Water Corporation v Cardno BSD Pty Ltd
[2010] WADC 87
•11 JUNE 2010
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: WATER CORPORATION -v- CARDNO BSD PTY LTD [2010] WADC 87
CORAM: SLEIGHT DCJ
HEARD: 23, 24, 26, 27, 30 NOVEMBER 2009 & 22 - 25 MARCH 2010
DELIVERED : 11 JUNE 2010
FILE NO/S: CIV 2735 of 2007
BETWEEN: WATER CORPORATION
Plaintiff
AND
CARDNO BSD PTY LTD
Defendant
Catchwords:
Design engineering contracts - Admitted breach of duty of care - Dispute as to which contract applies - Liability exclusion clauses - Whether clauses clash with indemnity and insurance clauses - Assessment of damages - Dispute as to salvage value of damaged pipes - Entitlement for interest on damages
Legislation:
Nil
Result:
Judgment for the plaintiff in the sum of $352,772.61 plus interest at 6 per cent from the date of the issue of the writ
Representation:
Counsel:
Plaintiff: Mr R Shaw
Defendant: Mr A Hershowitz
Solicitors:
Plaintiff: Lavan Legal
Defendant: Jackson McDonald
Case(s) referred to in judgment(s):
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424
Atlantic Shipping & Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250
Bellgrove v Eldridge (1954) 90 CLR 613
BI (Contracting) Pty Ltd v AW Baulderstone Holdings Pty Ltd [2007] NSWCA 173
British Westinghouse Electric & Manufacturing Company Ltd v Underground Electric Railways Company of London [1912] AC 673
Duvall v Godfrey Virtue & Co (A firm), SCt of WA; Library No 970510; 24 September 1997
Edelman v Boehm (1964) 26 SASR 66
Ellington v Heinrich Constructions Pty Ltd & Ors [2004] QCA 475
Forbes v Git [1922] 1 AC 256
Grove v Fisher & Anor [2002] WASC 247
Koh & Anor v Pateman & Anor [2005] WASC 172
Liddelow v Gelavis (No 2) [2008] WASC 64
Santos Coffee Co Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14
Smeaton Hanscomb & Co Limited v Sassoon I Setty Son & Co [1953] 1 WLR 1468
Staniforth v Lyall (1830) 7 Bing 169
Water Corporation v Cardno BSD Pty Ltd [2009] WASCA 212
Westwood v Secretary of State for Employment [1985] AC 20
SLEIGHT DCJ:
General background
In about 1995 the Water Corporation commenced one of its largest public infrastructure programmes to provide deep sewerage for about 100,000 homes in Perth and rural towns over a 10‑year period. A small part of that project was providing deep sewerage to approximately 290 residential properties in Eaton, approximately 7 kilometres east of Bunbury. The sewerage works at Eaton consisted of a gravity fed sewerage network. This network led to a pumping station which pumped the sewage to a treatment plant. Associated with the pumping station was a set of concrete overflow pipes which were connected to storage tanks. These overflow pipes gravity fed sewage to the storage tanks in the event that there was a failure of the pumping station.
The Water Corporation engaged Cardno BSD as consultant design engineers to perform a variety of tasks relating to the Eaton project, including preparing design drawings for the pumping station, which included drawings for the overflow pipes. These drawings were prepared by Cardno BSD and largely pursuant to them the Eaton pumping station works were constructed (there were some alterations made to the design drawings by the Water Corporation but these changes have no significance). The drawings prepared and submitted by Cardno BSD stipulated that the overflow pipes to be installed were to be concrete pipes of a thickness and dimension described as Class 2. Shortly after installation, the concrete overflow pipes were found to have cracked and gone out of shape. As a result of the cracks in the pipes, water seeped into the pipes from the water table. This created a problem as the pipes should have been dry and empty to take any overflow of sewage in the event of a failure of the pumping station. It is not in dispute that the Class 2 pipes prescribed by the design drawings prepared by Cardno BSD were inadequate for the purpose and had to be replaced. They had to be replaced with a set of stronger pipes (Class 4 pipes) and this cost the Water Corporation $622,555.06 gross. After allowing for various amounts, including $30,000 in settlement of a claim against a second defendant, the Water Corporation claims a net amount of $405,654.61.
A major area of dispute between the parties in this action is whether the final design drawings submitted by Cardno BSD for the concrete overflow pipes were pursuant to a contract AS 80720F (the Panel A contract) or a contract CN‑00‑10257D for minor works (the Panel B contract). This has great significance in this action as Cardno BSD argues there are provisions contained in the Panel A contract which either limit or discharge its liability.
Water Corporation's claim
The claim of the Water Corporation is that Cardno BSD is liable for the loss and damage suffered by the Water Corporation as a result of a breach of duty of care under the Panel B contract, alternatively a breach of duty of care and right of indemnity under the Panel A contract, and/or a breach of a duty of care in tort. The pleaded case of the Water Corporation expresses the contractual duties of care in different terms depending on the wording of the applicable contract. However, it has not been argued that the duties of care under the Panel B contract or the Panel A contract or in tort have any relevant difference.
Defence of Cardno BSD
Cardno BSD admits it was in breach of its duty of care in specifying Class 2 concrete pipes and that the Water Corporation suffered loss and damage as a result of this breach. There is no formal admission in the pleaded defence of Cardno BSD that it was in breach of any duty of care under the Panel B contract or the Panel A contract, but as already noted, it has not been argued that there is any material difference between the contractual duties of care and the tortious duty of care. Accordingly, it is not in dispute that the effect of the admission made by Cardno BSD of a breach of duty of care is that there has been a breach of a contractual duty of care under whichever contract applies.
Cardno BSD does not dispute that if the Panel B contract applies then it is liable to the Water Corporation to the extent of its loss and damage. However, the pleaded case of Cardno BSD is that the design drawings were submitted to the Water Corporation pursuant to the Panel A contract. Based upon the contention that the Panel A contract applies Cardno BSD's defence is that –
(i)under the terms of the Panel A contract the liability of Cardno's liability is limited to a maximum of $100,000; and/or
(ii)under the terms of the Panel A contract Cardno BSD is discharged from all liability as the proceedings were not commenced within one year from completion of the services provided by Cardno BSD or the occasion of the act or omission from which liability arose.
Further, in the alternative, Cardno BSD pleads that the claim by the Water Corporation based upon the Panel A contract is statute barred.
The issue of example drawings
Pursuant to the contractual arrangement between the parties the Water Corporation provided to Cardno BSD example drawings. It was a contractual term that design drawings prepared by Cardno BSD were to comply with these example drawings. The purpose of the example drawings was to ensure that any design submitted would contain certain set design features. This meant that designs for pumping stations and other facilities throughout the State had similar characteristics which simplified maintenance programmes. The example drawings contained "input" designations which indicate where Cardno BSD was to make its own calculations and insert a design specification.
The first set of example drawings provided by the Water Corporation to Cardno BS relating to the overflow pipes contained an input as follows:
" 'Input' No. DN1800 x 2.44 METRES LONG RRJ CLASS 2 RC PIPE TO AS 4058."
The evidence of Mr Bond of the Water Corporation was that the reference to Class 2 pipes was not meant to be a specification binding Cardno BSD but rather an example of the type of input to be inserted. This is supported by another notation on the example drawing which stated as follows:
"RC Pipe Installation
RC overflow pipe installation work shall comply with the installation specification for Type H1 support as set out in the Concrete Pipe Association of Australia 'Concrete Pipe Selection and Installation' handbook."
The Concrete Pipe Selection and Installation handbook provides a reference to an Australian Standard which requires a Class 4 concrete pipe to be installed at the depth and level of compaction which was proposed for the Eaton project.
The Water Corporation later prepared amended example drawings and these amended example drawings contained the following description of the input in relation to the overflow pipes:
" 'Input' No. DN1800 x 2.44 METRES LONG RRJ CLASS 'Input' RC PIPES TO AS.4058."
It is not in dispute between the parties that this amended example drawing made it clear that the contracted design engineer was to calculate and specify in the design drawings prepared by it the appropriate class of the concrete overflow pipes (which under the relevant Australian Standard should have been Class 4).
At the start of the trial Cardno BSD had pleaded that it was only provided with the first set of example drawings and these required it to specify Class 2 concrete pipes in its design drawings. On this basis Cardno BSD had pleaded it was not negligent and alternatively, the Water Corporation was guilty of contributory negligence. During the trial Cardno BSD amended its defence and conceded it had been in breach of its duty of care in specifying Class 2 pipes and abandoned any claim of contributory negligence. Accordingly, the issue of whether the first set of example drawings were misleading and whether Cardno BSD had been provided with the amended example drawings is no longer an important issue to be decided. However, when and if the Water Corporation provided Cardno BSD with amended example drawings remains a part of the history of the dealings between the parties which will be mentioned later in this decision.
Summary of issues
The issues to be decided in this action are as follows:
1.Which contract applies?
It is not in dispute that up until September 2002 the engagement of Cardno BSD in relation to the Eaton project had at all relevant times been pursuant to the Panel A contract. However, in or about September 2002 the Water Corporation engaged Cardno BSD pursuant to the Panel B contract to finish off various parts of the design works. The contentious issue is whether Cardno BSD submitted the final design drawings relating to the overflow pipes pursuant to this later contract or whether it was covered by the earlier Panel A contract.
The Water Corporation primarily contends that the final drawings submitted by Cardno BSD were pursuant to the Panel B contract and therefore Cardno BSD's liability is governed by the provisions of the Panel B contract. Cardno BSD contends the contract governing the works was the Panel A contract.
2.If the Panel A contract applies to the final drawings submitted by Cardno BSD, was the liability of Cardno BSD limited to $100,000 and/or excluded by virtue of a contractual time limitation period?
This raises an issue of contractual interpretation. The Water Corporation pleads that even if the Panel A contract applies that the liability limitation provisions clash with the Water Corporation's Conditions of Contract and where such a clash exists the Water Corporation's Conditions of Contract prevail.
3.If the Panel A contract applies is Water Corporation statute barred from making a claim under that contract by virtue of the provisions of s 13 of the Limitation Act 2005 (WA), or alternatively, s 38 of the Limitation Act 1935 (WA)?
This issue also raises a subsidiary issue of whether Cardno BSD is estopped from relying upon the limitation provisions given its conduct in the proceedings. In its original defence Cardno BSD made an admission that the Panel B contract applied. However, by an order made by me on 17 July 2009 it was given leave to withdraw this admission and plead that the relevant contract was the Panel A contract.
4.If Cardno BSD is liable for the full extent of the loss and damage suffered by the Water Corporation, what is the correct assessment of such damages? The contentious issue between the parties is whether the salvage value of the Class 2 pipes is to be based upon the value of the Class 2 pipes at the time of the breach or at the time they were later used on other projects?
5.What interest on damages, if any, should the Water Corporation be awarded?
I will now deal with each of these issues individually.
Issue 1. Which contract applies?
In order to answer this question it is necessary to consider the contractual history between the parties in relation to the Eaton project.
Initial engagement
Prior to the parties entering into the Panel A contract the Water Corporation had already engaged Cardno BSD in about March 1998 to prepare preliminary plans relating to the Eaton project. This engagement involved Cardno BSD preparing drawings of the layout of the sewerage system and the location of the pumping station. However at this stage none of the drawings included a design drawing for the pumping station and the overflow pipes.
According to the evidence of Mr Bond of the Water Corporation, who was the design manager for the Eaton project, the Eaton project was suspended at the end of 1998 due to funding changes and delays in obtaining internal approvals.
Panel A contract
In May 1998 the Water Corporation issued a document known as a "Registration of Interest" calling for proposals from consulting engineers to register their interest in providing professional design services for sewer reticulation, pumping station and pressure main design. This Registration of Interest was meant to establish a panel of consultants who would be used throughout the State in relation to specific sections of the state‑wide project.
In response to this Registration of Interest document, Cardno BSD submitted by letter dated 26 May 1998 a proposal. The proposal lodged by Cardno BSD contained a consultancy fee structure and material which provided details of the personnel and experience of Cardno BSD. Enclosed with the proposal was an Annexure A which contained a document entitled "BSD Consultants Pty Ltd Standard Terms of Appointment" which Cardno BSD relies upon to limit or discharge its liability. I will return to the effect of this document later in the decision.
By letter dated 12 August 1998 the Water Corporation wrote to Cardno BSD stating that its application had been successful and it was placed on a panel for the provision of services relating to the sewerage contracts. It further stated that the services were to be provided on an "as required basis" under the provisions of the "Water Corporation General Conditions of Contract – Consultancy" (which had been included in the Registration of Interest document). The letter confirmed that the contract known as the Panel A contract consisted of three sets of documents:
(1)The Registration of Interest document.
(2)The proposal of Cardno BSD.
(3)The letter from Water Corporation to Cardno BSD dated 12 August 1998 accepting the proposal of Cardno BSD.
Pursuant to the Panel A contractual arrangement the Water Corporation engaged Cardno BSD on a number of separate occasions to carry out works relating to the Eaton project. This staggered engagement was partly due to various delays in the project, but also because in any event the project is carried out in stages. The stages of the project can be summarised as follows:
1.Preliminary plans are prepared which set out the layout of the sewerage route (the reticulation route) and the location of the pumping station.
2.A site inspection is conducted which involves walking through the reticulation route. This site inspection is conducted in order to observe any physical obstructions to the proposed route of the sewerage works. The design and layout plans are then altered to overcome any such obstructions.
3.A formalities plan is prepared. The formalities plan shows the sewerage route and the location of the pumping station. This plan is issued to local authorities, utilities and the general public for comment.
4.After consideration of any objections, final drawings and plans are submitted for the construction of the sewerage works and tenders are called.
Engagement in September 1999
By letter dated 22 September 1999 the Water Corporation wrote to Cardno BSD stating that completion of the designs of the Eaton project would proceed and, amongst other things, indicated that the work required to complete the project included final design drawings for the pumping station. It requested Cardno BSD provide a fee proposal for preparing pumping station design drawings.
Cardno BSD wrote to the Water Corporation by letter dated 7 October 1999 stating that:
"Further to our previous discussions in regard to completion of design works for the above project I confirm that alterations to the sewerage reticulation designs are underway as per your instructions.
Please find attached our service brief and fee proposal for design services in respect to the required sewerage pumping station and associated infrastructure. If this proposal is acceptable to the Corporation, would you please have the attached 'Confirmation of Appointment' endorsed and returned to us at your earliest convenience.
Should you have any queries in regard to this proposal, please do not hesitate to contact me at the above office."
Attached to this letter was the service brief and fee proposal referred to in the letter. This service brief described the relevant work in relation to the pumping station as "Preparation of design drawings documenting the pump station construction". The fee proposal provided for a lump sum of $16,700 to be paid for the commissioned works. Included with the service brief was a copy of the Standard Terms of Appointment document of Cardno BSD which had previously been included in the Panel A contract.
The letter of 7 October 1999 also contained an acceptance form to be signed by the Water Corporation. This acceptance form read:
"We, the Water Corporation, do hereby appoint BSD Consultants Pty Ltd to provide the service as specified in the Service Brief (B991X.043-DD100287.10-DVN) upon the terms and conditions in the Service Brief and as specified in the Standard Terms of Appointment attached to the Service Brief."
There is no evidence that this acceptance form was ever executed by the Water Corporation. However, in reply the Water Corporation sent a handwritten letter dated 11 October 1999 which stated as follows:
"The Water Corporation commissions you to undertake the design of the above project in accordance with your Service Brief of 7 October 1999 and for the fees contained therein."
It is common ground between the parties that this engagement included instruction for Cardno BSD to prepare design drawings for the pumping station which included the design of the overflow pipes.
The records of Cardno BSD in the form of a "Drawing Status and Transmittal Register" indicate that design drawings relating to the pumping station including the overflow pipes were sent to the Water Corporation on 6 April 2000 or 10 April 2000.
The records of the Water Corporation include a copy of design drawings relating to the overflow pipes prepared by Cardno BSD dated 10 April 2000. The evidence of Mr Barram, a draftsman employed by Cardno BSD who prepared the design drawings, was that the date of the document could reflect the date the drafting commenced or finished. The drawings designate the overflow pipe size as Class 2. The drawings were not signed. According to the evidence of Mr Bond of the Water Corporation, the fact that the drawings were not signed indicates that they were not final drawings. The policy of Cardno BSD as contained in an Internal Procedures Manual and a Company Policies Administration document was that final design plans were not released until an approval box had been signed by the supervising engineer. This policy was confirmed by various witnesses called by Cardno BSD who gave evidence at the trial.
By invoice dated 31 May 2000 and stamped as having been received by the Water Corporation on 13 June 2000, Cardno BSD invoiced the Water Corporation for "Design and documentation for Waste Water Pump Station" for the contract price of $16,700. This invoice was paid in full by the Water Corporation. The evidence of Mr Greay, a former employee of Cardno BSD and the project leader, was that Cardno BSD did not issue invoices for works unless the works had been completed.
Again the Eaton project was suspended in July 2000 due to funding changes.
Engagement in June 2001
In June 2001 the Water Corporation again engaged Cardno BSD to provide further engineering design services. These works included updating the pumping station and overflow pipes design drawings to comply with then latest format criteria of the Water Corporation.
By letter undated (but containing a computer production date of 6 June 2001) the Water Corporation wrote to Cardno BSD stating as follows:
"The above reticulation area originally designed by your firm in Busselton is now due for review. … As these designs were produced some time ago it will be necessary to amend the designs to ensure the sewer alignments are in accordance with current development and the pumping station designs are based on the latest criteria."
In response to this letter Cardno BSD sent a memo to the Water Corporation dated 15 June 2001 giving a quotation for the "amendment of the design for the above project for your consideration and approval". The memo described the works as including "upgrading of pumping station and pressure main design to the latest standards". The quotation for this aspect of the works was a lump sum of $2,000.
By letter dated 29 October 2001 the Water Corporation wrote to Cardno BSD stating that it extended the contract "for such period as is required to allow for the work, which has already been instructed by the Corporation under the Contract, to be completed".
Cardno BSD issued an invoice for this work on the 1 January 2002.
Introduction of Panel B contract
By letter dated 27 November 2001 the Water Corporation wrote to Cardno BSD stating as follows:
"In future, all new engineering design services provided for the in‑fill sewerage programme will be obtained from Panel B (minor works).
Engineering design services currently in progress for the in‑fill sewerage programme will be completed in accordance with the Heads of Agreement panel previously established specifically for this consultancy works." (The reference to the Heads of Agreement is a reference to the Panel A contract.)
Engagement in March 2002
The evidence of Mr Bond of the Water Corporation is that sometime between January 2002 and May 2002 the Water Corporation provided Cardno BSD with amended example drawings for the pumping station and Cardno BSD was instructed to prepare revised design drawings for the overflow pipes to comply with these amended example drawings. According to Mr Bond's evidence a meeting was arranged with representatives of Cardno BSD to discuss the amended example drawings and what was required by way of alteration.
As stated earlier in this decision Cardno BSD disputed that it had been provided with any amended example drawings. The only copy of the amended example drawings contained in discovered documents was dated 7 April 2003 (that is, a date well after when it was said that the Water Corporation provided Cardno BSD with the amended example drawings). Mr Greay of Cardno BSD stated in his evidence that he could not recall any meeting with the Water Corporation in the period between January 2002 to May 2002 when new example drawings were discussed and provided. However, during the trial the Water Corporation was able to locate an example drawing relating to the overflow pipes of the Eaton project dated 25 February 2002. This was found in the possession of another company, GHD Pty Ltd, that was engaged on the project. As a result of the production of this document counsel appearing for Cardno BSD abandoned any argument that Cardno BSD had not been provided with the amended example drawings. I am satisfied that even if this document had not been produced there is sufficient evidence to establish on the balance of probabilities that Cardno BSD had been provided with amended drawings sometime between January 2002 and May 2002. There were a number of internal memoranda of Cardno BSD confirming the evidence of Mr Bond that Cardno BSD had been provided with the amended example design drawings. These included an undated memorandum of Mr Jeremy Greay, the project leader at Cardno BSD, which stated as follows:
"Spoke to Ken Berg [a reference to Mr Ken Barrington of the Water Corporation] on 28/3/02. He confirmed PS standard drawing sent 12/3/02 are the latest and most up to date. Therefore proceed with final design of pumping stations with these drawings."
In a further internal memorandum dated 26 March 2002 from Jeremy Greay to another employee of Cardno BSD, Mr Justin Barram, stated as follows:
"Greg has requested that we also update the pump station drawings for Eaton 1H and 3C and Spearwood 26A, which have been designed using the old standard drawings. We discussed how the variation to the design brief should be handled, and he requested a lump sum quote for each of the jobs."
There is no evidence as to precisely when Cardno BSD completed the review of the design drawings pursuant to the engagement in March 2002. The evidence of Mr Barram is that draft design drawings of the pumping station were prepared by him in or about April 2002 and submitted to his superior Mr Greay for approval. A draft of the design drawings bearing the date 10 April 2002 was presented in evidence. The draft was initialled by Mr Greay on 19/4 indicating that on 19 April 2002 he had inspected the draft and endorsed it with various changes to be made by Mr Barram.
An invoice from Cardno BSD dated 1 May 2002 invoiced Water Corporation for 75 per cent of the fees relating to the variation of the pumping station designs. In a subsequent invoice dated 1 June 2002 the remaining 25 per cent was invoiced. However, there is no evidence that any final design drawings for the pumping station were submitted to Water Corporation at this stage. Mr Bond's evidence was that the Water Corporation paid Cardno BSD when the Water Corporation was informed that Cardno BSD had done the work of preparing the drawings even though final drawings were not submitted. This is consistent with the staggered stages of the project. At this point of time there remained the outstanding issue of the formalities stage of the project which gave various bodies an opportunity to raise objections. The formalities plan sent out as part of this process did not contain design specifications for the pumping station but rather a plan showing the sewerage reticulation route and the location of the pumping station. The evidence of Mr Michelmore, the project manager at the Water Corporation, was that the objections received as a part of the formalities stage generally only relate to issues concerning the location of the various works, including the pumping station. The objections did not generally go to such issues as the design of the pumping station. Mr Bond of the Water Corporation acknowledged that it would be unusual for a design change to be necessary as a result of the objections received during the formalities stage but stated the practice was that final drawings were never submitted until the formalities process was completed. I infer from this evidence that until the objections are received it cannot be excluded that a change to the design drawings of the pump station may be required. Accordingly, before any final drawings could be presented to the Water Corporation this formalities stage needed to be completed.
The formalities plan tendered into evidence was signed by Mr Bond on 19 April 2002. The evidence of Mr Bond was that the formalities plan was sent to the Department of Environment for comment in April 2002. Any objections to the formalities plan were to be lodged by 17 May 2002.
September 2002 engagement
In September 2002 the Water Corporation further engaged Cardno BSD in relation to the Eaton project. It is not in dispute that this engagement was pursuant to the Panel B contract. Up to this point in time it is agreed by the parties that all relevant engagements had been pursuant to the Panel A contract (subject to a contractual amendment issue that I will deal with later in this decision).
The engagement in September 2002 commenced by the Water Corporation writing to Cardno BSD by letter dated 6 August 2002. This letter provided as follows:
"The Corporation is terminating the Infill Sewerage Design Panel Contract from 30 June 2002. BSD Consultants are required to resubmit a design proposal (my emphasis) for the above job under the Panel Contract for the provision of engineering definition and design services for minor works. The work is to be in accordance with the original design brief.
The current status of the above project is that the preliminaries to works have been advertised and closed 17 May 2002. Variations due to this process are due to be passed on to you soon.
Based on the original proposal in your letter dated 1 June 2002, variations as a result of formality would be the only work required to complete this project." (my emphasis)
The reference in this letter to "preliminaries" is a reference to the formalities stage of the project
Cardno BSD in a letter to the Water Corporation dated 5 September 2002 stated as follows:
"In response to your letter dated 6 August 2002, BSD Consultants would like to confirm that we are willing to undertake the completion of the design drawings for reticulation area Eaton 1H and 3C as a part of the Panel Contract for minor works. We understand that the scope of the works will involve finalising the design drawings, following completion of the formalities period." (my emphasis)
By an undated letter by the Water Corporation to Cardno BSD (date stamped as having been received on 11 September 2002) Water Corporation stated as follows:
"Thank you for your proposal dated 5 September 2002 to complete the outstanding work for the above project.
The Water Corporation accepts your proposal and requires BSD Consultants to proceed as per the Panel Contract for the Provision of Engineering Definition and Design Services for minor works.
As indicated in my letter to Mr John Kotula dated 6 August 2002, variations as a result of the preliminaries to works process are the only work required to complete this project. I will organise for them to be passed to you soon."
On 5 December 2002 Mr Greay of Cardno BSD sent an email to Mr Kiet Pham of the Water Corporation stating in part as follows:
"… The pump station layout and changes from formalities have also been completed and the final drawings will be with you next week as agreed."
None of the witnesses gave any evidence that objections arising from the formalities led to changes to the design of the pumping station. The only evidence of changes arising from the formalities stage was a notation made by Mr Michelmore on the formalities plan which indicated a change in an access path to the pumping station. Mr Michelmore acknowledged this would not have impacted on the final design drawings of the pumping station.
According to the evidence of Mr Greay of Cardno BSD an A3 set of the final pumping station drawings was forwarded to the Water Corporation on 19 December 2002 and an A1 set of the drawings was sent to the Water Corporation on 17 January 2003.
The Water Corporation was invoiced by Cardno BSD for the work pursuant to the September 2002 engagement at an hourly rate as per the Panel B contract. The invoice dated 1 January 2003 described the works in the following terms:
"Completion of reticulation plans and sewer pump station following formalities period. Variation undertaken as specified in letter dated the 5/9/02."
Findings of fact
I make the following factual findings which are based largely on non‑contentious evidence:
1.The Water Corporation initially engaged Cardno BSD to prepare design plans for the pumping station in September 1999. Prior to September 1999 the engagement of Cardno BSD by the Water Corporation related to preliminary plans and drawings for the Eaton project but did not include design drawings for the pumping station.
2.As a result of the engagement in September 1999, Cardno BSD prepared unsigned design drawings relating to the pumping station. The unsigned design drawings were dated the 10 April 2000 and forwarded to the Water Corporation. These design drawings were prepared pursuant to the Panel A contract. Completion of these design drawings is confirmed by Cardno BSD issuing an invoice for the full contractual price of the September 1999 engagement.
3.The design drawings for the pumping station prepared pursuant to the September 1999 engagement were not final drawings. This is because final drawings could not be completed as other stages of the project, including the formalities stage, needed to be completed before final drawings could be submitted.
4.After completion of the September 1999 engagement, the Eaton project went into abeyance until about June 2001. In June 2001 the Water Corporation engaged Cardno BSD to prepare amended design drawings to bring them up to date with the latest criteria of the Water Corporation. Cardno BSD invoiced the Water Corporation for this work on 1 January 2002 from which I infer that by this date the drawings had been revised.
5.Sometime between January 2002 and May 2002 the Water Corporation further commissioned Cardno BSD to revise the design drawings of the pumping station to comply with new standard drawings which included the amended example drawing referred to earlier in this decision.
6.The revised design drawings were completed by Cardno BSD by 2 June 2002 when Cardno BSD issued an invoice for all of the works required as a result of revising the design drawings. The defendant contends that I should find that Mr Greay signed these final drawings sometime before the issue of this invoice. However, Mr Greay's evidence was that he could not say when he signed the design drawings. Although I conclude that the drawings had been revised, I am unable to reach any conclusion as to when Mr Greay signed his approval.
7.The formalities plan was distributed in or about April 2002. The formalities stage closed on 17 May 2002. None of the objections required any amendment to the design drawings of the pumping station.
8.A final set of design drawings in A3 was submitted by Cardno BSD in December 2002. This was followed up by a letter dated 17 January 2003 containing a set of the drawings in A1. No final drawings had been submitted prior to these dates.
Conclusions as to which contract applies
The case of Cardno BSD is that the design drawings of the pumping station were finalised prior to the engagement in September 2002, that no variation occurred to the design drawings as a result of the formalities procedure and therefore any contractual or tortious breach of duty of care arises from the design drawings prepared prior to September 2002. Accordingly, the design drawings were prepared pursuant to the Panel A contract.
However, the case of Cardno BSD fails to recognise that fundamental to both the contractual and the tortious claim of the Water Corporation is that the breach of duty of care arose as a result of the submission of the flawed drawings to the Water Corporation. The pleaded case of the Water Corporation is that on 17 January 2003 Cardno BSD submitted final drawings which contained a flawed design to the Water Corporation and that these flawed drawings were relied upon by the Water Corporation in arranging the construction of the overflow pipes of the pumping station. Accordingly, the critical question is when and pursuant to which contract were the final drawings submitted.
My findings are that prior to the September 2002 engagement the only design drawings relating to the pumping station that had been submitted by Cardno BSD were preliminary drawings unsigned. These were not final drawings as final drawings were not required until the formalities stage had been completed.
One possible view of which contract applied to the submission of the final drawings may be that the separate engagements in September 1999, June 2001 and March 2002 all involved not only a requirement for Cardno BSD to prepare the design drawings for the pumping station but ultimately to submit the design drawings when and if required by the Water Corporation. This would be on the basis of an implied term that Cardno BSD was to not only carry out preparation of the design drawings but to complete the contract at a later date by submitting the drawings prepared (see "Hudsons Building and Engineering Contracts 11th Ed", p 472 - 473 par 4.003). On this view the governing contract for the final submission of the design drawings would be the Panel A contract.
However this view of the arrangement fails to take into account two features of the history of the contractual arrangement between the Water Corporation and Cardno BSD; namely:
1.Firstly, the contractual engagements of Cardno BSD were on an "as required" basis only. Up until the final engagement in September 2002 there was no requirement to submit final design drawings as the formalities stage had not been completed. Accordingly, the engagements prior to the final engagement in September 2002 were preliminary stages only to the ultimate obligation which might arise by a commission to present final drawings after the formalities stage. It is clear on the evidence that each of these preliminary stages was treated as an independent and complete contract consistent with the understanding that Cardno BSD would be engaged "as required" (albeit that such engagements were part of a progression towards an ultimate result). This explains why each stage involved Cardno BSD submitting a separate fee proposal and the Water Corporation sending a letter of acceptance and engagement. It also explains why each separate engagement was invoiced and paid for separately. The evidence of witnesses called by Cardno BSD was that an invoice was not issued until all of the work under an engagement had been completed.
2.Secondly, the engagement in September 2002 expressly required Cardno BSD to "re-submit" the design drawings under the Panel B contract. Although it may have been envisaged by the parties that the only alterations that were necessary to the pre-existing drawings prepared by Cardno BSD would be as a result of any changes arising from the formalities procedure, in my view the express terms of the engagement in September 2002 pursuant to the Panel B contract to "re- submit" design drawings established a fresh contractual and tortious duty of care to ensure that final drawings submitted to the Water Corporation pursuant to the Panel B contract did not contain flawed designs. This is consistent with a continuing obligation on a design engineer to correct results of past defects which become known (see Edelman v Boehm (1964) 26 SASR 66).
For the above reasons, in my view the submission of the final drawings in January 2003 pursuant to the engagement in September 2002 was pursuant to the Panel B contract when Cardno BSD was expressly commissioned to submit final design drawings and therefore any provisions in the Panel A contract which might limit or discharge liability did not apply.
Issue 2 If the Panel A contract applies to the final drawings submitted by Cardno BSD was the liability of Cardno BSD limited to $100,000 and/or excluded under the terms of the contract by virtue of a contractual limitation period?
Having found that the Panel B contract applies to the submission of the final design drawings of the pumping station it is not strictly necessary for me to consider whether the Panel A contract contained contractual limits or a discharge of the liability of Cardno BSD as contended by Cardno BSD. However, for completeness sake I will deal with this issue.
As mentioned earlier in this decision, the proposal of Cardno BSD which formed a part of the Panel A contract included an Annexure A containing Standard Terms of Appointment. These Standard Terms of Appointment included the following clauses:
"14.The maximum liability of BSD to the Client arising out of the performance or non-performance of the services by BSD or arising out of this agreement or any other act or omission by BSD pursuant to common law or equity or any statute, the amount agreed in writing between the Client and BSD, or $100,000.00, whichever is the lesser amount.
15.BSD shall be deemed to have been discharged absolutely from all liability arising from the services or arising from any act or omission relating directly or indirectly to the services pursuant to common law or equity or by any statute, at the expiration of one year from the completion of the services or expiration of one year from the completion of the services or the occurrence of the act or omission from which the liability arises and the Client and any persons or entities claiming through or under the Client shall not be entitled to commence any action or claim whatsoever against BSD or any employee or agent of BSD in respect of services or acts or omissions after that date, with it being deemed the date of completion of the services is either the date the service which is the subject of an action or claim was completed, or the date of the invoice issued by BSD for that service, whichever is the earlier date."
Annexure A had a cover sheet which contained a provision stating as follows:
"Note. The Water Corporation Conditions of Contract shall prevail where any conditions clash with our Standard Terms of Appointment."
The Water Corporation contends that cl 14 and cl 15 of the Standard Terms of Appointment of Cardno BSD clash with the Water Corporation's Conditions of Contract contained in a document entitled "Water Corporation. General Conditions of Contract - Consultancy". This document is included in the Registration of Interest document which forms a part of the Panel A contract.
Critical to this issue is the interpretation of the wording on the coversheet to Annexure A. The Shorter Oxford English Dictionary 4th edition defines the word "clash" as meaning "come into conflict; disagree, be at variance, be incompatible". The same dictionary relevantly defines the word "prevail" in the following terms:
"1.be superior in strength or influence; have or gain the advantage; be victorious.
2.be effectual or efficacious; succeed."
The meaning of the word "prevail" must be considered in the context in which it appears. As detailed earlier in this decision the Water Corporation initially distributed a document known as a "Registration of Interest" document. This document contained the Water Corporation's Conditions of Contract which the Water Corporation relies upon as clashing with cl 14 and cl 15 of the Standard Terms of Appointment of Cardno BSD. In response to this Registration of Interest document Cardno BSD submitted its proposal containing the Standard Terms of Appointment (with the qualification contained in the cover sheet to Annexure A). The Water Corporation then completed the contractual arrangement by sending the letter of 12 August 1998 accepting the proposal of Cardno BSD.
In that context I conclude that the word "prevail" should be interpreted as meaning that where a clash occurs between the obligations and benefits of a provision in the Water Corporation Conditions of Contract and a provision in the Standard Terms of Appointment of Cardno BSD, then the provision contained in the Standard Terms of Appointment is removed from the contract and has no application.
This interpretation of the word "prevail" is consistent with the approach taken by both parties in their submissions. The submissions presented by both parties focused on the question of whether a clash occurred and impliedly accepted that if a clash occurred then the provision in the Standard Terms of Appointment of Cardno BSD had no application.
The clauses of the Water Corporations Conditions of Contact that the Water Corporation relies upon as clashing with cl 14 and cl 15 of the Standard Terms of Appointment of Cardno BSD are as follows:
"11.Insurances
11.1Before performing the Services, the Consultant shall effect and maintain all insurances required by law to be effected whether by the Principal or by the consultant and any other insurance required by the Contract, or the Principal, which insurances must be on terms and conditions acceptable to the Principal, including without limitation, the term as to the dollar limit of liability under the relevant policy.
…
11.3The Consultant shall effect Third Party Insurance including Motor Vehicle Third Party Insurance covering liability to any third party including death, bodily injury, loss of and damage to property arising out of anything done or omitted to be done in the Services for a limit of liability of not less than five (5) million dollars in respect of each occurrence and unlimited in aggregate in respect of all accidents occurring during the period of insurance.
11.4The Consultant shall arrange Professional Indemnity Insurance with an insurer acceptable to the Principal on terms, conditions and limits of cover approved by the Principal. The limits of cover and the interest insured are detailed in item 11 of Schedule 1. The Consultant must maintain the insurance referred to in this clause for at least 24 months following termination of the Contract.
…
12.Indemnity
The Consultant shall indemnify and keep indemnified the Principal against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment which the Principal suffers, incurs or is liable for in respect of any act or omission or breach of professional duty by the Consultant or the Personnel arising out of or in connection with the execution of the Services."
Insurance provisions
Clause 11.4 of the Water Corporation's Conditions of Contract, which relates to professional indemnity insurance to be taken out by Cardno BSD, states that the interest to be insured and the limits of cover are detailed in item 11 of the schedule of the general conditions. The schedule stipulates that the interest to be insured is a "Breach of professional duty by any negligent act, error or omission". The schedule contains no indication as to the limit of the amount of coverage to be taken. Generally such an omission would make the insurance clause meaningless (Ellington v Heinrich Constructions Pty Ltd & Ors[2004] QCA 475). However, the Water Corporation relies upon a clause in the proposal lodged by Cardno BSD which forms a part of the Panel A contract and which states the Cardno BSD will take out professional indemnity insurance of $15 million. As mentioned earlier in this decision the Water Corporation by its letter dated 12August 1998 accepted the proposal of Cardno BSD. The effect of this acceptance was that the professional indemnity insurance required under cl 11.4 of the Water Corporation's Conditions of Contract was $15 million. Further, by virtue of cl 11.4 of the Water Corporation's Conditions of Contract the professional indemnity insurance was to be for a period of "at least 24 months following termination of the contract". The Water Corporation contends that the amount and the period of such insurance are inconsistent with the limitations of liability contained in cl 14 and cl 15 of the Standard Terms of Appointment.
As a general rule a professional indemnity insurance policy provides coverage against loss suffered to third parties as a result of a professional's negligence (see Halsbury's "Laws of Australia" Vol 21(2) pars 340 – 55). Although cl 11.3 of the Water Corporation's Conditions of Contract refers specifically to third party insurance, there is nothing in cl 11.4 or the schedule which limits the professional insurance obligation to claims by the Water Corporation only. A claim against Cardno BSD for breach of a professional duty of care could potentially be made by other parties who would not be bound by the contractual limitations of cl 14 and cl 15 of Cardno BSD's Standard Terms of Appointment. Accordingly, a claim by a party other than the Water Corporation could be made for an amount greater than $100,000 or outside the contractual limitation period of 12 months. For this reason, the amount of professional liability insurance and the period of such insurance stipulated in the Water Corporation's Conditions of Contract do not necessarily clash with cl 14 and cl 15.
Indemnity provisions
An indemnity clause such as cl 12 above is to be strictly construed in the context of the contract as a whole (BI (Contracting) Pty Ltd v AW Baulderstone Holdings Pty Ltd [2007] NSWCA 173, Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424). The extent to which there remains an ambiguity, the clause is to be construed in favour of the person providing the indemnity; see Andar (supra) [24] to [29].
Counsel for Cardno BSD submitted that the wording of the indemnity clause only identifies the areas of potential liability and is silent as to the amount of the indemnity or as to how long it is to last. I reject this submission. Such an interpretation is contrary to the plain meaning of the wording of cl 12. In my view the wording of the clause is clear. The clause not only identifies areas of indemnification but provides to the Water Corporation an unlimited continuing right of indemnity with respect to any act or omission or breach of professional duty by Cardno BSD arising out of or in connection with the execution of the services provided by Cardno BSD.
The first issue to consider is whether this unlimited right of indemnity clashes with cl 14 of Cardno BSD's Standard Terms of Appointment. Clause 14 of the Standard Terms of Appointment has the effect of barring a claim beyond $100,000 by destroying or extinguishing the liability beyond this amount: see Santos Coffee Co Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14; Smeaton Hanscomb & Co Limited v Sassoon I Setty Son & Co [1953] 1 WLR 1468 at 1472; Atlantic Shipping & Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250 (Lord Dunedin) at 259 and 261 ‑ 2 (Lord Sumner). The limitation of liability to $100,000 is a substantial limitation and would severely restrict the Water Corporation's ability to obtain an indemnity for losses suffered as a result of the negligence of Cardno BSD. This is well demonstrated by the fact that in this case the loss suffered by the Water Corporation is approximately $400,000 (the calculation of the final figure is subject to issue 4 to be dealt with later in this decision). In my opinion such a substantial limitation clashes with the purpose of the unlimited indemnity provided in cl 12 of the Water Corporation's Conditions of Contract and therefore the unlimited indemnity prevails.
The next issue is whether the indemnity clashes with cl 15 of Cardno BSD's Standard Terms of Appointment. Proceedings were commenced in this action on the 20 December 2007. It is not in dispute that if the contractual time limitation period applies, then the claim by the Water Corporation would be defeated as proceedings were commenced out of the contractual limitation period.
It is significant that the indemnity clause uses the wording "shall indemnify and keep indemnified". The words "keep indemnify" provide an ongoing indemnity obligation inconsistent with a 12 month limitation period. If such a 12 month limitation period applied then it would substantially restrict the protection that the indemnity clause would provide to the Water Corporation. This is particularly as much of the design work undertaken by Cardno BSD concerns the design of piping that is laid below the surface and therefore presumably it may take some time before defects reveal themselves. In my opinion such a contractual time limitation clashes with the continuing indemnity provided by cl 12 of the Water Corporation's Conditions of Contract.
A further contention made on behalf of Cardno BSD is that cl 14 and cl 15 of its Standard Terms of Appointment do not clash with the indemnity provision of cl 12, but rather simply qualify the indemnity. Counsel appearing for Cardno BSD relies upon the House of Lords' decision of Forbes v Git [1922] 1 AC 256. That case concerned a building contract which provided for both a lump sum payment and a payment based upon the value of work and materials provided. The work performed pursuant to the contract was significantly varied, added to and parted from the original contract. The House of Lords held as a matter of construction that the lump sum payment provision was not a lump sum contract price for the work performed but an agreed consideration for the builder undertaking the commencement of the contract, with the final contract price to be adjusted according to the value of the work (pp 260 ‑ 261). The House of Lords alternatively held that the clause providing for a payment based upon the value of the work should be viewed as a qualification of the earlier lump sum provision. It stated the principle of law at p 259 as follows:
"If in a deed, an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the latter clause is to be rejected as repugnant and the earlier clause prevails. In this case the two clauses cannot be reconciled and the earlier provision in the deed prevails over the latter. Thus, if a covenant to pay £100 and the deed subsequently provides that he shall not be liable under his covenant, that later provision is to be rejected as repugnant and void, for it altogether destroys the covenant. If the latter clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole. Thus if a covenant to pay £100 and the deed subsequently provides that he shall be liable to pay only at a future named date or in a future defined event or if at the due date of payment he holds a defined office, then the absolute covenant to pay is controlled by the words 'qualifying the obligation in the manner described'."
Counsel for Cardno BSD contends that in accordance with this principle, cl 14 and cl 15 of Cardno BSD's Standard Terms of Appointment should be viewed as simply qualifying the indemnity provision contained in the Water Corporation's Conditions of Contract. However there is an important difference between the circumstances in Forbes' case and the present matter. The interpretation of the indemnity clause contained in the Water Corporation's Conditions of Contract and cl 14 and cl 15 of Cardno BSD's Standard Terms of Appointment is governed not by such principles of law but by the contractual term that where there is a clash between the two provisions, then the Water Corporation's Conditions of Contract prevail. The test then is simply whether the terms clash. For the reasons I have given earlier, I believe they do clash and therefore the Water Corporation's Conditions of Contract prevail.
Counsel for Cardno BSD has also submitted that the Water Corporation's engagement of Cardno BSD to prepare design drawings of the pump station (with overflow pipes) was pursuant to an amended version of the Panel A contract which removed the provision that where there was a clash between the Water Corporation's Conditions of Contract and the Standard Terms of Appointment of Cardno BSD the Water Corporation's conditions prevailed. The Panel A contract contained an expressed provision that the contract could be amended by the parties in writing. Counsel for Cardno BSD relies upon the fact that after the Water Corporation wrote to Cardno BSD in September 1999 to initially engage it to prepare the design drawings of the pumping station, Cardno BSD responded by sending a fee proposal and attaching to the fee proposal a copy of its Standard Terms of Appointment without the annexure covering sheet stating that the Water Corporations Conditions of Contract prevail in the event of a clash. The Water Corporation accepted the proposal and instructed Cardno BSD to proceed with the relevant works. It is argued that in the absence of the Annexure A cover sheet, the Standard Terms of Appointment gained a new prominence and were not restricted in their operation by any clash with the Water Corporation's Conditions of Contract. I reject this submission. It is clear that the engagement in September 1999 was pursuant to the existing Panel A contract. It was an express contractual undertaking that the Panel A contract would apply to future engagements. Given the contractual arrangement in place, there would need to be clear wording indicating an intention on the part of both parties to amend the contract by removing the provisions contained in the Annexure A cover sheet. Accordingly, the provision providing that the Water Corporation's Conditions of Contract prevail continued to apply for each subsequent engagement pursuant to the Panel A contract.
Issue 3 If Panel A contract applies is the claim by Water Corporation statute barred from making a claim under that Contract by virtue of the provisions of s 13 of the Limitation Act 2005 (WA) or alternatively s 38 of the Limitation Act 1935 (WA)?
The issue of whether a claim under the Panel A is statute barred need not be decided. This is because during the trial Cardno BSD amended its defence to admit that it had been in breach of its tortious duty of care and abandoned any claim for contributory negligence. As a result of this amendment Cardno BSD is liable to the Water Corporation at the very least in tort (subject to whether cl 14 and cl 15 of the Standard Terms of Appointment restrict the liability which I have already ruled in this decision in the negative). There was also a related issue of whether Cardno BSD was estopped from relying on the statutory limitation period but again this issue no longer requires my consideration.
Issue 4 If Cardno BSD is liable for the full extent of the loss and damage suffered by the Water Corporation, what is the correct assessment of such damages? Is the deduction for salvage of their replaced pipes to be based upon the value at the time of the breach or at the time the pipes were used?
It is common ground in these proceedings that the net loss suffered by the Water Corporation in replacing the Class 2 pipes before an allowance is made for salvage is $461,155.06. This is made up as follows:
Costs of Class 2 pipes in 2003 $ 73,944.00
Costs of replacement Class 4 pipes in 2006 $214,400.00
Labour and other costs incurred in replacing pipes $334,211.06
Subtotal$622,555.06
Less amount that would have been spent
on Class 4 pipes in 2003 $161,400.00
Nett loss$461,155.06
The Water Corporation received a without prejudice settlement of $30,000 from a second defendant which reduces the claim against Cardno BSD to $431,155.06.
A dispute remains as to what is the correct calculation of a further adjustment that should be made for the salvage of the Class 2 pipes. It is an agreed fact that the Class 2 pipes were refurbished and tested and 33 of them were available for use in 2006. It is an agreed fact that the Class 2 pipes were not stockpiled and I assume by this that they were in fact used on other projects. Cardno BSD contends that if the Water Corporation had not been able to use the pipes it would have been forced to buy new pipes, which in 2006 would have cost the Water Corporation $122,560. The value of the pipes in 2006 is agreed at this figure. Accordingly, Cardno BSD submits that the correct calculation of damages is as follows:
Nett loss$431,155.06
Less benefit received from using Class 2 pipes in 2006 $122,560.00
Add costs of refurbishing and testing pipes (as agreed) $ 44,177.55
Balance$352,772.61
The assessment of damages should be assessed on basis of the cost of making good the loss suffered (Bellgrove v Eldridge (1954) 90 CLR 613). On this basis the Water Corporation submits that the assessment of damages should be based on costs that were actually incurred and the salvage value of the Class 2 pipes should be based upon the costs incurred by the Water Corporation when the pipes were purchased in 2003. Accordingly, the Water Corporation's case is that the following adjustment should be made for the subsequent use of the Class 2 pipes in other projects:
Nett loss$431,155.06
Less value of Class 2 pipes available $ 73,944.00
Add costs of refurbishing and testing pipes $ 44,177.55
Add value of pipes not used (agreed by the parties) $ 4,266.00
Balance$405,654.61
The allowance to be made for salvage of the Class 2 pipes arises out of the general legal principle that a plaintiff injured by a breach of contract or by a breach of duty in tort has an obligation to mitigate the loss suffered. The obligation requires a plaintiff to take all reasonable steps to mitigate the loss consequent on the breach and bars him from claiming any part of the damage which is due to his neglect to take steps to mitigate. A plaintiff is not under an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the breach, the effect of which is to actually reduce the loss he has suffered, this must be taken into account even though there was no duty on him to do so (see British Westinghouse Electric & Manufacturing Company Ltd v Underground Electric Railways Company of London [1912] AC 673 per Viscount Haldane LC at p 689 with whom other members of the House of Lords agreed). The effect of the legal principle enunciated in British Westinghouse (supra) is that where the plaintiff goes beyond what is his obligation to mitigate, he must still account for the advantage he has so received if his steps arose out of the breach giving rise to the claim for damages. This is well demonstrated by the facts in the case of British Westinghouse. In that case turbines were supplied to a railway company and the turbines were deficient in power and not in accordance with the contract. The railway company used the turbines for a period (reserving its right to claim damages) but ultimately replaced them with more efficient turbines than was provided by the contract. This led to a pecuniary advantage in terms of improved production which the House of Lords ruled had to be taken into account.
The principle is also well illustrated by one of the cases referred to in Viscount Haldane's decision in the British Westinghouse case. In Staniforth v Lyall (1830) 7 Bing 169, the plaintiff was the owner of a vessel chartered by the defendant to collect goods in New Zealand. The vessel went to New Zealand but neither the New Zealand contact nor the goods were there. On returning back to the UK the vessel travelled via Batavia and in doing so was able to pick up cargo from which the owners of the vessel made more profit than would have occurred under the original charter from the defendant. The court ruled that the plaintiff was to account for the advantages which had accrued to it because of the course it had chosen to adopt.
Both of these cases of British Westinghouse and Staniforthv Lyall (supra) involved the claimants receiving clear net pecuniary benefits out of the steps taken by them and it was these net pecuniary benefits that the plaintiffs were required to account in the assessment of damages (see also Westwood v Secretary of State for Employment [1985] AC 20 per Lord Bridge of Harwich at p 44; Martin CJ in Liddelow v Gelavis (No 2) [2008] WASC 64).
The issue in this case can be condensed into the question, "Did the Water Corporation make a net gain by having available the Class 2 pipes in 2006 when it had acquired them in 2003 for $73,944 (less costs of refurbishment and testing) but which had increased in value to $122,560?"
On the evidence before me I cannot conclude that the Water Corporation has made a net gain. This is because it is necessary to take into account inflation and the loss of use over approximately three years of the $73,944 initially invested in purchasing the pipes in 2003. To conclude there was a net gain would be based upon a comparison of the value of the pipes in 2003 and 2006, which is too simplistic. This differs from the factual scenarios in cases such as British Westinghouse and Staniforth v Lyall where the net gain was clearly identifiable and was not due to inflationary factors.
However, that is not the end of the matter. The Water Corporation in calculating its gross loss of $431,155.06 (an amount agreed to by the parties) took into account the purchase price of replacing Class 4 pipes in 2006, the refurbishment and testing costs on the Class 2 pipes in 2006 and the labour costs in 2006 when the pipes were replaced. The flaws in the Class 2 pipes were detected on 8 July 2003. Some evidence was given that the delay in replacing the pipes occurred due to the need to fully investigate the matter. It may well be that the delay was reasonable based upon a need to call in experts and other factors. However, the effect of the delay was that the costs of purchasing Class 4 pipes, the costs of refurbishing and testing of the Class 2 pipes and the labour costs of replacing the pipes, have all been set at inflated prices that existed in 2006. In those circumstances I conclude that the assessment of the Water Corporation damages ought to take into account that in 2006 the Water Corporation was able to use the Class 2 pipes in projects when the acquisition of those pipes in 2006 would have otherwise cost it $122,560. I believe that by taking the 2006 value of the Class 2 pipes for the purposes of the calculation leads to a more accurate picture of the actual loss suffered by the Water Corporation given that the other critical expense items were all calculated at 2006 values. Accordingly, I conclude that the proper assessment of the damages payable to the Water Corporation should be reduced to $352,772.61.
Issue 5 What interest on damages, if any, should be awarded?
The Water Corporation claims interest on damages pursuant to s 32 of the Supreme Court Act. Section 32 gives a court a discretion to add a sum of interest to money in judgments in order to compensate plaintiffs for being kept out of their money: Grove v Fisher & Anor [2002] WASC 247, Hasluck J at [34], Koh & Anor v Pateman & Anor [2005] WASC 172, Symonds J.
In this matter the claim for damages is based up the value of replacement pipes purchased in 2006 but no evidence was lead as to the exact date various expenses were incurred. Proceedings in this matter were not commenced until 20 December 2007. Evidence was given in interlocutory proceedings before me that a delay had occurred in commencing proceedings due to negotiations (see Water Corporation v Cardno BSD Pty Ltd [2009] WASCA 212) but no evidence of this was presented at trial.
In the circumstances I do not believe there is adequate material for me to exercise a discretion to award interest prior to the commencement of proceedings.
It was submitted on behalf of Cardno BSD that no interest should be awarded because it was only during the course of the trial that the Water Corporation located and disclosed a copy of the amended example drawing dated 25 February 2002. Accordingly, it is submitted that up until this document was produced it was reasonable for Cardno BSD to deny a breach of a duty of care. However, as indicated earlier in this decision, putting aside the example drawing dated 25 February 2002, there is sufficient evidence to establish on the balance of probabilities that Cardno BSD had been provided with a copy of the amended example drawing sometime between January and May 2002. At the time of the issue of the writ in these proceedings Cardno BSD ought to have appreciated it had been in breach of its duty of care and accordingly, there is no reason why the Water Corporation should not be entitled to interest at least from the date of the commencement of proceedings.
Accordingly, I conclude that in the exercise of my discretion that interest should be awarded from the time of the issue of the writ. The rate of interest should be 6 per cent per annum (see Duvall v Godfrey Virtue & Co (A firm), SCt of WA; Library No 970510; 24 September 1997 and cl 4 of the Civil Judgments Enforcement Regulations 2005).
Conclusion
For the above reasons I conclude that Cardno BSD is liable to the Water Corporation for damages of $352,772.61 plus interest at 6 per cent as from the date of the issue of the writ. I will give counsel an opportunity to file an agreed minute as to the quantification of the interest awarded.
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