Carter Holt Harvey Limited v Genesis Power Limited HC Auckland CIV 2001-404-1974

[2007] NZHC 1978

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2001-404-1974

BETWEEN  CARTER HOLT HARVEY LIMITED Plaintiff

AND  GENESIS POWER LIMITED First Defendant

AND  ROLLS-ROYCE NEW ZEALAND LIMITED

Second Defendant

AND  ROLLS-ROYCE POWER ENGINEERING PLC Third Party

Hearing:         24 July 2007

Counsel:        B R Latimour, I M Gault and B McKinley for Plaintiff

S W B Foote and C L Bryant for First Defendant

B W F Brown QC and G Christie for Second Defendant and Third

Party

Judgment:      8 August 2007

RESERVED JUDGMENT (NO 6) OF RANDERSON J

This judgment was delivered by me on 8 August 2007

at 12.30 pm, pursuant to r 540(4) of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Hesketh Henry, Private Bag 92093, Auckland

Simpson Grierson, Private Bag 92518, Wellesley Street, Auckland
Bell Gully, PO Box 4199, Auckland
Counsel:
D A R Williams QC, P O Box 405, Auckland

B W F Brown QC, P O Box 5161, Wellington

CARTER HOLT HARVEY LIMITED V GENESIS POWER LIMITED AND ANOR HC AK CIV 2001-404-

1974 8 August 2007

Introduction

[1]      This judgment deals with various interlocutory applications. Several were resolved between the parties, the details of which are:

a)       The applications by the first and second defendants for inspection, sampling and testing of the co-generation plant have been resolved in terms of a joint memorandum of counsel dated 24 July 2007.  Those applications are formally adjourned and leave is granted to any party to apply should difficulties arise in implementing the agreement.

b)       The  application  by  the  plaintiff  against  the  second  defendant  for further particulars is not pursued and is dismissed.

c)       The first defendant is ordered to provide to the plaintiff the further particulars set out in paragraph 41 of the plaintiff’s submissions dated

24 July 2007.    Those particulars are to be provided by 31 August

2007.

The application by the first defendant for further particulars of the fifth amended statement of claim filed by the plaintiff.

[2]      The first defendant (ECNZ/Genesis) has sought extensive further particulars against the plaintiff (Carter Holt).   That application is to be assessed against the following background:

a)        This proceeding was commenced in 2001.

b)       It relates to major contracts for the construction of a co-generation plant at Carter Holt’s Kinleith Mill.

c)       It concerns two principal contracts:  a co-generation contract between Carter Holt and ECNZ/Genesis dated 31 May 1995 and a separate turnkey contract dated 4 July 1995 executed between ECNZ/Genesis and the second defendant  (Rolls-Royce), in terms of which Rolls-

Royce  was  to   design,   manufacture,   construct,  install,   test   and commission the plant.

d)The principal claim against ECNZ/Genesis is that it breached the co- generation contract by failing to use its best endeavours to ensure the plant was manufactured, constructed, installed, erected and commissioned in terms of the turnkey contract.

e)       Carter Holt also alleges that Genesis breached an amending agreement dated 30 June 1999 relating to the remediation of defects in the plant.

f)        Carter Holt’s main claim against Rolls-Royce is that it gave negligent advice to Carter Holt as to the suitability of the design of the plant.

g)Commissioning of the plant commenced in April 1997.   A Taking- Over Certificate was issued on 19 January 1998 subject to  certain exceptions and a list of items for Rolls-Royce to complete or correct.

h)       Defects liability periods ran for 365 days and 730 days respectively from 19 January 1998.

i)        Defects Liability Certificates were issued under the turnkey contract on 29 January 1999 and 13 October 1999.

j)        Carter Holt alleges that, from the outset, the plant has not met the key design parameters specified in the turnkey contract.  These included specifications on such matters as plant availability; the wood waste handling system and steam production.

k)Carter   Holt   alleges   that   despite   extensive   correspondence   and discussions with ECNZ/Genesis, the difficulties with the plant were not resolved.   From late 2000, extensive remediation work has been carried out on the plant by Carter Holt; some of the problems have been resolved but the plant is still not performing to the design parameters; and on-going work will be required for some years yet.

l)        Losses in the order of $100 million are claimed covering remediation costs  (past  and  future)  and  other  sums  for  additional  gas  and electricity costs and for lost productivity.

m)      The  defendants deny responsibility and  allege any defects  are  the responsibility of Carter Holt arising from the way it has operated the plant.

n)       ECNZ/Genesis has a cross-claim against Rolls-Royce alleging that if there is any responsibility to Carter-Holt, it is properly a liability of Rolls-Royce.  In that respect, Rolls-Royce denies any responsibility to ECNZ/Genesis and  raises positive defences  based  on  a  settlement agreement reached with ECNZ/Genesis on 10 June 1998 and the Defects Liability Certificates issued under the turnkey contract in January and October 1999.

o)       Carter-Holt served its briefs of evidence on issues of fact between 30

June and 9 July 2007; ECNZ/Genesis and Rolls-Royce have until 31

August 2007 to serve their evidence in response; and Carter Holt is due to deliver its expert briefs of evidence by 26 October 2007.

p)       The trial is not due to commence until 3 June 2008.

Principles

[3]      Rule 108(b) High Court Rules requires a statement of claim to give such particulars  of  time,  place,  amounts,  names  of  persons,  nature  and  dates  of instruments, and other circumstances as may suffice to inform the Court and the parties of the plaintiff’s cause of action.

[4]      The purpose of the rule is helpfully discussed by the Court of Appeal in Price Waterhouse v Vortex Group Ltd CA179/98 30 November 1998.   Speaking for the Court, McGechan J stated at page 13:

What we are saying is that both the Court and opposite parties are entitled to be advised of the essential basis of a claim or defence, and all necessary

ingredients  of  it,  so  that  subsequent  processes  in  the  trial  itself  can  be conducted against recognisable boundaries.

[5]      A statement of claim is expected to convey the basic facts said to give rise to the claim but not at the level of full disclosure of evidence and documentation.

[6]      As the Court recognised in Price Waterhouse, it is often difficult to identify a clear dividing line between facts and evidence noting (at 14) that “in the end a common-sense and balanced judgment  based on experience as to  how cases are prepared and trials work is required”.

[7]      Although briefs of evidence are not to be treated as a substitute for pleadings, it is unrealistic to ignore material supplied in briefs of evidence particularly where they are delivered well in advance of the trial date as is the case here.  If sufficient particulars are provided, it is for the defendants to analyse the material and work out their response.  They cannot expect the plaintiff to do that for them.

[8]      Finally, it should not be overlooked that there have been extensive dealings between Carter Holt and ECNZ/Genesis over the alleged defects and remediation work.   Much of this material has been documented in correspondence or e-mails between the parties.  In addition, the plant has been inspected by the defendants and their expert advisers on a number of occasions over the period from 1998 to the present.   Further inspections will be carried out in September this year as agreed between the parties.

Paragraph 58

[9]      Carter Holt alleges ECNZ/Genesis accepted deficient design work by Rolls- Royce  including,  without  limitation,  the  design of the  woodwaste handling,  ash handling, boiler, boiler grate, turbine and generator areas of the plant.

[10]     ECNZ/Genesis seeks particulars of when and by whom the alleged deficient design work was accepted by Rolls-Royce.  Carter Holt responds by saying that the particulars are unnecessary but states that the acceptance of deficient design work all occurred after 4 July 1995, the effective date of the co-generation contract.

[11]     In my view, Carter Holt should also give particulars of when and how each of the design defects was accepted by Genesis.   Wherever it is possible to do so, the name of the person or persons accepting the deficient design work should also be provided.  If it is not possible to be specific about particular design defects, inclusion in categories or groups is acceptable.

Paragraph 68

[12]   Carter Holt alleges in this paragraph that ECNZ/Genesis breached the Amendment Agreement by failing to use best endeavours to procure Rolls-Royce to perform its obligation under the turnkey contract to remedy defects in the plant.

[13]     Although all the alleged defects are identified in Appendix 1 of the Fifth amended statement of claim, ECNZ/Genesis seeks particulars as to when and by whom, notice was given to ECNZ/Genesis of each of the defects.

[14]     ECNZ/Genesis submitted that the dates on which defects were notified are important in establishing whether liability exists under the Amendment Agreement. That is disputed by Carter Holt as a matter of interpretation.   It was submitted for Rolls-Royce that these dates were also important from the point of view of resolving issues as between ECNZ/Genesis   and Rolls-Royce.    In  particular,  it  would  be important  to  establish  whether  defects  were  known  or  arose  during  the  defects liability periods under the turnkey contract.

[15]     Having reviewed the evidence of Mr Reid (one of the key witnesses for the plaintiff) it is evident, as Mr Latimour submitted on Carter-Holt’s behalf, that Carter Holt  accepts it  was aware from the outset that the plant  was not  performing  in accordance with the design parameters but it is said that the precise causes of those alleged failures only became apparent over a period of time.  Some care is needed when the term “defects” is used.  In Appendix 1 it is used to describe both failures to meet the specified design parameters and the particular mechanisms which caused those failures.  While it is alleged that all the defects now specified in Appendix 1 of the Fifth amended statement of claim were in existence during the defects liability period or periods, the particular defects which gave rise to failures to meet the design

parameters were not necessarily known by Carter Holt during that period.  A number became evident after that time as investigations continued into the causes.

[16]     While I accept it may be of some use in the overall resolution of this claim for the defendants to know when Carter Holt became aware of each of the alleged defects, I do  not  regard this  information as properly the subject  of a claim for particulars.  I am satisfied that the alleged defects are very fully stated in Appendix

1.    The  evidence  of  Mr  Reid  (supplemented  by  that  of  Mr  Waugh)  provides extensive evidential background relating to each of the defects and the remediation work undertaken.   In each of the years 2000-2005 Carter Holt wrote to Genesis outlining in detail Carter Holt’s current understanding of the defects and the steps being taken for mitigation and remediation of them.  Carter Holt did not undertake any remediation work until late 2000 or in 2001 which was well after the expiry of the defects liability periods.

[17]     I am satisfied that the extent to which Carter Holt was aware of specific defects prior to the commencement of remediation work in late 2000 or 2001 and the precise dates on which they became  aware  of or  notified  particular  defects  are matters of evidence.  Carter Holt is not required to provide particulars to support an interpretation of the Amending Agreement it does not accept.  It has not pleaded it notified defects to the defendants during the Defects Liability period.   If it  was required to give such notice as the defendants contend, then it will be a matter for the trial judge to determine the legal consequence of any failure to do so.

[18]     As  to  evidence  on  this  point,  the  defendants  have  obtained  extensive discovery of relevant documents and they now have the plaintiff’s briefs of evidence on questions of fact.  This request for further particulars is declined.

Paragraph 92(a)(ii)

[19]     I record it is agreed that Carter Holt will give ECNZ/Genesis particulars of when, how and by whom the specified advice was given to Mr Haugh.

[20]     Appendix 1 is some nine pages in length and specifies approximately 100 separate defects.    In general,  I  am satisfied  that  adequate particulars have been provided.   While there are some areas where more precision might have been desirable, any shortcomings are adequately addressed in the extensive brief of evidence of Mr Reid in particular.   His evidence details with precision the defects identified and the effects which those defects had on the design parameters.  Given the extensive list of defects, it is unreasonable to expect a statement of claim to provide further particulars than those provided.

Particulars of quantum – Appendix 2

[21]     Appendix  2  of the  Fifth  amended  statement  of claim  sets  out  details  of quantum.  The amount sought for past remediation costs is $15.7 million.  The total losses for each of the years 2001-2006 are specified.  The work carried out in each of those years is also identified but no separate figure is given for each of the items specified.  Although Mr Tribbe produces a line by line analysis of the costs, it would require extensive work to relate each item of expenditure to the repairs specified in Appendix 2.   A separate project number has been generated for each category of repairs and I consider it is appropriate for Carter Holt to provide particulars of the amounts spent on each of the identified items in Appendix 2 in each of the relevant years.   In that respect, I note that the claim for future remediation costs of some

$19.9 million specifies amounts for each item identified.

[22]     Carter  Holt  claims  $22.6  million  for  past  additional  gas  costs  and  $5.2 million for future additional gas costs.  ECNZ/Genesis seeks particulars of which of the defects have contributed to these losses bearing in mind that some defects have been resolved at earlier stages and, presumably, no longer contribute to on-going losses.  I consider it is appropriate for Carter Holt to provide particulars of which of the defects contributed to the losses claimed in each of the years 1998-2006 and which defects are expected to contribute to the future losses claimed for each of the

years 2007-2022.  I recognise it may not be possible for Carter Holt to attribute these losses to each of the specific defects.   On that assumption, what is required is for Carter Holt to identify the principal causes of these losses in each of the relevant years by reference to appropriate categories or groups of defects.

[23]     The same particulars should be provided in respect of the claims for past additional electricity costs ($4.5 million); past lost productivity ($14.4 million); and future lost productivity ($6.2 million).

[24]     I also consider it is appropriate that Carter Holt provide particulars of the calculation for each of the amounts claimed for past and future additional gas costs and past and future lost productivity.   The variables used in the calculations are given and the losses per year are stated but particulars of the calculations for each of the years are to be provided.

[25]     I also accept that Carter Holt should provide similar particulars for past and future  additional  maintenance  costs  claimed  in  para    62(f)  and  (i)  of  the  Fifth amended statement of claim.

[26]     ECNZ/Genesis also seek details of the current availability of the plant  in order to assess the reasonableness of the claim for a new gas boiler said to cost

$19.74 million.  Carter Holt is to provide particulars of the parts of the plant that do not currently meet the availability requirements and the extent of the deficiency.

[27]     I  accept  the  submission  made  for  ECNZ/Genesis  that  there  are  some difficulties in linking the defects specified in Appendix 1 with the losses specified in Appendix  2  and  the  remedial  work  identified  in  Appendix  3.    However,  the particulars ordered should go a substantial way towards clarifying these links.  Any further clarification is essentially a matter of evidence.   It is for Carter Holt to determine whether some additional schedule linking the relevant items would be of assistance to the Court and the parties.  However, I do not consider the production of such a schedule is required by way of particulars.

[28]     In  summary,  I  order that  the  plaintiff  provide  to  the  first  defendant  the following further particulars of the Fifth amended statement of claim:

a)        Paragraph 58 – when how, and by whom each of the design defects was accepted by the first defendant.

b)       Paragraph 92(a)(ii) – when, how and by whom the specified advice was given to Mr Haugh.

c)        Quantum:

i)        Past Remediation Costs – Particulars of the amount spent for each item listed for each of the years 2001-2006.

ii)       Past Additional Gas Costs – Particulars of which defects have contributed to the past losses for each of the years 1998-2006 and how those losses are calculated.

iii)      Future Additional Gas Costs - Particulars of which defects will contribute to future losses for each of the years 2007-2022 and details of how those losses are calculated.

iv)      Past Additional Electricity Costs – Particulars of which defects have contributed to the past losses for each of the years 1999-

2004 and details of how those losses are calculated.

v)       Past  Lost  Productivity  –  Particulars  of which  defects  have contributed to the past losses for each of the years 1998-2006 and details of how those losses are calculated.

vi)      Future Lost Productivity – Particulars of which defects will contribute to future losses for each of the years 2007-2022 and details of how those losses are calculated.

vii)      Past  Additional  Maintenance  Costs  –  Particulars  of  which defects have contributed to past losses for each of the years claimed and details of how those losses are calculated.

viii)     Future Additional Maintenance Costs – Particulars of which defects will contribute to future losses for each of the years claimed and details of how those losses are calculated.

ix)      Current Availability – Particulars of the parts of the plant that do not  currently  meet  the  availability requirements and  the extent of the deficiency.

[29]     Those further particulars are to be provided by 31 August 2007.

[30]     These orders are subject to the qualifications expressed in the body of this decision.

[31]     Liberty to any party to apply is reserved.  Costs are reserved.

A P Randerson, J Chief High Court Judge