Supreme Court of Norfolk Island; The Administration of Norfolk Island v SMEC Australia Pty Ltd - [2006] NFSC 7

SUPREME COURT OF NORFOLK ISLAND
The Administration of Norfolk Island v SMEC Australia Pty Ltd
[2006] NFSC 7
CONTRACT – Contract between Administration and civil engineering consultants for management of a project involving cliff stabilisation and recovery, for use as aggregate, of hard durable rock (‘HDR’) – Project carried out by contractor (Kaipara) pursuant to contract requiring HDR to be stockpiled separately from other material (‘OTR’) – Whether Kaipara carried out work in such a manner as to produce an unacceptable degree of intermingling of HDR and OTR – Manner of excavation of unit I of cliff – Nature of material in HDR stockpile – Nature of defendant’s responsibility – Effect of clause in contract between plaintiff and defendant capping defendant’s liability at $300,000.
FAIR TRADING – Whether defendant engaged in misleading or deceptive conduct – Recoverability of damages in relation to moneys paid after intermingling occurred.
FIDUCIARY DUTY – Whether there was a fiduciary relationship between the parties.
Fair Trading Act 1995 (NI): ss 14, 16, 37, 41
THE ADMINISTRATION OF NORFOLK ISLAND v SMEC AUSTRALIA PTY LIMITED
SC2 of 2003
WILCOX J
3 AUGUST 2006
SYDNEY

IN THE SUPREME COURT OF

NORFOLK ISLAND

SC2 of 2003

BETWEEN:

THE ADMINISTRATION OF NORFOLK ISLAND
PLAINTIFF

AND:

SMEC AUSTRALIA PTY LIMITED
DEFENDANT

JUDGE:

WILCOX J

DATE OF ORDER:

3 AUGUST 2006

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.Judgment be entered in favour of the plaintiff, The Administration of Norfolk Island, against the defendant, SMEC Australia Pty Limited, in the sum of three hundred thousand dollars ($300,000).

2. The defendant pay the plaintiff’s costs of the proceeding.

IN THE SUPREME COURT OF

NORFOLK ISLAND

SC2 of 2003

BETWEEN:

THE ADMINISTRATION OF NORFOLK ISLAND
PLAINTIFF

AND:

SMEC AUSTRALIA PTY LIMITED
DEFENDANT

JUDGE:

WILCOX J

DATE:

3 AUGUST 2006

PLACE:

SYDNEY

REASONS FOR JUDGMENT
WILCOX J:

This case arises out of an agreement for the provision of engineering services by the defendant, SMEC Australia Pty Limited (‘SMEC’), to the Administration of Norfolk Island (‘the Administration’ or ‘NIA’), in connection with an engineering project undertaken by NIA.
Outline of the case
(i) Origins of the project
The project was known as ‘the Cascade Cliff Safety Project’. It concerned a cliff, about 260 metres wide, that rose steeply about 80 metres above the northern foreshore of Norfolk Island (‘the Island’), in the area known as ‘Cascade Reserve’. Cascade Reserve is included in the Register of the National Estate and, therefore, was subject to control under the Australian Heritage Commission Act 1975 (Cth) [see now the Australian Heritage Council Act 2003 (Cth)].
Cascade Cliff lies between an old quarry, known as ‘Cascade Quarry’, to the east, and the site of a former whaling station, to the west. A roadway traverses the narrow strip of flat foreshore that lies between the foot of the cliff and the sea. The road provides access to both the quarry and a jetty. The jetty is situated about one-third along the length of the cliff, measuring from the quarry. This jetty is regularly used for the loading and unloading of goods transported to and from the Island.
By the year 1991, Administration officers had become concerned about the long-term availability, on the Island, of rock suitable for crushing as aggregate. They saw a continuing need for aggregate for both public works, including occasional resurfacing of the airport and the construction and maintenance of roads, and private use. The quarry had long provided suitable rock, good quality basalt, but by 1991 it was almost worked out.
In 1991, the Administration retained a mining engineer, Andrew Lyell, to advise about future supply options. Mr Lyell held a Bachelor of Engineering (Honours) degree from the University of New South Wales. At that time, he had had over 30 years practical experience in mining and quarrying, including quarrying basalt rock for production of aggregate. As Mr Lyell explained in evidence, basalt is the preferred source rock for aggregate because crushing is relatively easy and cheap.
Mr Lyell visited the Island. He confirmed the quarry, as then structured, was almost exhausted and examined many alternative sites. There were problems about them all. Finally, he recommended the life of the quarry be extended by lowering its floor and extending it laterally over some adjacent public land. This was only a short-term solution; Mr Lyell thought long-term sourcing of rock remained a serious problem.
By 1995, the rock in and around the extended Cascade Quarry was nearly exhausted. After again reviewing the options, Mr Lyell concluded the most suitable course was to remove part of the adjoining cliff. In an affidavit read in this case, he said:
‘From physical observation it was apparent to me that Cascade Cliff was comprised of overburden at the top of the Cliff, under which there were horizontal layers of hard basalt rock interspersed with weathered rock and tuff. I prepared a vertical section depicting my interpretation of those layers.’
Mr Lyell explained:
‘The tuff, or volcanic ash, and the basalt, which is solidified lava, were both deposited at the time of the formation of the Island. Tuff and weathered rock are very weak and unsuitable for the production of aggregate and road base. The Quarrying technique employed to win basalt from Cascade Cliff would have to provide for the separation of the quality basalt and inferior tuff and weathered rock.’
Mr Lyell returned to the Island in September 1997 in order to interview three local residents who had expressed interest in carrying out the work suggested by him. At that time, he provided further advice to officers of the Administration. He had no further involvement in the project until August 2001.
(ii) The SMEC agreements
In February 1998, officers of the Administration contacted SMEC, a consulting engineering company. SMEC had previously indicated willingness to advise the Administration in relation to the safety of Cascade Cliff, from which there was occasional rock fall. Particularly as the road and jetty lay below the cliff, the Administration had been concerned about rock fall. A scheme to stabilise the cliff face was formulated and discussed with the Commonwealth Government. The Administration constituted a ‘Cascade Cliff Management Board’ (‘CCMB’), comprising a Commonwealth member, an Executive Member of the Legislative Assembly (a ‘Minister’) and relevant government officers. CCMB obtained approval from the Australian Heritage Commission for a project to stabilise the cliff face ‘provided the benching is undertaken in such a way that the existing overall rock strata profile is maintained at the conclusion of the works’.
The Norfolk Island Legislative Assembly enacted the Cascade Cliff Loan Act 1998 (NI) which authorised NIA to borrow from the Commonwealth a loan not exceeding $3 million (increased later to $3.25 million) in order to fund a project described as ‘stabilisation’ of specified land ‘to ensure public safety’ and ‘the extraction of rock, soil or other material (including its subsequent handling, transportation, treatment and stockpiling prior to crushing)’.
On 13 July 1998, a formal agreement was made between NIA and the Commonwealth government whereby the Commonwealth would lend NIA $3 million, the loan being repayable out of the proceeds of sale of the basalt rock extracted from the cliff.
With the approval of CCMB, the Administration issued a brief to SMEC in which it described the project as follows:
‘It is proposed to bench and batter the Cascade cliff back to a suitable profile as shown in the attached section (Appendix 2) and to recover basalt rock for the Island’s needs.
The overburden will be removed at the top of the cliff extending back to the modified stage two proposal above RL50; bench the cliff commencing at RL50 and then complete the benching as proposed for stage one – see Appendix 2
From known geological information, the project involves the removal of approximately 255,000m³of overburden and approximately 70,000m³ of rock.
Some of the overburden and topsoil from the cliff will be used to rehabilitate the existing quarry (portion 5a) to the south-east of the Cascade cliff. The final landform is to be as agreed with the landowner.’
Appendix 2 was a section plan showing a slope containing three benches at various heights above road level.
After various inspections and discussions, SMEC prepared a proposal for supply of engineering services. The services were to be broken into two phases: design and pre-construction, for a fixed fee; and construction management, on a fee-for-service basis. The Administration accepted SMEC’s proposal on 20 March 1998.
On 11 May 1998, SMEC and the Administration entered into two separate agreements. One of them was called ‘Consulting Engineer Agreement’ (‘the CEA’). The services stipulated in this agreement related entirely to the pre-construction phase of the project. They seem to have included everything necessary in that phase, including detailed design of the project, preparation of contract documents and calling and assessing tenders. Although NIA pleaded in this case that SMEC breached this agreement, for reasons that will appear, that claim is not open to it. Consequently, with an exception that will appear, I need not detail the provisions of the CEA.
NIA does not have the same problem in relation to the other agreement, called ‘Project Management Agreement’ (‘the PMA’). So it is necessary to refer more extensively to its provisions.
Annexure A to the PMA itemised the services that SMEC (called ‘the Consulting Engineer’) was to provide ‘as the Project Manager for the Cascade Cliff Safety Project’. That project was described in a recital to the PMA in this way:
‘It is proposed to bench and batter the Cascade cliff back to a suitable profile and to recover basalt rock for Norfolk Island’s needs. The overburden will be removed at the top of the cliff extending back approximately 60 metres from the top of the existing cliff and the new cliff face left at a suitable and safe batter. Benches will be constructed at suitable levels in the new cliff face. From known geological information, the project involves the removal of approximately 255,000m3 of overburden and approximately 70,000m3 of basalt rock. Some of the overburden and topsoil from the cliff will be used to rehabilitate the existing quarry to the south-east of the Cascade cliff. The final landform is to be agreed with the landowner.’
Annexure A to the PMA prescribed SMEC’s obligations:
‘2.The Consulting Engineer will manage the construction phase of the project and ensure its timely and successful completion to achieve the projects outcomes and objectives.
3.The Consulting Engineer will appoint a person to be project manager. The Consulting Engineer will assist the Cascade Cliff Management Board in its functions to ensure the successful and timely completion of the project in accordance with the project specifications.
4.The Consulting Engineer shall provide general project management services:
•contract administration and supervision including but not limited to:
-     monitoring the compliance by the Contractor with the quality requirements of the specifications;
-     undertaking surveillance of the contractors quality system;
-     release of hold points and issue of corrective action requests as necessary;
-     maintain quality assurance lot registers and compliance records;
-     maintain details records of construction activities;
-     check progress against the construction programme;
-     verify contractors progress claims prior to certification for payment;
-     review and recommend contractors claims (if any) for variation;
-     review and recommend contractors claims for extension of time of the contract period
-     supervision of blast design and execution;
-     monitor and overview of site and public safety procedures;
-     monitor compliance with environmental control requirements;
-     issuing of payment certificates;
-     liaise with clients representative on a weekly basis to keep the client informed of the progress of the works;
-     assist in the preparation of monthly reports for the Cascade Cliff Management Board;
-     provide periodic reports to the client and the Commonwealth Government on the progress of the project;
-     verify closure of work lots as they are completed by the Contractor; and
-     preparation of a final report on the construction works upon completion.’
Clause 1.1 of the PMA provided that, in performing the contracted services:
‘the consulting engineer shall exercise the degree of skill care and diligence normally exercised by members of the engineering profession performing services of a similar nature, in accordance with the ethics [of] the engineering profession.’
Clause 1.2 said:
‘If the Consulting Engineer is required to exercise his professorial [sic] judgement between the Client and a third party with whom the Client has a contract then he shall do so independently and as required by the terms of that contract.’
The remainder of Part 1 of the PMA imposed obligations on the consulting engineer in relation to ascertaining the Administration’s requirements. Part 2 imposed some obligations on the Administration. Part 3 dealt with payment.
Both the CEA and the PMA included, in Part 4, provisions relating to the scope of SMEC’s liability, as follows:
‘4.1     Direct and indirect Loss
The liability of the Consulting Engineer to the client arising out of the performance or non-performance of the services, whether under the law of contract tort or otherwise shall be limited to the cost of rectifying the works which are the subject of the commission.
4.2      Maximum amount of Liability
The maximum liability of the Consulting Engineer to the Client arising out of the performance or nonperformance of the Services, whether under the law of contract, tort or otherwise, shall be the amount specified in Item 9 of the Schedule, or if no amount is specified, $300,000.00.
[No amount was specified in Item 9 of the Schedule of either agreement.]
4.3      Duration of Liability
The Consulting Engineer shall be deemed to have been discharged from all liability in respect of the Services, whether under the law of contract, tort or otherwise, at the expiration of the period specified in Item 10 of the Schedule or if no date is specified on the expiration of one year from the completion of the Services, and the Client (and persons claiming through or under the Client) shall not be entitled to commence any action or claim whatsoever against the Consulting Engineer (or any employee of the Consulting Engineer) in respect of the Services after that date.
[In the case of both agreements, Item 10 of the Schedule read: ‘12 months after the finalisation of the services.’]
…
4.5      Extent of Warranty
The Consulting Engineer does not give any warranty nor accept any liability in relation to the performance or non-performance of the Services except to the extent, if any, required by law or specifically provided for in this Agreement.
If apart from this Clause any warranty would be implied whether by law, custom or otherwise, that warranty is to the full extent permitted by law hereby excluded.
Nothing herein, contained shall be read or applied so as to purport to exclude, restrict or modify or have the effect of excluding, restricting or modifying the application in relation to the supply of any goods or services pursuant to this Agreement of all or any of the provisions of Part V of the Trade Practices Act 1974 (as amended) or any relevant State Act or Territorial Ordinance which by law cannot be excluded, restricted or modified.’
(iii)      The geotechnical assessment
On about 18 May 1998, SMEC provided to the Administration a ‘Geotechnical Assessment’ for the project. The document was signed by two SMEC employees, Patrick MacGregor (Chief Engineering Geologist) and Dan Reeve (Project Manager). It contained the following description of Cascade Cliff:
‘The geological sequence in the Cascade Cliff area is clearly exposed in outcrops on the cliff face, in the rock faces produced by the quarry excavation and in the coastal cliffs to the east and west of Cascade.
There is an essential consistency in the subsurface profile demonstrated by these exposures and supplemented by the information obtained from the exploration drill holes. This consistency can be expected given the volcanic origin of the island.
The cliff face at Cascade is composed of a series of near horizontal layers of material. The horizontallity in the project area is clear in the east-west cliff and in the north-south quarry faces. Further east, outside the project area, a low dip to the east is evident.
The cliff is composed of two rock types - basalt, a crystalline igneous rock that formed by the cooling lava flows and tuff, a deposit of granular volcanic fragments created by ejection from the volcanic vent during explosive phases of the volcanic eruption. The tuff bands contain indistinct bedding. In several cases the upper surface of a tuff layer is irregular, presumably due to erosion during the volcanic eruption, and the basalt lava flow above has infilled the depressions.
The rock mass in the basalt flows contain several distinct types of fracture:
•         Regular columnar fractures
•         Pillow lavas with elliptical units with few continuous defects
•         Jointed rock with dominant sub-vertical irregular joints
The interflow tuff layers have indistinct bedding and practically no jointing.
The review of the cliff face at Cascade has indicated the presence of 17 layers between sea level and the crest of the cliff. For the purpose of this study these layers have been numbered 1 to 17. The layer identification has been used to enable recognition of the different bands.
The sequence exposed is listed in Table 1.

Unit	Layer	Reduced Level		Thickness	Description
From	To	(m)
IV	17	79	84	5	Soil
16	76	79	3	Soil strength weathered basalt
15	72	79	7	Soil strength weathered interflow deposits
14	70	72	2	Soil strength weathered basalt
13	65	72	7	Soil strength weathered interflow deposits
12	62	65	3	Low strength weathered basalt
11	53	62	9	Soil strength weathered interflow deposits
III	10	49	53	4	Low-medium strength weatherflow basalt
9	44	49	5	Very low rock strength interflow deposits
8	39	44	5	Low-high strength partly weathered basalt
7	35	39	4	Very low rock strength interflow deposits
II	6	25	35	10	Very high strength basalt
I	5	22	25	3	Low rock strength interflow deposits
4	18	22	4	Very high strength basalt
3	15	18	3	Low rock strength interflow deposits
2	8	15	7	Very high strength basalt
1	5	8	3	Low rock strength interflow deposits

The 17 layers were diagrammatically illustrated in an appended drawing called ‘Typical geological section’.

In a section of the document called ‘Material Strength’, the authors further described the various layers. They said:
The cliff face at Cascade is composed of 17 different layers as listed in Table 1. For this project the face has been divided into four units numbered I to IV. Each unit is considered to have essentially uniform engineering properties. These properties govern the performance of the cliff face and the amount of remedial works required in the reduction of the risk of slope failure
Unit I, the lowest section of the cliff, includes Layers 1 to 5 and extends from sea level to about RL 25 m. Unit I includes two basalt layers (Layers 2 and 4) and three tuff interflow layers. The basalt flows have an irregular outline and are composed of very high strength jointed rock. Columnar jointing is well developed in Layer 2 near the jetty. The tuff layers are assessed to be of low rock strength with few rock mass defects. Erosion of the tuff has produced some areas of undercutting.
Unit II extends from about RL 25 m to between RL 35 m and RL 38 m and comprises Layer 6, the prominent basalt flow which is the main member of the “Cascade Basalt” and is well exposed throughout the coastal cliffs on the northern side of Norfolk Island. Layer 6 is composed of very high strength basalt with irregular, widely spaced near-vertical jointing which has resulted in a distinct cliff line with a blocky profile. Layer 6 has been the main source of aggregate in the development of Cascade Quarry.
Unit III includes Layers 7 to 10 and extends from about RL 35 m to about RL 53 m. Unit III includes two basalt flows (Layers 8 and 10) and also tuffaceous interflow layers. The basalt flows are partly affected by weathering with rock substance which is assessed to range from low to high strength. There are several areas of close jointing. The tuff layers are composed of granular material which is assessed to be of very low rock strength with few joints. The generally lower strength of this unit is reflected in the surface on this unit where erosion and shallow slumping have produced slope angles close to 50 degrees.
Unit IV extends from about RL 53 m to the crest of the cliff at about RL 84 m and includes Layers 11 to 17. Layers 12, 14 and 16 are relatively thin, composed of weathered basalt which ranges from soil strength to low rock strength. Some relict jointing can be observed. Layers 11, 13 and 15 are tuff interflow deposits which have weathered to soil strength material. Layer 17 is the residual volcanic clay soil that forms the crest of the cliff. The low strength in Unit IV is indicated by the natural slope angle which is generally less than 40 degrees with local areas where it appears that slumping has occurred - presumably following periods of heavy rain.’

In a section on risk assessment, the authors noted the slope angles of each of the four units they had identified. They were as follows: Unit I, >60º; Unit II, >70º; Unit III, 40-50º; Unit IV, 30-40º.
Section 6 of the assessment concerned production of construction materials. It said:
‘The proposed modification of Cascade Cliff will produce:
• Soil, tuff and weathered basalt suitable for use as general fill
• Fresh basalt suitable for processing as aggregate
It is considered that most of the general fill will be obtained from excavation in Units III and IV with some basalt obtained from Layers 8 and 10. Unit II (Layer 6) should be the prime source of basalt suitable for aggregate. The quantity of material involved in the excavation of Unit I will be relatively small.
The survey data indicates that the basalt forming Layer 6 has an outcrop about 180 m long and an average thickness of at least 10 m. Excavation of this layer should produce 1,800 cubic metres of rock suitable for processing per metre width of excavation from the present face.
The minimum excavation required for the slope improvement recommended above would involve removal of a width of about 16 m - a volume of 28,000 cubic metres or about 86,400 tonnes of basalt.
Additional excavation of Layer 6 would widen the Unit I/Unit II bench and thus further reduce the risk of rock fall from Units II, III and IV to the foot of the cliff. The excavated material would provide more aggregate.
It is understood that alternative sources of aggregate on Norfolk Island are limited and the option of maximising the development resource at Cascade is under consideration. The potential for the production of more aggregate may be achieved by the extension of the excavation of Units III and IV within practicable property limits. Removal of the overburden would increase the width of the Unit II/Unit III bench and expose additional Unit II material. This basalt may either be excavated as part of the present project or as required in the future provided that the minimum width of 5 m is retained for the Unit II/Unit 3 bench.’
In a concluding section, the authors set out some recommendations as to bench widths and slope grades. They stated this degree of excavation ‘should produce about 86,000 tonnes of rock suitable for use as aggregate’.
(iv) The Kaipara agreement
In June and July 1998, SMEC advertised for expressions of interest by persons willing to execute the proposed works. SMEC issued tender documents to interested parties. Those documents included a copy of the typical geological section and detailed drawings of the proposed slopes and benches. There were also drawings concerning works at Middlegate, a place about three kilometres south of Cascade Cliff, where it was proposed to dump the non-usable excavated material. The contract documents required this material to be levelled, top soiled and grassed, so as to provide an additional sports area for the adjoining public school.
After an assessment process, SMEC and NIA decided to award the construction contract to a New Zealand company, Kaipara Excavators Limited (‘Kaipara’). Kaipara was notified of the decision on 5 March 1999. On 20 April 1999, NIA and Kaipara executed an agreement, prepared by SMEC, to which were annexed some documents. Kaipara was bound to comply with the agreement (including the annexed documents) in executing the contract works. The annexed documents included ‘Special Conditions of Contract’. Several of those provisions are relevant to this case.
Clause S6 of the Special Conditions of Contract was titled ‘Quality Assurance’. Subclause S6.3 required the contractor to ‘plan, establish, implement and maintain a Quality System in accordance with the Quality System Specification’. Failure to do this was to constitute a default by the contractor under the General Conditions of Contract. The contractor was required to ‘control the work under the Contract for quality in accordance with the Quality System’.
The Quality System Specification (‘QSS’) was attached to the Special Conditions of Contract document. The QSS contained a detailed description of the works, together with some information and undertakings about the supply of materials by NIA. There were sections, called ‘General Requirements’, ‘Environmental Protection’ and ‘Control of Traffic’, imposing detailed work-rules on the contractor. There was also a section called ‘Quality System Requirements’. Clause 3.4 of this section required the contractor to submit to SMEC a written proposal for a Project Quality Plan. Some quality system requirements were specified. They included rules about blasting, effectively making each blast dependent on prior approval by SMEC’s onsite representative.
The QSS included a section called ‘Earthworks’. That section opened with the following description:
‘The work to be executed under this Specification consists of:
(a) removal of topsoil;
(b)general earthworks, which comprises all activities and quality requirements associated with the excavation of cuttings, preparation of excavated surfaces and embankment foundations, the haulage of material and the construction of embankments to the extent defined in the Drawings and Specification;
(c)removal and replacement of any unsuitable material as defined in Clause 4;
(d) any spoil or borrow activities associated with general earthworks;
(e)any additional processing of selected material for the selected material zone; and
(f)removal of material stockpiled under the previous contract, and its use in embankments, selected material zone, verge or spoil.
The Contractor shall undertake all inspection and testing necessary to demonstrate that the quality requirements of this Specification have been achieved.’
Clause 1.8 of the Earthworks section of QSS required the Project Quality Plan to include a ‘Material Management Plan’ that was (by cl 5.2.1) to include, for all earthworks:
‘(a)The excavation sequence and proposals for the management of select, non-select and weathered surface materials;
(b)the preliminary identification of zones of potentially unsuitable materials and the management of the disposal and replacement of the unsuitable materials;
(c)the methods to be employed to ensure that materials of the specified quality are identified and incorporated into the work at the sites where the quality of the material has been specified; and
(d)the methods to be employed to ensure that the higher quality materials are available and used for the upper zones of the formation.’
Clause 5.9 of the Earthworks section of QSS (hereafter simply ‘cl 5.9’) lies at the heart of this case. It provided as follows:
‘All hard, durable rock, excavated from Units 1, 11 and 111, shall be separated from the OTR and stockpiled at the site nominated on the drawings. The rock pieces placed in this stockpile shall be no greater than the following dimensions:
- length          =        900 mm
           - width           =        600 mm
           - height          =        375 mm
where the length is the greatest dimension of a single rock and the width is the largest dimension measured transversally to the length. Any oversize rock pieces shall be reduced in size before placing in the stockpile. The rock extracted from Units 1 and 11 shall be generally larger than 50mm in all dimensions.
The batters of the rock stockpile are to be no steeper than 1.5H to 1 V and trimmed to be relatively even in appearance.’
The ‘site nominated on the drawings’ was in the old quarry.
The acronym ‘OTR’ stands for ‘other than rock’. It will be seen, therefore, that the contract envisaged that all the material extracted from units I, II and III of the cliff would fall into one of only two categories: ‘hard, durable rock’ (which was to be stockpiled in the quarry) and ‘other than rock’ (which was to be taken to Middlegate). ‘OTR’ was intended to include everything but hard, durable rock (‘HDR’), whatever that was.
(v) Execution of the works
SMEC appointed an employee, Richard David Evans, to be its on-site representative during the period of the works. Mr Evans was a qualified civil engineer holding honours degrees in civil engineering and engineering geology from English universities. He had worked with SMEC since 1997.
Mr Evans arrived on the Island on 24 March 1999. During the next day, he attended a meeting of CCMB. During that meeting, James Gary Robertson, who was then the Ministerial representative on CCMB and its chairperson, said to Mr Evans:
‘The airport runway needs to be upgraded in 2003 and we will need to have quality basalt. The method of stockpiling will need to allow access to the quality rock for that purpose’.
Mr Robertson stated in evidence that Mr Evans replied: ‘We can do that.’
Kaipara commenced work early in April 1999, although its equipment barge did not arrive until 13 May 1999.
Notwithstanding cl 3.4 of the QSS, Kaipara never submitted a Project Quality Plan to SMEC. However, on 4 May 1999, Kaipara’s Project Manager, Warren Silich, supplied to Mr Evans, for his comment, a document called ‘Methodology for the Cascade Cliff Safety Project’. This document included the following short section concerning rock excavation:
‘Prior to uncovering rock a survey of all homes/buildings within a one kilometre radius will be done by ourselves possibly accompanied by a local building inspector and insurance assessor.
Rock will be uncovered and excavated from the quarry end of the cliff with the 40 tonne digger and two dumptrucks while the 22 tonne digger and road trucks continues the clay removal. The presplit and main blast will work away from the quarry along the batter as the clays are removed. The ammonium nitrate will be mixed with diesel in a concrete mixer on site and rebagged and stored in a magazine if necessary until use.
Any oversize will be stockpiled and eventually broken with the 40 tonne digger and hydraulic breaker.’
Mr Evans agreed in evidence that this statement of methodology did not ‘specifically deal with how they would separate out … hard durable rock from OTR’. He accepted that no Material Management Plan was ever prepared. He took no action to obtain such a document or a further or better statement of methodology.
Excavation work commenced at the top of the cliff, in unit IV. Unit IV had little high-quality rock. Although rock from this unit was not required by cl 5.9 to be separated from OTR and stockpiled in the quarry, a small quantity of good quality unit IV rock was in fact placed in the quarry. The remainder of the unit IV material was taken to Middlegate. No issue arises out of the excavation of unit IV.
As had been forecast by the geological assessment signed by Mr MacGregor and Mr Reeve, unit III was found to contain a significant quantity of basalt rock. Much of it was soft weathered basalt. However, some of the unit III material was treated as HDR and stockpiled in the quarry. The remainder was removed to Middlegate. In his affidavit, Mr Evans explained how the selection was made:
‘It was Kaipara's role to select the material for stockpiling. My role, as Superintendent's Representative, was to administer the contract. I was not supervising the works. That was Kaipara's role under its contract. I satisfied myself that Kaipara was carrying out its contractual obligations by reference to a sufficiently representative sample of its work. I regularly looked at the material it was excavating and checked whether it was taking the right material to the right place as the contract required. I had to satisfy myself that Kaipara's selection of hard durable rock was reasonable having regard to the nature of the project, resources available on the Island and methods of work.
Whether material was in fact hard durable rock and, therefore, not OTR was a matter of judgment and agreement between the contractor and me. There were no laboratory facilities on the island. It was not practical to set up a testing regime to use as a control to determine what was rock and what was OTR. I had to use a visual assessment. That is a commonly used method in the industry particularly in projects of this nature.
My visual assessment involved first an observation of the blasted rock from nearby, usually from above the blast area as the contractor is [sic] excavator was operating. I also looked at the rock that had been tipped into the stockpile. I also picked up samples of rock and hit them with a geologist's hammer.
When I looked at the material from above the blast area I looked to see the colour of the material. Colour is an indicator of weathering which is in turn an indicator of strength. I was looking to see if the rock was a mid to dark grey. More weathered material is generally darker.
I looked to see if there was a good rock fragmentation in a range of rock piece sizes. By that I mean that I was looking to see that the material has not been converted into dust by the blast.
I also picked up rock pieces and looked to see what mineral decomposition was evident. I then hit them with my geologist's hammer to feel the strength. I also listened to the sound that was made by the hammer on the rock. A ping sound indicates a harder rock. I also considered the number of times it took to split the rock if it was possible to split [at] all.
I used a combination of all of those things to determine whether the rock was hard and durable and should be stockpiled. In making that assessment relied on my study and my experience gained in similar projects.
I understood that the rock that was being stockpiled was intended to be used in construction projects on the Island. Material of that nature is primarily used as aggregate in road base or as concrete aggregate or chip for road seal. In either case, it has to be crushed to a size that is able to be used for that application. Generally, aggregate is no greater than 37.5 mm.
The specification includes a reference rock sizes being generally larger than 50 mm from Units I and II. I had no involvement in the preparation of the specification but did talk to Dan Reeve about it. I took the view at the time that a rock that is less than 50 mm in size but is otherwise hard durable rock is still able to be used as crushable rock to produce aggregate. Similarly, rock fines can also be incorporated in some products.
The selection criteria that was used at the time was whether the material was hard durable rock that was crushable or screenable and capable of being used as aggregate. In those circumstances the material was placed in the stockpile.’
Mr Evans took photographs to illustrate the progress of the works. These are in evidence. They bear dates, although some dates are difficult to read. The photographs taken of the stockpile during the course of the unit III excavation show only grey material that is consistent with there then being no contamination of the stockpile.
Mr Robertson stated that, in late November 1999, he visited the Middlegate site, in company with Mr Evans, at the request of an adjoining owner. Mr Robertson noticed what looked to him to be good hard rock. He said to Mr Evans: ‘It looks like there is some good rock in that fill’.
Mr Robertson said Mr Evans replied:
‘It’s too difficult to sort. Some of it is good and some of it isn’t. I am keeping a close eye on the material that is going to the Middlegate site and the material going to the stockpile.’
Mr Robertson said he was satisfied with this answer.
As predicted by the geological assessment, unit II turned out substantially to comprise very high strength basalt. Mr Evans treated this material as ‘hard, durable rock’. Once again, there is no reason for believing the quarry stockpile – which was considerably augmented during excavation of unit II – became contaminated at that time.
The excavation of unit I commenced about the end of February 2000, apparently at its western end. By this time, Kaipara was well behind its initial works schedule, which had fixed 23 December 1999 as the date of practical completion of the whole project. In a progress report to NIA for the month of February 2000, delivered on 13 March 2000, Mr Evans stated he had granted extensions of time totalling 34 days; but this took the date of practical completion only to 10 February 2000. In the following progress report to NIA, dated 10 April 2000, Mr Evans reported further extensions, taking the total to 52 days. The report stated that Kaipara ‘is about eleven weeks behind on the overall excavation’. He said Kaipara was late starting the main excavation of unit II and projected that, by completion, the main excavation works would be 12 weeks late. The contract between NIA provided for penalties for late completion of the works.
It is common ground between the parties that there was no substantial blasting of the western end of unit I, where the rock was weathered and able to be mechanically excavated. It is also common ground that the eastern half (approximately) of layers 4, 3 and 2 (all in unit I) were blasted, top to bottom. However, thereafter, there is a major issue in relation to the excavation of unit I. NIA says the eastern end of unit I was blasted in such a manner as to cause extensive intermingling of the basalt rock in layers 4 and 2, which was ‘hard, durable rock’, and the low strength interflow deposit in layer 3; this intermingled material was added to the HDR quarry stockpile, causing it to become contaminated with OTR. Although SMEC concedes that some OTR ended up in the quarry stockpile, it claims the degree of contamination was minimal and well within the margin of tolerance usually accepted by engineers.
I will later examine the evidence concerning the method of excavation of unit I and the content of the stockpile.
According to Mr Evans’ progress report for the month of May 2000, delivered on 2 June 2000, Kaipara completed the main earthworks (including excavation of unit I) on 13 May 2000. There was still some work to do and Mr Evans estimated practical completion would occur in the first week of June. On this estimate, the job would finish about 13 weeks late. Mr Evans left the Island on 4 June 2000.
Mr Reeve certified practical completion on 1 June 2000. However, Kaipara was still finishing its work. It was not until 2 July 2000 that John Cowie, Kaipara’s site manager, left Norfolk Island.
(vi) The Island Industries crushing contract
Island Industries Pty Limited (‘Island Industries’) is a company controlled by John Brown, a solicitor who carries on practice on the Island. Mr Brown is, and at all material times has been, a member of the Norfolk Island Legislative Assembly. Prior to commencement of the Cascade Cliff project, Island Industries had excavated rock in the Cascade Quarry and carted it to a site in Stockyard Road where it crushed the rock for aggregate. The plant operated by Island Industries was the only crusher on the Island, so the Administration had purchased all its required aggregate from that company.
Island Industries was not directly involved in the Cascade Cliff project. However, as might be expected, Mr Brown took an interest in it. It seems he became concerned about the possibility of contamination of the HDR stockpile. On 30 December 1999, Mr Brown wrote a letter to Mr Robertson, on Island Industries’ letterhead, in which he said:
‘I observed that a considerable quantity of material has been placed on Portion 5a. There did not appear to be a separation of first grade rock from second grade rock and other material, but I appreciate that a casual observation from a distance of several hundred metres might not have been reliable.
Are you able to advise as to the following:
1.Is an independent quality control person on hand at all times to check that rock which is placed on Portion 5a is no larger than the maximum size which is prescribed by the contract?
2.Is first grade being separated from second grade rock and other material?
Island Industries is concerned at the possibility that oversize and second grade rock might cause significant difficulties when we resume crushing operations.’
Portion 5a is the land containing Cascade Quarry.

In his affidavit, Mr Robertson gave this account of a conversation he had with Mr Evans at a meeting on 7 January 2000:
‘I said:
“I have received a letter from Island Industries complaining about second grade rock going into the stockpile. Is dirt or second grade rock going into the stockpile?”
Evans replied:
“I keep an eye on it and undertake regular inspections of the rock going to the Stockpile. The rock going onto the Stockpile is good quality clean rock.”
Either at this meeting or at a meeting with Evans at about the same time I said to him words to the following effect:
“We need good clean rock for the Airport Runway Upgrade.”
Evans said:
“There will be a mix in the rock quality but the good rock for the Upgrade will be in the middle of the stockpile and will be generally separated from the other rock.”’
Following that meeting, on 10 January 2000, Mr Robertson wrote to Mr Brown as follows:
‘I have made enquiries of the Resident Engineer and he has confirmed that crushable quality rock is being separated from other materials. Although not technically qualified to make an accurate assessment, I have also viewed the rock stockpile and thought it looked of good strength and size. It is likely that you have observed the specifically set aside pile of oversize rock which is waiting to be broken.
In relation to the questions posed in your letter, I advise as follows:
1.Is an independent quality control person on hand at all times to check that rock which is placed on portion 5a is no larger than the maximum size which is prescribed by the contract?
Response:
The Resident Engineer undertakes regular checks of the rock being stockpiled in portion 5a.
2.Is first grade being separated from second grade rock and other material?
Response:
Yes. Rock thought unsuitable for crushing has not been stockpiled on portion 5a. It has either been used in the re-construction of the Ball Bay Road, taken to Middlegate as fill, or stockpiled on Cascade Reserve or Middleridge.’
Apparently this letter did not fully allay Mr Brown’s concerns. Mr Evans wrote a letter, dated 1 April 2000, to Alma Davidson, an Administration employee who was secretary of CCMB, in which he said:
‘As discussed at previous Board meetings, and elsewhere with the previous Minister, Gary Robertson, we did experience a higher fines content from the Unit 2 rock taken from the western end of the cliff. However, in my opinion this still had a high rock content. We considered it wasteful and unnecessary to discard.
I have further spoken to Mr Brown on the matter. He clarified that he is more concerned about the inclusion of “second-grade” rock. This basically means rock that has been affected by weathering, reducing the strength. Whilst it is inevitable that some of this type of material will have been placed into the stockpile, we think this will be in minute quantities. 1 would be very surprised if it was not reserved to the occasional block of rock, rather than whole truck loads.
As you are aware, a significant quantity of second-grade rock was placed on Cascade Reserve for use by the Administration at a later date. Also, a further amount was taken to Ball Bay for the road re-construction. Bearing in mind the practicalities of this exercise, I consider that the Contractor has performed well in keeping the different grades of material separate. We have always been very conscious of not wasting rock, as it is clearly in short supply on the Island. However, this approach has not been followed at the expense of rock quality, which is why so much material was discarded on Cascade Reserve and made available for the Ball Bay road re-construction.’
It had apparently been intended that Island Industries would purchase unprocessed rock directly from the quarry stockpile. Ms Davidson spoke to Mr Evans about that matter and, on 26 April 2000, Mr Evans wrote to her suggesting the Administration purchase a weighbridge and locate it nearby. This was done.
It was also decided some rock would be crushed in the immediate vicinity of the quarry. In about July 2000, the Administration called tenders for carrying out a temporary rock-crushing operation using a crusher to be located near the stockpile. Although a number of other persons and companies put in tenders, NIA decided to award this contract to Island Industries. No suggestion has been made that it acted improperly or unwisely in deciding to do this.
The crushing contract between NIA and Island Industries is not in evidence. However, the parties accept that it incorporated the tender documents, which are in evidence. These require the successful tenderer to produce up to a maximum of 40,000 tonnes of crushed rock product, as specified in a schedule of rates, during a maximum period of six months. The tender documents described the rock to be crushed in the following way:
‘The Principal [NIA] has approximately 160,000 tonnes of high and very high hardness basalt of variable gradings available for crushing stockpiled on the Stockpile Site, immediately to the east of Cascade jetty. Maximum rock size is 375mm x 600mm x 900mm. Access to the Stockpile Site will be via Cascade Road and the track to the east of the jetty along the foreshore to the Stockpile Site. The track to the Stockpile Site is only wide enough for one vehicle at a time.
The haulage distance from the Stockpile Site to the Site is approximately 500m.
Rock will only be removed from the area at the top of the stockpile as agreed with and marked by the Principal. No rock will be taken from any other place, including the foreshore. No rock (other than the crushed rock product of rock removed from the Stockpile Site) will be taken or removed from the Site.’
The crushed rock was to remain the property of NIA.
(vii) Concern about rock quality
Island Industries commenced rock crushing, pursuant to the contract, on 16 October 2000. Almost immediately, it raised concerns about the rock, apparently complaining it was not as represented in the tender documents.
On 20 October 2000, a meeting was held alongside the rock stockpile in the quarry. It was attended by Mr Brown and by representatives of the Administration, including the relevant Minister, Geoff Gardner, and Ms Davidson. Ms Davidson made the following minute of the meeting:
‘This meeting was arranged due to the allegation that rock in the stockpile was too large for crushing.
On inspection the following problems were noted. -
•A great deal of the rock appears to be larger than that specified in the specifications for the project, namely 900mmx600mmx375mm
•         There is substantial soil amongst the rock
•         There is second grade rock (not basalt)
The Superintendent's Representative for the Crushing Operation has been requested to take photographs of the stockpile which clearly show the above.
These issues will be drawn to the attention of the Project Manager, SMEC Australia Pty. Ltd.
****
The size of the rock purportedly in the stockpile is also specified in the Tender Specifications for the Temporary Crushing Operation on the Whaling Station site.
The problems which are foreseen for the performance of this contract are:
•The excavator is having to sort rock to obtain crushable rock. This process is achieving only ten tonnes per hour.
•The excavator is sorting large rocks and non-basalt rock into different stockpiles
•The crusher operator has advised that the new crusher to arrive is capable of crushing 50 tonnes per hour
•The amount of dirt amongst the rock will have an adverse impact on the quality of the crushed product
•         There will be a need to take a rock breaker onto the stockpile site
•The neighbour, Mr Forrester, will need to be advised of the need to use the rock breaker.’
In her affidavit evidence, Ms Davidson verified the minute and described what she saw at the time of the meeting:
‘This inspection was the first occasion upon which I had made any close inspection of the Quarry stockpile. During the progress of the Works on several occasions I viewed the stockpile from above the Quarry but not from within the Quarry. I had not viewed the Quarry at all after the completion of works by Kaipara.
At the inspection I observed a significant number of individual pieces of rock that appeared to be larger than the measurement of 900mm, which I then recalled to be the largest dimension that the specification allowed. I also observed rock with overall dimensions greater than 900mm by 600mm by 375mm. I observed rock in the stockpile that was not hard basalt, of the kind that I had seen over a period of many years throughout Norfolk Island. Whereas hard basalt is grey in colour, what I saw in the stockpile included rock and other material that was brown or pink in colour, some of which had holes in it.
There also appeared to be substantial quantities of material with the appearance and consistency of soil in the stockpile that was brownish in colour and capable of being compressed or stuck together in the hand.’
Ms Davidson said she was very concerned by what she saw. She thought there had been a departure from the terms of cl 5.9. For that reason, when she wrote the meeting minute, she attached to it a copy of cl 5.9 and asked Mr Gardner to sign the minute.
During 11 and 12 December 2000, representatives of NIA, SMEC and Kaipara together inspected both the Middlegate site, in relation to which NIA was seeking some drainage rectification work by Kaipara, and the rock stockpile and held a meeting in the office of the Administrator. According to Ms Davidson’s minute of the meeting, both SMEC and Kaipara denied there was dirt in the stockpile. Mr Reeve said the material classified as dirt was in fact fines; i.e. small basalt fragments. A representative of Kaipara maintained ‘there is 100% of usable material in the stockpile’. Although it was admitted ‘there are oversize rocks in the stockpile’, their proportion was claimed by Kaipara ‘to be less than 0.5%’. It appears from the minute that Mr Reeve said SMEC would ‘provide a second advice as to the quantity of rock in the stockpile for calculating royalties’, while a Kaipara representative promised that Kaipara would ‘develop a profile of the rock stockpile’. Ms Davidson said in evidence that, to her knowledge, Kaipara never did this.
On 19 December 2000, Mr Reeve wrote to Ms Davidson saying SMEC estimated that the stockpile contained 163,000 tonnes of rock. He made the following observations about the nature of the material:
‘The stockpiled rock is variable in particle size distribution and this may be quite distinct in some areas of the stockpile. Some areas will be made up of larger rocks that have been broken down by the rock hammer into blocks. Other areas will be areas of finer material (100mm minus), but most areas will be generally mixed from rock dust to large blocks. As the material was excavated by drill and blast techniques and with the nature of the basalt rock from the cliff, quite a varied range of rock sizes were produced with each blast. The larger rocks were put to one side for later breaking down to size while the rest was placed in the stockpile.
The best quality rock was won from the centre of Unit 2 (ie. the large band of basalt that can easily be seen in the face of the cliff). The larger sized rocks from this area were broken down using rock hammers and this has been stored at the front of the rock stockpile on the area of the Youngs Road Reserve. The other rock in the stockpile from Unit 2, is generally in the middle layers of the stockpile. This better quality rock will be needed for crushing to allow construction of the airport runway overlay.
Generally only hard durable rock was put into the rock stockpile. Rock of lessor quality was either sent with the overburden to the embankment fill site at Lot 44A Middlegate, or stockpiled at the top of Youngs, Road. An amount of rock fines will be found in the rock stockpile matrix, but finer sized rock particles are a normal part of the rock excavation process. When processed by the crushing plant, these smaller rock particles will form the finer fraction of the rock grading as required for road-base and concrete aggregate specifications. This material should not be wasted, as it is rock that has already been broken down through the drill and blast, and excavation process. A good crushing and screening plant can handle the range of rock sizes that have been stockpiled on the old quarry site.’
Shortly after this letter, the Administration received from Island Industries a series of consultants’ reports about the material in the quarry stockpile. An engineering consultant to Island Industries, Martin Cooper of Ridgmill Pty Ltd, had visited the Island in October 2000. He had become concerned about the quality of the HDR stockpile, the source material for the crusher. Mr Cooper again visited the Island between 18-20 January 2001. In a report dated 25 January 2001, Mr Cooper expressed the opinion that there was ‘serious contamination of the source rock with soil, clay, substandard rock etc’. Indeed, he thought there was ‘little difference’ between the OTR material at Middlegate and the material in the rock stockpile.
After his October visit, Mr Cooper had retained Bowler Geotechnical Pty Ltd, a Queensland company, to advise about the quality of the stockpile material. Mr David Bowler, managing director of that company, is a geotechnical engineer who worked for some years on major construction projects, in Australia and overseas, before establishing his own company in 1990. Mr Bowler has been responsible ‘for overall direction of the geotechnical engineering and materials testing operations of the company, which has expanded to support over 90 professional and technical staff in ten offices/laboratories in Queensland and two overseas countries’.
Mr Bowler visited the Island and inspected the stockpile with Mr Cooper on 18 January 2001. He took a number of photographs. In a report, also dated 25 January 2001, Mr Bowler stated:
‘•The re-graded Cascade Cliff, which was the source of crusher feed material, was inspected. The exposure showed very clearly that two distinct types of material would have been produced by the quarrying operation; hard, relatively fresh, fine grained, grey basalt, and a weak, highly weathered, brown and grey tuff ...
…
•The stockpile of crusher feed material produced as part of the Cascade Cliff regrading project was inspected. The material exposed in the stockpile comprised of sound, hard, fresh basalt cobbles and boulders, as mantle about 1m or so thick over the stockpile, with the internal material much more variable ... It included some zones of coarse, hard basalt cobbles and boulders, but also a significant proportion of much finer material, comprising weak, highly weathered fragments and plastic silt and clay fines .. . There was also a significant proportion of “oversize” material in the stockpile ... Oversize was defined in the contract as being a boulder greater than 375mm x 600mm x 900mm in any one dimension.
•The operation involved in obtaining rock from the stockpile and transporting it to the crusher was observed. Because of the weak finer fragments and clay material included between the coarser hard basalt material, it was necessary to undertake a rough pre-screening process at the stockpile prior to loading better quality material in trucks and transporting it to the crusher.
A screen/bucket attachment to an excavator at the stockpile initially handled the material by agitating each scoop in the screen/bucket. The material finer than say 150mm fell through the screen and the remaining coarser material was placed in a separate stockpile. Once sufficient coarser material had been obtained by this process, the coarse material was loaded and trucked to the crusher. A separate excavator was working to move material to within reach of the excavator with the screen attachment so that the better quality material screened off could be stockpiled at a location able to be more easily loaded into trucks ...
The stockpile was constructed in an area of limited size, which created difficulties in terms of dealing with the finer material produced by this pre-screening operation at the stockpile. Once a truck load of the finer material had been screened off, it was then necessary to move this material to a temporary storage area down near the crusher to allow sufficient room to keep working at the stockpile.
It is understood that it is the intention that a second pre-screening operation is to be carried out on this fine material to try and recover any sound, hard basalt.
The oversize material encountered in the stockpile was being selectively removed and placed together in the separate stockpile. Once a particular amount had accumulated, these were then broken down by rockbreaker to sizes that could be handled by the crusher.’ (Photograph references omitted.)
Mr Bowler’s reference to material finer than 150mm falling through the screen seems to be an error. The evidence is that the Island Industries excavator, that was working on the stockpile at that time, had a bucket with 100mm apertures.
After referring to relevant documents, Mr Bowler offered this assessment of the problem:
‘The contract documents, both for the quarrying operation and the crushing operation, refer to the material that was supposed to be stockpiled for crushing as basalt rock.
The specification for the quarrying refers to "basalt rock" being placed in the stockpile, as opposed to the “OTR” being placed at Middlegate. The inspection of the exposed cut at Cascade Cliff shows a very clear demarcation between the hard, durable grey basalt flows and the highly weathered tuff interflow deposits. It is clear that the intention of the specification writer was that the hard durable basalt be "selected" and separated by the quarrying contractor from the tuff before hauling the basalt to the stockpile.
The crushing contract specification indicates that the crushing contractor would have “high and very high hardness basalt” to crush. It is clear from the work done that a high proportion of highly weathered weak material also exists in the stockpile.
The observation of the winning and loading operation at the stockpile emphasised the inefficiencies that were introduced into their operation because of the necessity to selectively work the source material.
The oversize has to be excluded from the stockpile and placed in a separate pile for later breaking up by a rockbreaker.
The finer material has to be coarse screened to remove fines. The retained coarser rock then has to be stockpiled separately until enough is won to load a truck to carry it to the crusher.
Because of the limited area available at the stockpile, the screened out fines have had to have been loaded and trucked to a space nearer the crusher. This material will be screened at a later date (using a 25mm screen especially imported for the process) to try and recover good quality sound basalt fragments for further processing.
What this means in sum is that the process required to obtain suitable feed for the crusher is much less efficient and more time consuming than it would have been if sound “hard and very hard” basalt only had been placed in the stockpile.’
At the hearing of this case, Mr P White, solicitor for NIA, read an affidavit by Mr Bowler that confirmed the observations and opinions set out in his report. Mr Bowler was then cross-examined.
In coming to his initial conclusions, Mr Bowler had had the benefit of a report from a petrology and geochemistry consultant, Dr A S Joyce of Geochempet Services, a Queensland firm. Dr Joyce had not inspected the quarry stockpile. However, he had visited Norfolk Island, on holiday, about one year earlier. He had observed the work being performed at Cascade Cliff. In his report, Dr Joyce made the following general comment about it:
‘Based on examination of the supplied sample, on personal observations made of the Cascade Cliff area on Norfolk Island about a year ago and on information contained in a SMEC Geotechnical Assessment prepared in 1998 for the Government of Norfolk Island, it is my opinion that the supplied raked residue (finer than a nominal 100 mm and actually finer than about 50 mm) consists of roughly equal amounts of robust, essentially unweathered basalt analogous to that obtainable from Layer 6 of Unit II and from some other layers (such as Layers 2, 4 and 8 of Units I and III) and weak, weathered or otherwise argillized basalt rock fragments and related free mineral grains analogous to material derivable from the various interflow deposits (such as Layers 1, 3, 5, 7, 9 of Units I and III) and/or from weathered basalt layers in Units III and IV).
The brown colour of the sample is attributable partly to bright brown iddingsite (a deuteric mineral liberated and probably from interflow fragmental basaltic deposits and possibly from weathered basalt) and partly to yellowish to pale brown clay (liberated from weak, argillized and/or weathered interflow deposits and perhaps from weathered basalt layers).’

Before making his January 2001 report, Dr Joyce had been supplied with a sample that he described as follows:
‘The sample consisted of several kilograms of greyish brown, fragmented basalt with particle sizes ranging from clay size to a maximum intermediate diameter of about 50mm. It is understood that the material was generated as the fine residue of quarried material which had been raked to remove fragments coarser than about 100m. The quarried materials were sourced from Cascade Cliff, Norfolk Island. A crude sieve test of a dry subsample of about 800g indicated no less than 14% finer than 0.300mm, around 17% between 0.300 mm and 1.18 mm and around 69% between 1.18m [sic: mm] and 50mm.
Dr Joyce washed the coarse fraction ‘to remove adherent brownish fines’ and examined it microscopically. He said:
‘It was found to consist of essentially dark grey fragments of finely crystalline basalt. Some have essentially angular shapes, but many are subangular or even subrounded. Being grey, the fragments do not look particularly weathered, but many of them are sufficiently weak to allow them to be broken using fingers and finger nails only. A grab sample of 53 fragments was tested with the following results:
60% robust, grey basalt fragments
40%grey basalt fragments sufficiently soft and weak to be broken by fingers and nails alone’
The medium size fraction was also examined and analysed, with similar results except that Dr Joyce also found ‘some free mineral particles (some whitish and others brown iddingsite)’. Dr Joyce described the fine material in this way:
‘The fine fraction is brownish, but in detail consists of a variety of free mineral grains. The brown colour seems to be attributable mainly to liberated iddingsite. Not much details can be discerned using low power binocular microscopy.’
In his affidavit evidence in this case, Dr Joyce summarised his findings in this way:
‘The grab sample of 53 fragments to which I refer on page 1 of my Report was selected at random by hand from the sample I had been given. The grab sample did not include material finer than about 5mm; some pieces were as coarse as about 50 mm in size.
In my opinion the material represented in the sample supplied to me consisted essentially of basalt. In detail some of the material consisted of hard, robust basalt, a similar amount consisted of soft, weak, weathered or otherwise argillized (clayey) basalt and more than 14% of the material consisted of free mineral grains derived from basalt. The soft, weak fragments of basalt could be broken by fingers and finger nails; such basalt could also be readily crushed by tweezers. Whilst both types of rock fragments are essentially grey, a brownish colour is imparted to the bulk sample because of the presence of iddingsite, a brown mineral, present not only within the rock fragments, but also as a dusting of free mineral grains.’
Dr Joyce was not required for cross-examination.
(viii) Development of the dispute between NIA and SMEC
Ms Davidson notified Mr Reeve of this new material. A meeting was arranged. In preparation for the meeting, Michael Johnston, NIA’s Acting Works Superintendent, made a 16 minute video of Island Industries’ operations at the stockpile. The video, which is in evidence in this case, confirms Mr Bowler’s description of those operations. It demonstrates that the stockpile contained a considerable proportion of fine material, some of it apparently very fine, that fell between the 100mm-wide apertures in the bucket of the excavator. Ms Davidson was not present when the video was taken but she visited the quarry on 3 February 2001, when she observed activities similar to those depicted in the video. In her affidavit, Ms Davidson said:
‘In particular, I observed the composition of the material in the Quarry stockpile. By this time a portion of the material in the stockpile had been treated by being passed through apertures in the bucket of an excavator as shown on the video. There was an obvious difference between the sorted rock, and the balance of material that had passed through the apertures in the bucket. The sorted rock was clearly hard basalt although not necessarily clean of soil. The balance of the material was small pieces of rock and material the appearance and consistency of soil.’
The video was shown at a meeting, in Sydney on 9 February 2001, that was attended by representatives of NIA (Ms Davidson and NIA’s Crown Counsel, Trish Cowles) and SMEC (including Mr Reeve). Ms Cowles complained that the stockpile was contaminated with OTRs. SMEC took the position that the fine material was not OTR but basalt ‘fines’; that is, small particles of hard, usable basalt. It was agreed that SMEC would commission a report from an independent expert.
In a letter dated 12 February 2001 to Mr Reeve, Ms Cowles summarised the issues raised at, and outcomes of, the meeting:
‘1.[NIA] is concerned that a significant portion of the stockpile processed to date has included other than rock material (OTR material). At the time of the meeting approximately 1/6^t^hof the stockpile processed was considered to be OTR material.
2.[SMEC] suggested that with different crushing equipment it would not be necessary to separate rock from fines and that the fines were an important addition to rock particularly as Norfolk Island does not have a lot of sand to add to mix. SMEC indicated that Island Industries showed a preference for crushing larger pieces of rock and^, that this increased the amount of OTR stockpiled (in comparison to other crushing operations),
3.[NIA] considers, however, that the OTR material consists of material other than fines. A significant portion of the OTR is reddish brown in appearance which is not consistent with it being basalt.
4.SMEC suggested that it is possible that a seam of compressed volcanic ash had been included in the stockpile. Pictures of the cliff face (both prior to and after works) were shown which showed a reddish brown seam in the lower cut of the cliff. This material may have been included in the stockpile. There do appear to be other such seams in the cliff face.
5.[NIA] is concerned because the contract required Kaipara to separate all hard durable rock from OTR and stockpile the two amounts separately. The Administration would accept a minor differential but the quantities the Administration had seen to date indicated the amount of OTR is significant.
6.[NIA] needs to know how much more of the OTR is present and what can be done about any claims against the Administration in relation to amounts already processed.
7.It is very important that the quantities of OTR are carefully estimated because:
►The Administration's contract with Island Industries is consistent with the tender documents for the Cascade Cliff Project. That is, the Administration has contracted with Island Industries that the rock stockpile is a stockpile of hard grade basalt. Any variations to this may result in variations to the contract and contract price. Island Industries already has a claim with respect to variations arising out of the amount of OTR; and,
►Kaipara were paid on a schedule of rates basis and were paid an amount for 158 000 tonnes of rock. Royalties have also been calculated on this basis. It may be necessary to calculate variations to the quantity of rock for these purposes.
►Concerns have been raised by the Airport Manager about the effect of OTR material being present in the stockpile on the Airport's requirements for high grade basalt for the runway.
…
8.SMEC agreed that the best thing to do would be to arrange for an independent engineer to attend the site and to obtain samples of OTR to establish what is the content of the OTR. It was agreed that the engineer should be independent of SMEC, but that SMEC would be the engaging party.
9.In addition, in December 2000, Kaipara agreed to produce a profile of the stockpile. The profile has not been forthcoming. SMEC also agreed that Richard Evans would be able to prepare a profile based on his records. The profile will be useful for present purposes but will all assist the Administration in meeting its longer term needs for rock. At the meeting [it] was agreed that SMEC would follow this up with Richard Evans as soon as possible.
10.[NIA] has asked that the inspection be carried out as soon as possible as claims have already been made. SMEC agreed to this, and you indicated that you would write to follow up on the discussion.’
SMEC recommended and engaged Douglas Partners Pty Ltd of Sydney (‘Douglas Partners’) to undertake an assessment of the stockpile.
Grahame Wilson, is an engineering geologist with degrees in applied geology, at both Bachelor’s and Master’s level, from the University of New South Wales. He has had over 30 years experience in civil engineering. He is a principal of Douglas Partners.
In late February 2001, Mr Wilson travelled to the Island and inspected the quarry stockpile, the materials at Island Industries’ crusher, near the whaling station site, and material at Middlegate. He took some samples for later examination by Dr B J Barron, a Sydney petrologist. Mr Wilson had the benefit of reading Dr Barron’s report on her analysis of the sample before writing a report (‘the Douglas report’) that was dated April 2001. The Douglas report contained the following summary:
‘The principal conclusions and findings of the site inspection, laboratory testing and petrological assessments are that:
•the Main Stockpile is composed of generally very high strength fresh and high to very high strength, slightly weathered basalt suitable for aggregate production.
•material suitable for aggregate production has been estimated to have totalled 152 000 tonnes compared to the 158 000 tonnes reported by SMEC in the Final Construction Report. It is noted that this quantity may increase as a result of the reported zones of 'single size' material formed by breakage of over-sized materials, but now generally buried within the stockpile and unavailable for close assessment.
•there is a component of clay and very low strength to high strength, highly to slightly weathered and altered basalt, which directly, or as a contaminant in the finer stockpile size ranges, results in an estimated 6% to 7% of the Main Stockpile being regarded as unsuitable for aggregate production.
•the acceptable percentage of ‘secondary rock’ within stockpile is considered to be a function of the specification of the required product and the efficiency of the processing plant to handle the feed material. The Main Stockpile is required to provide source material for a wide range of products ranging from road base to concrete and sealing aggregates. It is considered that a 10% component of “secondary rock” would be a reasonable value.
•if additional equipment was included to process scalped product, together with associated investigation of the quality, a higher included `secondary rock' component may be acceptable.
•the term OTR used at the site describes material passing the 100 mm sieving bucket. Usual practice is that soils and weathered rock profile unsuitable for production of aggregates would be described by this term.
•the OTR stockpiles are also composed of predominantly very high strength, durable basalt materials, but with an increased proportion, assessed as approximately 30%, of material regarded as unsuitable for aggregate production, although additional processing may increase the utilisation of the material, particularly for subbase or base course use.
•the Main Stockpile includes over-size material estimated to comprise less than 1% of the total. This proportion is within the range of general quarry industry practice.
•industry practice is to generally describe particle size in relation to the maximum particle dimension. Rock pieces for selected uses (eg. rock armour) are however described by three dimensions.
•the inclusion of, at least, additional screening facilities is suggested to maximise the utilisation of the resource currently within the Main Stockpile and OTR stockpiles.
•prior to inclusion of additional screening plant, the utilisation of the Main Stockpile could be improved by more careful working ensuring that durable coarse material is not placed in the OTR stockpile.’
While the Douglas report was being awaited, NIA was in negotiation with Island Industries concerning Island Industries’ claim for compensation arising out of the alleged misdescription, in the crushing contract tender documents, of the quarry stockpile material. NIA agreed to pay Island Industries an additional sum of $134,495. This comprised plant, machinery hire and cartage ($84,495) and ‘contract compensation’ ($50,000). On 3 May 2001, NIA and Island Industries executed a deed of release whereby NIA agreed to extend the time for completion of the rock crushing operations and to pay $134,495 compensation and Island Industries agreed to release NIA ‘from all current or past claims or demands’. According to Ms Davidson, NIA subsequently paid additional compensation to Island Industries, also arising out of contamination of the rock stockpiled in the quarry.
On 7 May 2001, there was a further meeting in Sydney between representatives of NIA and SMEC. Mrs C E O’Sullivan, then chairperson of CCMB, claimed the Douglas report vindicated NIA’s complaints regarding contamination. Mr Wilson was contacted by conference telephone call to obtain clarification of the report. According to Ms Davidson, in answer to a question from Ms Cowles about the dimensions of rock in the quarry, Mr Wilson said: ‘30% of the material was below the range of 9.5 – 13.2 mms but that only applied to material ‘that could be seen’.’ At the meeting, the settlement with Island Industries was discussed. However, it appears that no substantive agreement was reached about any matter. SMEC agreed to consider the issues raised and, in particular, to advise as to whether a claim should be made against Kaipara.
Mr Reeve prepared a report for the SMEC board of directors. On 16 May 2001, he sent a copy of the report to Ms Davidson. The report summarised NIA’s concerns as follows:
‘1.The Administration considers that a significant portion of the rock stockpile processed to date has included OTR material, and as at the 9 February 2001, the OTR content of the stockpile was estimated at approximately 1/6^th (17%) of the rock stockpile.
2The Administration considers that this “OTR” consists of material other than rock fines and that a significant portion of the OTR is not consistent with basalt.
3.The Cascade Cliff Safety Project construction contract required the contractor to separate hard durable rock from OTR. The Administration accepts there will be a minor amount “OTR” in the stockpile but consider there is currently an excessive amount of OTR in the stockpile.
4.The Administration is concerned about the basis of the royalty calculations and the estimated amount of rock suitable for aggregate production in the stockpile.
5.The Administration is also concerned with the quality of the material remaining in the stockpile, especially with the future airport runway contract in mind.
6.The Administration has a separate crushing contract consistent with the specifications for the cliff contract. As a consequence of what is in the stockpile and as a consequence of the way it was described in the specifications, the present crushing contractor and any future crushing contractor will be required to filter the dirt / OTR and the Administration has and will incur further extra costs.
7The Administration feels that as a consequence of nature of the material that is in the stockpile, and as a consequence of the way it was described in all relevant specifications, the Administration were exposed to a fairly significant claim from the current crushing contractor, Island Industries. This claim has since been settled on a commercial basis. The Cascade Cliff Management Board on behalf of the Administration believes that there may be a claim for damages and variations against the Cascade Cliff Safety Project contractor, Kaipara Excavators Limited arising out of what is being called OTR.’
Mr Reeve discussed all these issues. Effectively, he rejected all of NIA’s concerns. It is not necessary to set out all his comments. However, it may be helpful to record his reaction to the first identified concern:
‘The Administration’s and the crushing contractor’s definition of “other than rock”, is incorrect.
This term has been incorrectly attributed to any rock or material that has passed through the sieving bucket (or root rake) of the crushing contractor. As stated in the report by Douglas and Partners, the term “OTR” should be reserved for clay and weathered rock unsuitable for production of a finished product. This is the definition accepted throughout industry and SMEC suggest that the Administration do not confuse rock fines with “true” OTR.
Based on the independent investigations by Douglas Partners, the percentage of actual OTR (i.e. material unsuitable for the production of aggregate - not just material that passed through the crushing contractors sieving bucket) is estimated less than 6% to 7%. This cannot be directly compared with the 17% claimed by the crushing contractor because they have very crudely scalped off rock pieces only greater than about 100 mm, effectively wasting smaller rock. Rock fines are a normal part of rock that has been blasted and should not be confused with OTR. No one has ever denied that fines were not a normal part of rock produced by blasting, as noted in our letter dated 1 April 2000 ... The removal of fine material from the overall rock matrix is normally undertaken as part of the crushing and screening process and not as part of the bulk excavation works. The crushing contractor would normally allow for some double handling of material in order to produce the aggregate to the specified standards, as is the normal industry practice.
SMEC Australia would also like to point out that the claimed amount of 17% OTR has not been independently verified.’
NIA did not accept Mr Reeve’s response. On 31 May 2001, NIA issued to SMEC and Kaipara a notice of dispute, pursuant to the PMA, and required that the dispute be resolved by arbitration. The claim was particularised in a schedule to the notice.
There were subsequent discussions between the parties. However, no substantive agreement was reached. There was not even an agreement about appointment of an arbitrator.
(ix) The Middlegate dispute
During the course of these discussions, NIA decided to investigate the nature of the material that had been dumped as fill at Middlegate, and subsequently top-soiled and grassed. Ms Davidson supervised the excavation, on 8 July 2002, of five test pits, each to a depth between one and two metres. The surface area of the pits ranged from 7.48 square metres to 16.64 square metres. Ms Davidson found that holes 2 and 3 contained little rock but there were significant quantities of rock in holes 1, 4 and 5. At her request, Mr Johnston removed and weighed the larger pieces of rock in each hole. He reported rock volumes ranging from totals of 13.46 tonnes (in hole 2) to 47.42 tonnes (in hole 4). Photographs of the excavated material were taken.
NIA’s solicitor advised both SMEC and Kaipara of the results of the test pits. NIA retained Coffey Geosciences Pty Ltd (‘Coffey’) to undertake geophysical testing of the Middlegate site. Dr Bob Whiteley, a senior principal geophysicist with that company, and Chris Henry, a geophysicist, undertook an investigation, the stated purpose of which was ‘to determine whether significant quantities of rock are present in the fill and to provide estimates of rock quantities’. Dr Whiteley’s investigation involved magnetic testing (based on the fact that basalt rock is more magnetic than tuffaceous waste and soil overburden), gravity testing (rock is denser than compacted or uncompacted waste or soil overburden) and resistivity testing (rock is more electrically resistive than waste and soil overburden). Rock samples were taken and analysed in a laboratory.

Ms Davidson also inspected the stockpile on 20 October 2000, at the time of the meeting/inspection referred to in para 61 above. She deposed to what she saw at that time. She observed material that ‘was not hard basalt’ of the kind with which she was familiar, but ‘rock and other material that was brown or pink in colour, some of which had holes in it’. She also noted ‘substantial quantities of material with the appearance and consistency of soil … that was brownish in colour and capable of being compressed or stuck together in the hand’.
Ms Davidson has no expert qualifications. However, she is a long-term Island resident. She had been secretary of CCMB throughout the project and was aware of the objectives and course of the project. Her evidence about her observations on 20 October 2000 is confirmed by her contemporaneous minute of the inspection. The fact that she was concerned about the situation is eloquently attested by her action in attaching a copy of cl 5.9 to the minute and having the minute signed by Mr Gardner.
Mr Cooper inspected the stockpile in October 2000, but it is unclear whether the description in his report of 25 January 2001 (‘serious contamination of the source rock with soil, clay, substandard rock etc’) was derived from his observations at that time or during his January 2001 visit with Mr Bowler. The fact that, between October and January, Mr Cooper took the trouble, and put his client to the expense, of retaining Mr Bowler, suggests it was probably both; but it does not matter which is correct.
Mr Bowler is a geotechnical engineer with considerable soils experience. Immediately after his January 2001 inspection, Mr Bowler reported that the stockpile contained ‘a significant proportion of much finer material, comprising weak highly weathered fragments of volcanic rock and plastic silt and clay fines’. He referred to Mr Cooper’s photo 4. This is a close-up shot of portion of the stockpile. It shows a substantial quantity of fine, brown material. Mr Bowler referred to the terms of cl 5.9 and offered the opinion ‘that the intention of the specification writer was that the hard durable basalt be “selected” and separated by the quarrying contractor from the tuff before hauling the basalt to the stockpile’. He clearly thought that intention had miscarried. He went on to state that the ‘finer material has to be coarse screened to remove fines’. Mr Bowler spoke about a 25mm screen being used ‘to try and recover good quality sound basalt fragments for further processing’.
There is no doubt that Mr Bowler was well-qualified to assess whether or not the material in the quarry was properly to be regarded as HDR, with only minimal contamination by OTR; and there is no doubt that he concluded this question should be answered in the negative, whether or not basalt fines are to be classified as HDR or OTR.
When he wrote his report, Mr Bowler had read the report of Dr Joyce concerning his analysis of a sample from the stockpile. Dr Joyce described the sample as ‘several kilograms of grayish brown, fragmented basalt with particle sizes ranging from clay size to a maximum intermediate diameter of about 50mm’. Dr Joyce’s analysis of 53 fragments of the sample showed they were ‘60% robust, gray basalt fragments’ (and, presumably, therefore HDR, subject to the 50mm dimension issue) and ‘40% grey basalt fragments sufficiently soft and weak to be broken by fingers and nails alone’ (and, therefore, not HDR).
Three comments should be made about Dr Joyce’s report. First, Mr Roberts emphasised that this particular sample was not found to contain material that Dr Joyce would describe as tuff or ‘plastic silt and clay fines’. However, that fact does not refute Mr Bowler’s evidence that he saw such material in the stockpile. The sample was not necessarily representative of the whole of the fine material in the stockpile.
Second, in the context of discussing Dr Joyce, Mr Roberts submitted that ‘[t]uff and weathered basalt can only be identified by detailed examination by appropriately qualified persons, such as geologists’. If that proposition is correct, SMEC was seriously remiss in failing to require Kaipara to have on hand, throughout the project (or at least throughout the excavation of unit I), a qualified person who would closely inspect each bucketful of material handled by an excavator. Neither Mr Evans nor Mr Cowie thought this was necessary; they were prepared to leave to the excavator operator the decision whether, on balance, a particular bucketful should be regarded as HDR or OTR.
Third, Mr Roberts submitted that strength ‘cannot distinguish between tuff and altered basalt’. I believe that statement is correct. However, from that base, Mr Roberts contended that, in Dr Joyce’s sample, ‘only apparently unweathered basalt was found; there was no tuff’. It may be agreed that Dr Joyce did not identify any tuff, but I see no basis for assuming that a sample which comprised 40% ‘basalt fragments sufficiently soft and weak to be broken by fingers and nails alone’ was taken from unweathered basalt. It is true that the fragments were grey. However, as Dr Burman’s table (para 259 above) makes clear, that does not mean they were unweathered. The very fact that people such as Mr Lyell and Mr Evans think it necessary to test suspect rock with a geologist’s hammer shows it is unsafe to judge on colour alone. I note that, despite the grey colour of the coarse fraction of the sample, Dr Joyce thought it contained ‘roughly equal amounts of robust, essentially unweathered basalt … and weak, weathered … basalt rock fragments and related free mineral grains analogous to material derivable from various interflow deposits … and/or from weathered basalt layers’.
The next inspections took place in early February 2001, when Mr Johnston videoed the operation being carried out by Island Industries’ excavator to extract the rocks larger than 100mm. Ms Davidson thought the ‘sorted rock was clearly hard basalt although not necessarily clean of soil’, whereas the ‘balance of the material was small pieces of rock and material the appearance and consistency of soil’.
In the light of the scientific evidence, I am prepared to accept that some (perhaps most) of the soil-like material was of basaltic origin; Dr Joyce deposed that ‘14% of the material [in his sample] consisted of free mineral grains derived from basalt’. However, whatever its derivation, the soil-like material described by Ms Davidson could not be described as ‘rock … larger than 50mm in all dimensions’; and the video shows this material was not merely a small proportion of the material being sorted by Island Industries, being the exception allowed by the word ‘generally’ in cl 5.9, but that it constituted a major proportion of it.
As recounted at para 231, Mr Johnston continued to observe the quarry operations: ‘there continued to be a lot of dirt, deleterious material and fine particulars in the material’, which caused difficulty in the processing of good quality rock.
The observations of Mr Johnston are consistent with those of Mr Lyell, made a few months later, in August 2001. Mr Lyell spoke of ‘a mixture of hard rock and tuff, highly weathered basalt, and overburden’. When he returned to the quarry in January 2002, Mr Lyell noted scalpings – that is, material that had passed through the 100mm apertures on the excavator bucket – that ‘contained a significant percentage of overburden and tuff’. He thought the overburden and tuff might constitute 35% of the scalpings, ‘after deducting blue metal fines’. In February 2005, Mr Lyell estimated the ‘recoverable sound basalt’ to be about 50-55% of the initial scalpings.
As Mr Roberts has emphasised, Mr Lyell is not a geologist. However, he has had a long career in quarrying, much of it for basalt. Under those circumstances, it is reasonable to assume he knows HDR (particularly basalt HDR) when he sees it and, conversely, that he is qualified to say that particular material is not HDR.
Mr Lyell reached a clear conclusion that much of the material in the stockpile was not HDR. Even treating basalt fines as HDR, he estimated 35% of the scalps were OTR.
The earliest defendant’s evidence about the content of the stockpile is that of Mr Reeve, arising out of the joint inspection of the stockpile that occurred on 11 December 2000. Mr Reeve said in his affidavit that he told Ms Davidson and Ms Cowles: ‘the majority of “dirt” in the stockpile is fines’; and that neither of them disputed what he said. I will treat this as evidence of the opinion Mr Reeve formed at the time. However, it does not exclude the proposition that a substantial minority of the material was non-fines OTR, or assist in resolving the question whether the basalt was ‘generally’ larger than 50mm in all dimensions.
Mr Wilson made a thorough inspection of the stockpile two months later, in late February 2001. In his subsequent report (the Douglas report), he described the main stockpile as being ‘composed of generally very high strength fresh and high to very high strength, slightly weathered basalt suitable for aggregate production’. As became apparent during Mr Wilson’s evidence, he treated basalt fines as falling into this category of material.
Mr Wilson acknowledged that an ‘estimated 6% to 7%’ of the main stockpile was ‘unsuitable for aggregate production’ because it was clay or weathered basalt. However, he regarded this result as acceptable; he considered a 10% component of ‘secondary rock’ would be reasonable.
I make four comments about the Douglas report and Mr Wilson’s evidence. First, I understand his reference to ‘the main stockpile’ to be a reference to the material left in the quarry by Kaipara which had not yet been sorted by Island Industries into separate piles (>100mm and <100mm). By the date of Mr Wilson’s inspection, according to section 4 of the Douglas report, the upper three metres of the main stockpile had been removed – presumably by Island Industries in the course of its sorting (scalping) exercise. Mr Wilson had learned ‘from discussions with Administration staff’ that this upper layer had been derived from unit I and had included a ‘significant proportion of material less than about 100mm’ which had passed through the bucket apertures and been stockpiled as OTR. As unit I was excavated last, it is likely that the material taken from that unit would have been on top of the stockpile, as the NIA staff had apparently stated. Mr Wilson did not indicate the height of the main stockpile at the date of his inspection. However, given that unit I contributed only about 14% of the material stockpiled in the quarry by Kaipara (paras 310 - 314 above), it is reasonable to assume that removal of a three metre layer would have removed much, if not all, of the unit I material. The estimate of 6% - 7% therefore gives little insight into the proportion of low-strength weathered basalt that went into the quarry from unit I.
Second, Mr Wilson gave no reason for his view that a 10% component of ‘secondary rock’ would be reasonable. He gave no evidence about any relevant Australian standard or industry practice. It is not possible to reconcile Mr Wilson’s opinion with the requirements of cl 5.9, Mr Cowie’s view that the limit of acceptable contamination would be about 1% - 2% or Mr Evans’ reference to ‘less than 1%’.
Third, Mr Wilson thought that approximately 30% of the material in the OTR piles should be regarded as unsuitable for aggregate production. (Mr Bowler said 40%, Mr Lyell 35%). Given that the material in the OTR piles was simply what had passed through the 100mm apertures in the excavator buckets, and so included basalt fines, this is a high figure. The video shows a large proportion of what was being scooped up by the excavator to be passing through the apertures. In the telephone conference call of 7 May 2001, Mr Wilson said 30% of the visible material in the quarry was below the range of 9.5 – 13.2mm. The proportion of material below 100mm must, therefore, have been well above 30%.
Fourth, Douglas Partners tested the strength of fragments taken from two samples collected by Mr Wilson: see paras 247-252 above. The results showed a significantly higher percentage breakdown of pieces below 13.2mm in size, compared with those larger than 13.2mm. Mr Wilson regarded the results for the three size ranges below 13.2mm as being inconsistent with the material being HDR. Yet, on his assessment, 30% of the visible material in the quarry was in this category.
None of the defendant’s other experts gave evidence about observations of the quarry stockpile.
In the expert evidence, there was much discussion about possible sources of the reddish-brown colouration that is so notable in the photographs; also discussion about the results of petrographic examinations of various samples. A complicating factor about the latter subject is that it appears, from the evidence of both Dr Burman and Dr Redman, that basalt and tuff have a common origin. They are apparently not easily distinguished by chemical analysis.
I do not think the evidence would enable me to determine the proportion of brown colouration that emanated from one source, rather than another. Neither do I think it necessary to do so. It will be recalled that Dr Burman, who was called by counsel for SMEC, had read and analysed all the other expert reports. In cross-examination, Mr White put to him the following broad question, making clear that it was confined to material extracted from unit I or unit II: ‘It is the fact, is it not Dr Burman, that none of the brown material that we have seen in the quarry stockpile would comply with that specification [cl 5.9]?’ Dr Burman agreed. Given the quantity of brown material visible in the photographs, that answer is extremely damaging to the defendant’s case.
However, I do not wish to rest my conclusion about this issue on the answer to one question by one witness. Dr Burman’s concession merely confirmed the impression I had obtained from the evidence of each of the other witnesses mentioned in this part of my reasons, including (importantly) Mr Wilson.
If, as I believe, it is not appropriate to treat all the basalt fines as HDR, for the purposes of cl 5.9, the evidence overwhelmingly demonstrates that the material stockpiled in the quarry by Kaipara did not comply with that clause. Even if I am wrong, and all basalt fines should be regarded as HDR, the evidence clearly indicates an unacceptable degree of contamination of the stockpile by material that is neither hard basalt rock, having the prescribed dimensions, or basalt fines. It is not necessary to determine the source of the contaminating material. However, having regard to the evidence concerning the manner of excavation of unit I, it is reasonable to conclude that much, probably most, of it came from layer 3 of unit I.
From time to time, during the trial, it was suggested that the material stockpiled in the quarry should be regarded as acceptable, for the purposes of cl 5.9, because this was the best that Kaipara could do, having regard to the characteristics of the cliff, especially the width of the bench at the top of unit I. I reject that approach. It is true that the bench was narrow; it was probably narrower than had been intended by the SMEC design team. The difference may have been the result of an error by SMEC personnel; it may have been the product of unforeseeable rock conditions. The narrow bench possibly left Mr Cowie no choice but to use top to toe blasts in unit I. Inevitably, according to him, such blasts would result in the intermingling of layer 3 material with HDR. However, as both he and Mr Evans acknowledged, that intermingling could have been reversed by screening. Screening would not have separated HDR from weathered rock, but the excavation program could have separately targeted patches of weathered rock.
Mr Cowie gave evidence that a screen could have been brought in from New Zealand. Of course, this would have been at a cost. If the screen had become required only because of inaccuracies in the contract documents, Kaipara presumably would have been entitled to reimbursement of that cost from NIA – leaving NIA to sort out with SMEC the ultimate burden of the extra. However, nobody considered importing a screen. I believe this was because there was inadequate forethought about the problem of separating the unit I material. For reasons that remain unexplained, SMEC did not insist that Kaipara comply with its contractual obligation to prepare, and produce for approval, a materials management plan. As Mr Reeve conceded, a ‘material management plan would have included the process by which hard, durable rock was separated and placed in the quarry and OTR placed at Middlegate’.
The Middlegate claim
NIA claims that SMEC breached the PMA in relation to the dumping of material at Middlegate. Once again, NIA accepts it would have been impossible totally to prevent intermingling, but it contends that there was an unacceptable degree of intermingling of OTR and HDR at this location.
It was a term of the settlement agreement between NIA and Kaipara that Kaipara would return to the Island and excavate, to a depth of three metres, the area in which it had placed fill taken from Cascade Cliff. Kaipara removed rock from the excavation. At some stage, that rock was sorted into two categories: material above 100mm in diameter and material below 100mm. The two categories were separately stockpiled. A surveyor, Donald Roderick Taylor, calculated that there were about 7,345m³ of rock in the >100mm stockpile and 17,410m³ in the <100mm stockpile, a total of 24,755m³.
Mr Lyell inspected the two stockpiles. He also inspected material that had been dumped at Youngs Road, for want of space at Middlegate. He concluded that 70% of the rock stored at Middlegate was HDR; that is, about 17,328m³. However, as there was much more <100mm material than >100mm, it may be surmised that a considerable proportion of this material ought not to have been treated, under cl 5.9, as HDR and stored in the quarry.
SMEC does not accept Mr Lyell’s assessment. However, as appears from a schedule of damages prepared by the parties prior to the hearing, it does accept that HDR went to Middlegate. In the schedule, SMEC said:
‘SMEC accepts that the Middlegate stockpile of >100mm material contains ~37% of very high or high strength basalt and that the stockpile of 50-100mm material contains ~7% of very high or high strength material. However, the rock showed signs of having come from a distinctly weathered layer such to make selective mining of the material from the cliff uneconomic.’
If the >100mm stockpile contains 7,345m³, this is a concession that it contains about 2,717m³ of HDR. Applying the conversion ratio adopted by Mr Evans in his progress reports (one cubic metre equals 2.75 tonnes), this means SMEC concedes there were about 7,472 tonnes of HDR in the >100mm stockpile. To put that figure in perspective, I mention that Mr Evans’ final progress report, for May 2000, claimed that a total of 163,075 tonnes (59,300m³) of crushable rock had been stockpiled in the quarry. In other words the HDR concededly taken to Middlegate was equivalent to 4.6% of what was claimed to have been stored in the quarry. On Mr Lyell’s estimated 70% HDR, the Middlegate HDR would have been equivalent to about 8.7% of the crushable rock stored in the quarry.
It is not necessary to determine which percentage is correct; even a proportion as low as 4.6% is significant, in relation to waste of a scarce resource.
As will have been noted, SMEC’s answer to this aspect of the claim is to say that the rock ‘showed signs of having come from a distinctly weathered layer such as to make selective mining of the material from the cliff uneconomic’. No evidence was led to support this claim. There was no evidence about the provenance of the material about which the concession was made; nor is there any evidence that either Mr Cowie or Mr Evans ever considered the possibility of selective mining of particular areas of rock. Both unit II and unit I were blasted top to bottom, except in the western half of unit I, where the relevant rock was so weathered as to be capable of mechanical excavation. In any event, there is nothing in the Kaipara contract documents that excludes compliance with cl 5.9 where to do so is ‘uneconomic’, whatever that means in this context.

It seems clear that the Middlegate operations were affected by an unacceptable degree of intermingling. That intermingling was a function of the failure of SMEC to require Kaipara to produce, and subsequently implement, a materials management plan that would ensure proper separation of the material to be dumped at Middlegate.
It is not necessary to make a finding as to the extent of intermingling at Middlegate. On any view, it was sufficient to support NIA’s claim to recover the costs it incurred in relation to investigation of the Middlegate situation. The parties have agreed that these costs amount to $64,965.
Damages
It follows from what I have said, in relation to both the quarry stockpile and Middlegate dumping, that NIA is entitled to succeed in its claim for damages for breach by SMEC of the PMA. However, as is accepted by NIA, because of the terms of cl 4.2 of the PMA, the maximum amount that may be awarded for that breach is $300,000. Under these circumstances, I see little point in making findings about all the items of damages claimed by NIA, some of which are highly contentious and would require detailed references to the evidence. The more useful course is simply to determine whether I am satisfied that NIA has established damage to the extent, at least, of $300,000.
In its schedule of losses, NIA claimed the sum of $343,216.34, as being payments made to Island Industries, up to August 2001, ‘for work performed to screen, separate and stockpile OTR from HDR in [the] Quarry, including for payment for settlement of dispute over non-conforming material’.
In his affidavit, Mr Johnston referred to these claims. He said:
‘Over the next two to three months [following October 2000] I became aware that Island Industries was corresponding with NIA and making claims for extra money for the time and work that had been involved in moving and sorting OTR. I closely monitored Island Industries’ operations to enable me to calculate the extra time and work that was required to complete the project because of the OTR. I observed that apart from the problems with the material in the Stockpile, Island Industries was also having problems with machinery. Every claim Island Industries made was reviewed and authorized by me. Exhibited to me and marked “MRJ8” are copies of:
•      Payment Detail Summaries;
•      Authorisation advice memos; and,
•      Invoices from Island Industries Pty Ltd,
for each of the invoices submitted for OTR sorting and removal expenses by Island Industries. The handwriting on the invoices and crossing out of figures is mine. I ensured to the best of my ability that Island Industries was only paid for the equipment used and hours performed in excess of what was specified in the Crushing Contract.’
Exhibit MRJ8 does set out all the material listed by Mr Johnston. It includes a schedule, compiled by him, which gives invoice dates between 22 March 2001 and 26 October 2001 and shows, in relation to each invoice, the total claim and what Mr Johnston calls ‘OTR amount’. The total claims come to $414,128.24; the total ‘OTR amount’ to $288,216.34.
The sum of $288,216.34 does not include $134,495 paid to Island Industries under the deed of release dated 3 May 2001: see para 84 above. It will be recalled the deed of release identified $84,495 as being ‘plant, machinery hire and cartage’ and the remaining $50,000 as ‘contract compensation’.
I make no criticism of the inclusion of the $50,000 item in the settlement with Island Industries. However, as there has been no evidence about the rationale of, or necessity for, this item, I would not be prepared to include it in my assessment of damages. On the other hand, there is no reason not to include the $84,495 item, the reasonableness of which is amply established.
When Mr Johnston gave oral evidence, Mr White took him to exhibit MRJ8. Mr Johnston explained the documents and confirmed that he ‘extracted the sum of $288,000 as being relevant to the plant hire and screening of the minus 100 scalpings in the rock stockpile’. Mr Roberts did not challenge Mr Johnston’s computation or justification for treating the sum of $288,216.34 as being the cost of having Island Industries screen out the <100mm material that had been left in the rock stockpile.
I am satisfied that screening was necessary, but only because of the failure of Kaipara and SMEC to ensure adequate separation of HDR and OTR in the quarry. Mr Johnston said in evidence that, when NIA was assessing the various tenders for the temporary crushing contract, he had not expected that screening would be necessary because, as part of the contract with Kaipara, ‘it was supposed to be clean durable rock’; he had ‘assumed that that is how it would be’. Mr Lyell said that, if the material in the quarry stockpile had complied with cl 5.9, it would not have required screening, even to meet the specification contained in a subsequent contract between NIA and Boral for re-surfacing the airport.
The <100mm screening did not precisely reflect the specifications set out in cl 5.9. A 50mm screen would have better reflected the specification of the material being ‘generally’ not less than 50mm in all dimensions. However, it seems no 50mm screen was immediately available. Even if it had been, there is no reason to believe the cost of a 50mm screening would have been less than that paid for the 100mm screening. Accordingly, as it seems to me, it is reasonable to allow the full sum of $288,216.34 calculated by Mr Johnston.
It will be apparent that the sums allowed by me already exceed $300,000. They are:
(i)        Investigations at Middlegate  $ 64,965
(ii)       Item 1 of the Island Industries settlement                    84,495
(iii)      Screening costs assessed by Mr Johnston                   288,216
  Total  $437,676
In the circumstances, I need not determine the recoverability of any of the other items claimed by NIA. However, I comment that, if it had been necessary for me to go further, I would have allowed the cost incurred by NIA in having Boral rescreen the <100mm material in order to remove OTR from the aggregate required for resurfacing the airport ($601,460) and the cost that will be incurred by NIA in relation to screening the material remaining in the quarry after removal of that required for the airport. I would not be prepared to allow the whole cost of purchasing a screen, since this is for acquisition of a capital item that will provide an ongoing benefit to NIA. However, the parties agree that the further screening would involve 66,987 tonnes at $8.80 per tonne – a total of $589,485. That item should certainly be allowed. I would also allow the cost incurred by NIA in obtaining the Douglas report ($11,500). It being unnecessary to do so, I refrain from comment on the other items claimed by NIA.
Disposition
I propose to enter judgment for the plaintiff, NIA, against the defendant, SMEC, in
the sum of $300,000. The defendant will be ordered to pay the plaintiff’s costs.

I certify that the preceding three hundred and sixty-nine (369) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.
Associate:
Dated: 3 August 2006

Solicitor for the Plaintiff: Mr P D White of White & McDonald

Counsel for the Defendant: Mr I G R Roberts & Mr A Martin

Solicitor for the Defendant: Phillips Fox

Dates of Hearing: 26, 27, 28 April 2006; 1, 2, 3, 4, 5, 8 and 11 May 2006

Date of Judgment: 3 August 2006

IN THE SUPREME COURT OF
NORFOLK ISLAND	SC2 of 2003

BETWEEN:	THE ADMINISTRATION OF NORFOLK ISLAND PLAINTIFF
AND:	SMEC AUSTRALIA PTY LIMITED DEFENDANT
JUDGE:	WILCOX J
DATE OF ORDER:	3 AUGUST 2006
WHERE MADE:	SYDNEY

Solicitor for the Plaintiff:	Mr P D White of White & McDonald
Counsel for the Defendant:	Mr I G R Roberts & Mr A Martin
Solicitor for the Defendant:	Phillips Fox
Dates of Hearing:	26, 27, 28 April 2006; 1, 2, 3, 4, 5, 8 and 11 May 2006
Date of Judgment:	3 August 2006