00001]. That recommendation was accepted. Mr Tennant wrote to HWE on 5 October 2004 advising that OMM proposed to accept its tender [OMM.064.00213]. The letter stated that a formal letter of intent would be provided after the joint venture partners had accepted the final contract wording and conditions. The letter continued:

In the interim, and with the intention that the commissioning date of the plant, and hence our first shipment, is not further delayed we hereby issue Henry Walker Eltin with a purchase order to cover the design of the plant … This purchase order authorises you, and guarantees payment for, design and procurement activities until 31 October 2004 …

Please proceed with the design and procurement works required to ensure the earliest commencement of commissioning of the plant, and in any case, not later than 28 May 2005.

152 A purchase order in terms that reflected what was stated in OMM's letter was sent to HWE [OMM.064.00214]. HWE sent a letter of intent to ProMet 1 on 7 October 2004, accepting the order [PRO.026.004.0001]. A letter of intent was sent by OMM to HWE on 8 November 2004 [OMM.064.00262]. The letter of intent indicated that a further purchase order had been issued to HWE at about the same time.

E1151 Rev P3

153 A further revision of the proposal by ProMet 1 to HWE for the design work was produced in September 2004. The circumstances surrounding the preparation of that proposal were not entirely clear. The proposal - E1151 Rev P3 [OMM.007.01642] - was an annexure to another