H Infrastructure Limited (in receivership and in liquidation) v Worley New Zealand Limited
[2022] NZHC 1316
•3 June 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-154
[2022] NZHC 1316
IN THE MATTER of a claim for breach of a Pre-Bid
Consultancy Agreement dated 19 October 2015
BETWEEN
H INFRASTRUCTURE LIMITED (IN
RECEIVERSHIP AND IN LIQUIDATION)
PlaintiffAND
WORLEY NEW ZEALAND LIMITED
Defendant
Hearing: 19 – 23 and 28 July 2021 Appearances:
K M Quinn and S A Rankin for Plaintiff
C L Bryant, G J Luen and K Kyung for Defendant
Judgment:
3 June 2022
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 3 June 2022 at 4.50 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
Re-delivered at 11 am on 23 August 2022
Solicitors: Heimsath Alexander, Auckland
Hesketh Henry, Auckland
Counsel:K M Quinn, Auckland S A Rankin, Auckland
H INFRASTRUCTURE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) v WORLEY NEW ZEALAND LIMITED [2022] NZHC 1316 [3 June 2022]
Contents
Background.......................................................................................................... [3]
PBCA[6]
Designs[10]
Tender[16]
Post-acceptance[18]
Claim[26]
Personnel and sale[27]
Issues................................................................................................................... [32]
Summary of parties’ cases on liability[36]
Relevant provisions of the Pre-Bid Consultancy Agreement[39]
Tender services — Schedule 2[45]
Discussion[55]
Does cl 20.5 exclude Worley’s liability?............................................................ [60]
Discussion[69]
Damages.............................................................................................................. [74]
Evidence[80]
Counterfactual[83]
1(a) — mooring piles[85]
4 — gangway landing structural change to barge[93]
11 — ballast to hull[99]
14 — painting of mooring items[105]
16 — on-site installation of new items associated with gangway and truss[112]
Overheads[124]
Contributory negligence.................................................................................. [132]
Result................................................................................................................ [141]
Interest and costs[147]
[1] The plaintiff, H Infrastructure Ltd (in receivership and liquidation) (“HIL”), sues the defendant, Worley New Zealand Ltd (“Worley”), to recover losses it says it incurred as a result of a breach of warranty by Worley, that warranty being contained in a Pre-Bid Consultancy Agreement (“PBCA”) executed in October 2015.
[2] Worley denies any breach and relies on several affirmative defences, including that HIL was contributorily negligent. Worley also counterclaims and/or seeks a setoff for a sum that HIL accepts is due to Worley for services rendered.
Background
[3] In September 2015, the New Zealand Defence Force (“NZDF”) issued a Request For Tenders (“RFT”) for the construction of a seamanship training aid (“STA”) to be moored at the Devonport Naval Base in Auckland. Included in the NZDF tender documentation was the Royal New Zealand Navy’s User Requirement Document (“URD”). Tenderers were required to submit a fixed price tender for the design and construction of the STA by 4 December 2015. Any tender was to be in accordance with the URD.
[4] The STA was to be a barge fitted out with infrastructure or equipment commonly found on a Navy vessel, to enable the training of naval cadets in a safe, “on the water”, environment. Accordingly, the RFT required the STA to provide for matters such as a platform for the “swimmer of the watch”, a “VEST Davit” for the launching and recovery of small craft; a “pilot ladder”; and an “accommodation ladder”. As I have said, the STA was to be moored at the naval base, and it is the mooring arrangement that Worley initially proposed and then altered that has led to this litigation.
[5] On learning that the RFT was to be issued, Worley asked HIL if it wished to submit a tender, with HIL as head contractor and Worley, an engineering firm, its design consultant. The two companies had worked together previously. HIL agreed to submit a tender. There is no dispute that Worley had expertise in designing marine structures, and that this was one reason HIL agreed to proceed.
PBCA
[6] On 22 October 2015, Worley sent HIL a draft of the PBCA, which Worley itself had already executed. The draft was largely based on an earlier agreement between the parties in relation to a different project. HIL executed the PBCA on 27 October 2015.
[7] The PBCA set out the services which Worley would provide to HIL prior to HIL lodging its tender, and the terms on which Worley would do so. Worley’s main task pre-tender was to provide a design of the STA incorporating the infrastructure to which I have referred and showing how the STA would be moored. Worley was also to provide a “Material Take Off” (“MTO”) comprising a list of the materials and quantities required to enable HIL to price its tender on the basis of the design. The agreed fee for Worley’s services under the PBCA was $27,400 excluding GST.
[8] The PBCA provided for Worley to work exclusively with HIL (cl 2); set out the services Worley was required to provide and warranties it gave (cl 3 and schedule 2); committed the parties to work with each other if HIL was the successful tenderer; and made provision for the circumstances in which Worley would be liable to HIL (cl 20).
[9] If HIL’s tender was successful, there would then be another contract between HIL and Worley recording the services that Worley would provide in the post-tender, construction phase of the project, and the terms on which it Worley would do so. In due course, this agreement became a “Professional Services Agreement” (“PSA”) between the parties.
Designs
[10] In October 2015, Worley provided HIL with four designs for the STA. The designs showed the layout of the STA, with the required equipment and infrastructure, and it also showed how the STA was to be moored. One of the four designs showed the STA moored to a “truss”. The other three provided for the barge to be moored to two piles, one at each side of its bow (“two-pile solution”). The two-pile solution
provided for the barge to be attached to the two piles by detachable “sleeves” which would enable the barge to move up and down the piles with the tide.
[11] HIL expressed a preference for two of the designs, each including the two-pile solution.
[12] Following this, on or about 26 November 2015, Worley provided HIL with further designs of the two preferred options and an MTO.
[13] On 27 November 2015, Worley provided HIL with a proposal setting out the services it would provide and the investigations it would undertake, as well as its proposed fee of $337,400 (excluding GST), in the construction phase of the project, that is if HIL’s tender was successful. It was necessary to settle Worley’s fee and the services it was to provide prior to lodging the tender, so that the bid could be priced.
[14] That same day Worley also provided information for HIL to include in its tender, commenting on its design and its advantages, assumptions that Worley had made, and a table of “Risks”. Worley did not, however, identify a risk to a possible change in the mooring design.
[15] Construction of the barge was to be carried out by South Pacific Industrial Ltd (“SPIIND”) which HIL had engaged for that purpose. On 1 December 2015, SPIIND provided HIL with its quote for constructing the barge according to Worley’s design.
Tender
[16] HIL submitted its tender on 4 December 2015, including Worley’s two concept designs, both showing the barge moored by the two-pile solution. The only difference between the concept designs was that one had the barge moored to the east, and the other to the west. Annexed to this judgment is a detail from one of the concept designs included in the tender which shows how the barge was to be moored.
[17] On 24 March 2016, NZDF informed HIL that it was the preferred contractor for the project. On 19 May 2016, NZDF issued a formal acceptance of HIL’s tender and, on 14 July 2016, NZDF and HIL entered into a Design and Build Construction
Contract for the STA. Amongst other things, this provided for the detailed design of the STA to be completed by 26 August 2016.
Post-acceptance
[18] By this time, HIL and Worley had entered into the PSA to which I have referred above.
[19] On 10 August 2016, Worley, now embarked on detailed design work, advised HIL that its “analysis is showing the mooring/pile loads for the barge are higher than we were initially anticipating”. Worley said it had been “trying to reduce the pile loads by various means ... [but that] the loads have not come down enough. They are still too high to make the current pile/fender sleeve work. The pile sizes would be unrealistically large.”
[20] Essentially, this advice was a reference to the results of a “dynamic mooring analysis” that Worley had commenced. This was one of the investigations both parties understood that Worley would undertake in this phase of the project. It is important to note, however, that Worley undertook the analysis by reference to wind and wave data identified in the URD which formed part of the tender documentation.
[21] By its analysis, Worley had determined that the loads that the waves would exert on the mooring piles in the two-pile solution would be too great, making it necessary to change the manner in which the barge would be moored. Worley advised that its new design provided for the barge to be moored or attached to a truss, which itself would be moored to two piles. This mooring arrangement was more complex, and more expensive to construct and maintain than the two-pile solution. It is common ground that the changed mooring arrangement also carried with it some other, consequential, changes.
[22] The revised design was provided to NZDF, following which there was a period of consultation between HIL, NZDF, and NZDF’s consultants, the Business Intelligence Group.
[23] NZDF agreed to the new design on 6 October 2016, following which Worley provided HIL with a final design of the mooring truss arrangement. The STA was moored in accordance with that design.
[24] The project was completed in about September 2018. HIL was issued with a certificate of practical completion on 14 September 2018.
[25] A photograph of the truss as installed, or almost installed, is also annexed to this judgment.
Claim
[26] On 9 December 2016, HIL put Worley on notice that it considered Worley had breached the PBCA and that its loss as a result of the breach was not less than
$700,000. Worley replied on 21 December 2016, rejecting any liability.
Personnel and sale
[27] Mr Samuel Hooper-Smith, HIL’s project manager for this contract, left HIL in June 2016. Mr Sarwindar Sandhu became the project manager after Mr Hooper-Smith resigned. Mr Sandhu remained as the project manager until December 2017 when he left to take up a position with another firm.
[28] Prior to this, HIL had sold its most significant assets, including several projects, to Downer EDI Ltd (“Downer”). This sale took place on 31 March 2017. As part of the transaction, Downer assumed the employment of HIL’s staff, including Mr Sandhu, as of that date.
[29] The STA project was not one sold to Downer but was retained by HIL, or its owner, McConnell Group. That said, McConnell Group and Downer had agreed that Downer would provide resources and services to enable completion of the project. Hence Mr Sandhu’s continued involvement.
[30] Mr Rory Bishop was HIL’s general manager between November 2014 and March 2017. Mr Bishop had become more closely involved in the project when the
magnitude of the change from the two-pile solution to the truss design was understood. Mr Bishop resigned from HIL at the time of the sale to Downer. He and two colleagues at HIL then established their own business, Alta Consulting (“Alta”). To ensure a complete retention of key personnel, McConnell Group engaged Alta to see the project through. Hence Mr Bishop’s continued involvement.
[31] A receiver was appointed to HIL in late-November 2019 and a liquidator appointed on 11 December 2019. HIL commenced these proceedings on 3 February 2020, seeking damages for breach of contract. The damages comprise costs HIL incurred, or alleges it incurred, as a result of the change from the two-pile solution to the truss design. Subject to liability, Worley accepts some of these changes and items of expense. However, several are in dispute as to causation and/or quantum.
Issues
[32] The first issue is whether Worley breached a warranty or warranties in the PBCA.
[33] Worley denies doing so. If I find against Worley on that point, as I do, the issues to be considered are:
(a)whether cl 20.5 of the PBCA precludes any recovery by HIL;
(b)if not, quantum; and
(c)whether HIL was contributorily negligent.
[34] It is common ground that cl 20.4 of the PBCA caps Worley’s maximum liability under the PBCA at $1,000,000. If I were to find that HIL was contributorily negligent, it would be necessary to consider whether Worley’s maximum liability is
$1,000,000 prior to or post any deduction that might be necessary on that ground.
[35] Worley counterclaims or seeks a set-off in respect of the balance of fees due to it, being $120,081.01. HIL accepts that this sum is due to Worley.
Summary of parties’ cases on liability
[36] There is no dispute that the two-pile solution in Worley’s tender design could not be used to moor the barge, as the wave loads that would have been exerted on the piles were too great.
[37] The issue as to liability is whether Worley was in breach of warranty by providing that design for inclusion in HIL’s tender. HIL’s case is that it was.
[38] Worley’s case is that it was not in breach of warranty as the PBCA required it to produce a “concept” design, and it did so. Worley also submits that HIL knew that it had not undertaken the investigations required to arrive at a final design; that HIL knew this both from the relatively modest fee Worley had charged under the PBCA but also because HIL knew detailed investigations would only take place if and when NZDF awarded HIL the contract. Worley’s case is that how the barge was to be moored was within the scope of change which could reasonably be expected after these investigations took place.
Relevant provisions of the Pre-Bid Consultancy Agreement
[39] The critical provisions of the PBCA for present purposes are cls 3.1 and 3.3, and several provisions of schedule 2 which set out the tender services Worley was to provide.
[40] Turning first to cls 3.1 and 3.3 of the PBCA, cl 3.1 imposed an obligation on Worley to use due skill, care and diligence in executing and completing the tender services. In cl 3.3 Worley warranted certain matters. I shall focus on cl 3.3 as Mr Quinn, for HIL, rested HIL’s case on this provision.
[41]The recitals to the PBCA, and cl 3.3 are as follows:
RECITALS
(A)The New Zealand Defence Force, NZDF (the Principal) has issued a request for tender (RFT) for the Seamanship Training Aid Waterside: Devonport Naval Base (the Project) which will comprise of design and construction and fit-out of a marine based training environment, built within NZDF real estate, which will replicate the Royal New
Zealand Navy (RNZN) fleet equipment configurations to the extent that the principles of seamanship training are suitably similar to the operational environment.
(B)[HIL] has agreed to submit a response (Tender) to the Principal’s RFT. [HIL] wishes to engage [Worley] to prepare aspects of the Tender.
(C)If [HIL’s] Tender is successful, [HIL] will enter into a design and build contract with the Principal for the performance of the Works and will appoint [Worley] to provide design consultancy services to [HIL] under a further agreement (Consultancy Agreement) in accordance with clause 11.
(D)The Parties hereby agree as follows.
...
3.3[Worley] warrants to [HIL] that:
(a)it will carry out the Tender Services in accordance with Schedule 2;
(b)[it will] promptly comply with all reasonable directions which [HIL] may give in relation to the Tender Services;
(c)[it will] perform the Tender Services in full compliance with the Principal’s Requirements; and
(d)it will comply with all relevant laws, standards, codes and approvals and quality requirements.
[42] Clauses 3.3(a), (b) and (c) refer to the “Tender Services”. Clause 3.3(c) also refers to the “Principal’s Requirements”, the Principal being NZDF. Clause 1.1 of the PBCA defines these terms as follows:1
Tender Services means the work to be performed by [Worley] under this Agreement as described in Schedule 2.
Principal’s Requirements means the scope of work and technical criteria provided by the Principal for the Project and any documents or standards incorporated into, or referred to therein.
[43]It is common ground that the Principal’s Requirements are those in the URD.
[44]Project is defined in recital A, quoted above.
1 “Project” is not defined.
Tender services — Schedule 2
[45]Between them, counsel relied on the following provisions of schedule 2:
1. BACKGROUND
[NZDF] have invited [tenders] for the design and construction and fit-out of [a] waterside training facility at Devonport Naval Base with associated access and training facilities. [HIL] will tender for the Project on a design/build basis. [Worley] as our design consultant will be subcontracted to produce tender documentation for the new training facility and subject to agreement will be contracted to provide the final design for the Project.
...
3.DELIVERABLES
[Worley] shall:
Provide, in a timely manner in accordance with the Tender programme agreed between the Parties (time being of the essence) a preliminary tender design for the following elements of the Project:
(i)Proposal of a tender design solution of an integrated Seamanship Training Aids (STA) Waterside Capability, which will suit Royal New Zealand Navy (RNZN) user requirements (reference to User Requirements Document – Seamanship Training Aids – Phase Two Waterside) which shall include:
a.Marine piling
b.Floating pontoon/s including all fixtures and fittings
c.Jetty or Landing including railings
...
(iv) Provide the preliminary tender design deliverables contemplated at paragraph (1) above for inclusion in the Tender. This shall include (but not limited to) design assumptions, concept/preliminary designs.
...
(vii) Identify risks and opportunities for [HIL] as part of the conforming Tender.
...
3.1. Requirements for functional requirements brief
[Worley] must:
...
(c)develop the Tender Design details for [HIL] in accordance with the approved functional requirements brief and scope sufficient to allow [HIL] to:
(i)prepare estimates of quantity and understand the nature of work;
(ii)allow costs, risk and constructability to be identified, assessed, optimised and priced;
...
(d)make its own independent evaluation of the adequacy, suitability and completeness of the Information Documents and Principal’s Requirements for the purposes of enabling [Worley] to perform its obligations to [HIL];
(e)advise [HIL], prepare documents and provide the Tender Services for the Project based on its Principal’s Requirements for the purposes of the Project or the preparation of the Tender, and will in the course of so doing advise [HIL] in writing of that evaluation and provide a risk matrix in a form acceptable to [HIL]. Such risk matrix may be subject to development and change in consultation and agreement with [HIL];
...
[46] HIL’s submits that the effect of cls 3(a) and (c) of the PBCA, coupled with cls 3(i) and (iv) of schedule 2, was to require Worley to provide a tender design which complied with, or which would “suit”, the URD and which was to include provision for marine piling, the barge itself, and the landing.
[47] HIL submits that Worley breached this warranty or warranties because the design it provided proposed a mooring that could not withstand the environmental loading requirements specified in the URD.
[48] HIL also contends that cls 3(a) and (c) of the PBCA, coupled with cls 3(vii) and 3.1(c), required Worley to provide a tender design which would allow HIL to identify, assess and price, amongst other things, risks associated with the design. HIL submits Worley’s design did not allow for this.
[49] Worley’s case is that it did not breach the warranties it gave. Worley’s case is that it was required by cl 3(i) of schedule 2 to provide a “preliminary tender design”
for the specified elements and this is to be distinguished from a final design for the project.
[50] Worley also relies on a prior agreement between the parties, reached through their representatives, in advance of the execution of the PBCA. Worley submits that the effect of this agreement was to require Worley only to determine “approximations” of matters such as the lateral loading from the environment to the mooring, and the approximate size of the mooring piles. Worley submits that it is clear from this prior agreement that the warranty in cl 3.3 of the PBCA should not be construed as a warranty that the tender design would withstand the environmental loads specified in the URD.
[51] Ms Bryant, for Worley, also submits that NZDF’s request for tenders invited tenderers to submit “concept” designs, in the sense of the New Zealand Construction Industry Council design guidelines. Under those guidelines, a concept design is referred to as suitable for the “ideas” phase of a project.
[52] One of Worley’s witnesses, Mr Stanley Cowdell, gave evidence supporting Worley’s submission in this respect. Mr Cowdell is an experienced marine engineer, based in Canada. He gave evidence relevant to aspects of HIL’s damages claim. However, he also gave evidence as to the degree of reliance a contractor, such as HIL, should place on a concept design, and the allowances or contingencies or provisional sums a prudent tenderer would include when submitting a tender.
[53] In giving this evidence, Mr Cowdell referred me to the Association for the Advancement of Cost Engineering International (“AACE”) classification system. Mr Cowdell put Worley’s tender design as within “class 5” or, at best, an early “class 4”. What this classification boils down to is that Worley’s tender design could not be relied on in any way as accurate.
[54] Mr Cowdell’s evidence was relevant to many issues in dispute but, with respect to him, this aspect of his evidence was not relevant. The AACE classification system is not one in common use in New Zealand, is subject to regular revision and, as I understood it from Mr Quinn’s cross-examination of Mr Cowdell, it is concerned with
“process industries” and particularly chemicals and petrochemicals. I put that evidence to one side accordingly. The focus must be on the terms of the contract the parties agreed.
Discussion
[55] I accept Worley’s submission that both parties understood further investigations were to take place if and when NZDF accepted HIL’s tender. I also accept that these investigations included a dynamic mooring analysis; that this was a complex exercise; and that both parties expected the tender design would be developed as the project proceeded.
[56] However, liability for breach of warranty is strict and, whatever may have been anticipated, Worley is liable to HIL if it breached any warranty it gave. The point of the warranty is to give an absolute assurance.
[57] I am satisfied that by cls 3.3(a) and (c) of the PBCA, and cl 3(i) of schedule 2, Worley warranted that it would provide a preliminary tender design for the STA which would meet (“suit”) the URD and the specified elements. I am satisfied that by those same provisions of the PBCA, and cl 3.1(c) of schedule 2, Worley also warranted that it would develop the tender design details sufficiently to allow HIL to identify and price costs, risks, and construction. Worley did not do either. The two-pile solution Worley proposed did not meet or suit the URD as it would not withstand the wave loading at the site. Nor did Worley develop the tender design details sufficiently to allow HIL to identify and price costs and risk.
[58] This is not to say that every change or development in Worley’s tender design would put it in breach of warranty. However, in this instance, the change was fundamental and to a critical part of the design. I am satisfied such a change did put Worley in breach.
[59] Given that, I turn now to Worley’s first affirmative defence, which is that HIL’s claim is excluded by cl 20.5 of the PBCA.
Does cl 20.5 exclude Worley’s liability?
[60] HIL seeks to recover what is referred to as the “base value” of costs it claims it incurred as a result of the change in the tender design. It also seeks to recover additional percentage sums of each base value for on-site and off-site overheads.
[61] Worley submits that any recovery is barred by cl 20.5 of the PBCA. If it is wrong in that, it contends that at the very least the recovery of overheads is barred by cl 20.5.
[62]Clause 20 of the PBCA provides:
20.Indemnities
20.1[Worley] shall indemnify [HIL] from and against claims, actions or proceedings, and any loss, damages, costs (including legal costs) and expenses, to the extent arising from [Worley’s] negligent performance of its obligations under this Agreement or a material breach of this Agreement.
20.2[Worley] shall indemnify and save harmless [HIL] against any claims or liability in respect of breach of Clause 19 by [Worley] in relation to Intellectual Property Rights of a third party, including all legal or other expenses incurred by [HIL] in or about the defence or settlement of any infringement claim, by reason of any act or omission of [Worley], its servants or agents in connection with the Agreement, the Tender Services or otherwise.
20.3The liability of [Worley] under any indemnity in this Agreement will be reduced proportionally to the extent that a negligent act or omission or breach by [HIL], its agent or employees has caused or contributed to the relevant loss, damage or liability.
20.4[Worley’s] maximum aggregate liability arising under or in connection with this Agreement shall not exceed the greater of five
(5) times the Fee or one million dollars ($1,000,000.00).
20.5Neither Party shall be liable for any loss of use, data, production, profit, income, business, contract or anticipated saving, financing cost or increase in operating costs, or any other economic loss, or for any special, indirect or consequential loss or damage suffered by the other Party.
[63] Worley submits that HIL’s claim is not within cl 20.1. Worley submits that cl 20.1, and cl 20.2 for that matter, are confined to proceedings in which Worley is required to indemnify HIL from a claim brought by a third party. Clause 20.4 applies to cap Worley’s liability in respect of such a claim.
[64] In addition, Worley submits that HIL’s claim is excluded by cl 20.5 as it is a claim for “loss of ... profit”, alternatively “any ... other economic loss”. If it is wrong in that, it submits that at the very least HIL’s claim for on-site and off-site overheads is barred by the exclusion in cl 20.5 of “any ... increase in operating costs”.
[65] Worley submits that the purpose of cl 20.5 is to reflect that HIL, as tenderer, has the ability to protect itself from such losses. This HIL might do by “tagging” its tender to notify that its price assumes a particular state of affairs, or by inclusion of provisional sums or a substantial contingency. On the other hand, Worley, as HIL’s subcontractor, is unable to protect itself in this way.
[66] HIL submits that its claim is for losses directly resulting from Worley’s breach of warranty. It is not a claim for lost profit, nor “other economic loss”. Although this latter phrase might appear wide-ranging, it must be construed in the context of cl 20.5 as a whole. HIL submits that the types of loss to which cl 20.5 refers are indirect or consequential losses, not direct loss as sustained in this case. If the phrase “other economic loss” is to be construed as broadly as Worley proposes, it would be unnecessary to refer to the preceding categories of loss such as loss of profit, income, business and so on. If the phrase “other economic loss” is not construed narrowly, Worley could never be liable to HIL for failing to carry out its obligations under the PBCA.
[67] HIL also submits the reference to “increased operating costs” in cl 20.5 covers indirect losses such as changes in the cost of labour or exchange rate movements, not overheads.
[68] HIL also submits that Worley’s proposed construction of cl 20.5 is inconsistent with the scheme of cls 20.1 to 20.4, which necessarily anticipate Worley being liable to HIL. On Worley’s case, the indemnities in cls 20.1 and 20.2, and the cap in cl 20.4 would be redundant, and lead to a commercially absurd result.2
2 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432; affirmed in Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] NZCCLR 17 at [89].
Discussion
[69] I do not accept that the base value of the losses for which HIL claims is excluded by cl 20.5. I accept that the position with regards to overheads is more difficult but, in my view, that claim fails for a different reason.
[70] First, I accept HIL’s submission that Worley’s construction of cl 20.5 is inconsistent with the scheme of cl 20 as a whole. Of course, it is not necessary for the contract to make express provision for Worley’s liability to HIL but, in my view, cl 20.1 does so. Clause 20.1 provides for Worley to indemnify HIL for “loss, damages, costs … and expenses” arising from Worley’s negligence or material breach. This part of cl 20.1 apt to cover the losses in this case.
[71] As to cl 20.5, I do not consider this is a claim for “loss of profit”. That phrase is to be construed as actual profit that HIL would have anticipated, not the increased cost and expense for which it claims. I also accept HIL’s submission that “other economic loss” is coloured by the preceding examples. Those examples, such as loss of use, business, financing costs and so on, are all, as HIL submits, indirect losses.
[72] HIL’s claim for overheads, particularly off-site, is more difficult. It may be that Worley is correct that they are properly to be treated as an operating cost within cl 20.5. Ultimately, however, I am not required to decide this point because I do not consider HIL’s claim for overheads is proved, for the reasons set out below.
[73] It follows that I am satisfied that HIL’s claim, at least for its base value, falls outside cl 20.5.
Damages
[74] HIL claims for losses it contends it sustained as a result of the change from the two-pile solution to the truss design. As I have said, it claims a base value, being the direct cost incurred, plus sums for overheads.
[75] Worley does not dispute causation or the quantum claimed as the base value for items 6, 9, 10, 13, 17, and 19. The combined base value of these items is $342,751.
[76]This leaves items 1(a), 4, 11, 14, and 16, and the claim for overheads.
[77] Worley challenges both causation and the quantum of the base value claimed for items 1(a) and 11.
[78] Worley does not dispute causation for items 4, 14, and 16 but disputes the quantum of the base value claimed.
[79]Worley contends that HIL has not proved its claim for overheads.
Evidence
[80] HIL’s principal evidence in respect of its damages claim was from Mr Gary Teear, an engineer with special expertise in moorings, and a quantity surveyor, Mr Mark Revis.
[81] Mr Cowdell gave evidence for Worley in respect of causation but, with the exception of item 16, not quantum. The evidence of Mr van der Veen, the naval architect within the Worley Group involved in the day-to-day aspects of the project, is also relevant on some items.
[82] Mr Cowdell is a highly experienced engineer, who has been involved in a wide range of marine related projects. Mr Cowdell has a connection with Worley, in that he sold his business, Westmar Consultants Inc, to Worley Parsons Canada Services Ltd in 2008, and he continued with Worley Parsons until 2011. Thereafter, Mr Cowdell formed an advisory firm and he has practised as a consultant since. Despite his prior connection to the Worley Parsons Group, Mr Cowdell, as with all the other witnesses, gave his evidence fairly and I am satisfied that he, like them, has considerable expertise in his field.
Counterfactual
[83] Before I address the items in dispute, I should refer to a submission by Ms Bryant that HIL has not identified a “counterfactual”, being what HIL contends
Worley should have done differently, and the consequences that would have ensued had Worley proceeded accordingly.
[84] There is nothing in this point. As Mr Quinn submits, HIL is not required to do any such thing. Worley warranted its tender design would suit NZDF’s requirements and URD, and it did not. Worley is thus liable for the damages HIL sustained as a result of its breach.
1(a) — mooring piles
[85] HIL claims a base value claim for this item of $102,053. The issue to be resolved is causation.
[86] The tender design provided for the barge to be moored to two piles to be 16 metres in length, 762 millimetres in diameter, and with a 16 millimetre thick casing.
[87] As it turned out, two substantially larger piles were installed. The base value HIL claims for this item is calculated on the basis of piles of 22 metres in length, 726 mm in diameter, and with a 32 mm casing. It also includes the cost of a necessary change from the previously anticipated installation methodology, suitable for the shorter piles initially provided for. As it happened, even longer piles were required — one of 26.5 metres and one of 33 metres — but no claim is made in respect of that.
[88] Mr Revis’s evidence was that the increased pile length, casing thickness, and the change in installation methodology were all caused by the change in the tender design.
[89] Worley’s witnesses dispute this. The evidence of Mr van der Veen and Mr Cowdell is that Worley did not have information pre-tender which showed the offshore geotechnical conditions. NZDF made this information available after it had accepted HIL’s tender. This information revealed that an increase in the pile lengths and the extent of their penetration into the seabed was required. Thus Ms Bryant submitted that the change in pile lengths and the more complex installation thereby required was not caused by the change to the tender design. Longer piles, even with the two-pile solution, were always going to be required.
[90] HIL does not accept that Worley did not have sufficient information, pre-tender, to ascertain that the length of the piles it specified was inadequate. NZDF provided HIL with data as to the onshore geotechnical conditions on 21 October 2015, and HIL provided this to Worley on the same date. Thus Worley had this information prior to providing its tender design. HIL submits that Worley ought to have inferred from the onshore data that bedrock was substantially lower than Worley had assumed. I accept that submission. Mr Cowdell himself accepted that Worley’s 16-metre long piles were “aggressive” given the inferences to be drawn from the onshore data.
[91] Regardless, fundamentally HIL’s case is that Worley is liable for the additional cost as the increased pile length was a significant change to its warranted tender design. I accept that submission. In my view, the longer piles and the more complex installation method they required were part and parcel of the new design. Even if I am wrong in that, and longer piles were always going to be required, I take Mr Revis’s point that the increased cost cannot simply be put down to development of the design. The increase was very substantial. I note also that the risk of such a substantial increase was not notified to HIL.
[92]I accept HIL’s claim for this item accordingly.
4 — gangway landing structural change to barge
[93]HIL claims a base value of $96,438 for item 4.
[94] Mr Revis’s evidence was that this item is for additional works required to the front of the barge caused by the introduction of the truss, as well as a revised gangway landing arrangement on the barge itself.
[95] Mr Cowdell accepts that the base value of the connection between the truss and the barge fall to Worley, the base value of these costs being $48,480.29. However, Mr Cowdell does not accept that the costs of the revised gangway landing resulted from the change to the tender design. Mr Cowdell’s evidence was that the landing changed as a result of a change in the orientation of the gangway. This change was to have the gangway orientated diagonally, as opposed to perpendicular, to the shore, and it occurred prior to any revision of the mooring arrangement.
[96] This is correct. The change to the orientation of the gangway was notified in June or July 2016, prior to any proposed change to the mooring arrangement.
[97] Mr Cowdell’s evidence was that it was this change to the orientation of the gangway, and not the revised mooring arrangement, that necessitated a revision to the gangway landing platform on the barge.
[98] Mr Quinn submits that Mr Cowdell’s evidence does not engage with Mr Revis’s on this point. With respect, it does, but Mr Revis did not answer or contradict Mr Cowdell’s evidence on this issue. Given that, I am unable to award the entire sum claimed. I award Mr Cowdell’s $48,480.29 accordingly.
11 — ballast to hull
[99] HIL claims a base value of $166,690 for steel ballast required to keep the barge in trim when moored. This ballast was not provided for in the tender design and nor was it priced in the tender itself. There is no dispute, however, that the need for ballast was foreshadowed, with that ballast to depend on the ultimate weight of the barge. This weight could be expected to be adjusted in the detailed design and construction phase of the project. In short, the need for ballast was anticipated but how much of it and where it would be located on the barge could only be known once the detailed design was settled.
[100] As it turned out, adjustments to the barge, some required by NZDF post-contract, meant that considerable ballast was required to keep the barge in trim. It is not in dispute that the barge was also required to bear the weight of one arm of the truss and, accordingly, a portion of the ballast ultimately included was due to that additional weight. The issue to be determined is just how much of that ballast was due to the additional weight.
[101] Mr Sandhu and Mr Revis’s evidence was that all of the ballast was due to the change to the tender design. With respect to them, this evidence is plainly incorrect.
[102] Mr Cowdell’s evidence was that the changes to the barge itself post-tender, unrelated to the change in the mooring, increased the weight of the barge, and that the
vast majority of the permanent ballast installed was required as a result of these changes. In addition, Worley contends it should not be liable for steel ballast, which is an expensive option, as opposed to concrete or sand.
[103] In his closing submissions, Mr Quinn appeared to accept that HIL could not maintain its claim for the cost of all of the ballast. He proposed that I allow half the sum claimed. This was on the basis that, in his evidence, Mr van der Veen said that “At most, half the cost of the removable ballast is related to the truss arrangement”.
[104] In the circumstances, I am not persuaded that the change to the tender design brought about the need for as much as half the ballast installed. Mr Cowdell’s evidence was that, on its own, the change contributed to only a modest percentage of the required permanent ballast. Mr Cowdell’s estimate was five to 10 per cent at most. Accordingly, I allow 10 per cent of the sum claimed.
14 — painting of mooring items
[105] I have included item 14 in the list of items for which Worley accepted causation but denied quantum. On the evidence, however, there was no serious dispute as to quantum.
[106] HIL claims a base value of $89,632 for the cost of painting the truss and associated mooring items introduced in the revised design. Mr Revis’s evidence was that the structures associated with the truss arrangement required painting with anti- corrosion paint if they were to withstand the marine environment. It was common ground that anti-corrosion measures were required. Moreover, NZDF requested that those measures should be the painting that was carried out.
[107] Initially HIL claimed $145,215 for the costs of this item. However, on Mr Revis’s analysis, this cost was reduced to $89,632, that being the base value sum now claimed.
[108] In his evidence-in-chief on this point, Mr Cowdell accepted that the costs claimed resulted from the change to the mooring concept, that is accepted causation, and he also accepted that Mr Revis’s revised cost of $89,632 (in fact that cost plus
overheads bringing the total to $106,712) appeared “to be a more reasonable value”. Thus Mr Cowdell did not dispute quantum.
[109] In his evidence-in-chief, Mr Van der Veen complained that Worley had not specified special anti-corrosion paint for the truss, but rather had proposed that “sacrificial” anodes be fixed to the truss and piles, this being a cheaper alternative.
[110] The gist of Ms Bryant’s closing submissions on this point was that HIL should not have painted the various items but ought to have adopted the anodes said to have been included in the Worley design. However, Mr van der Veen did not say what the cost would have been and there was no other evidence on the point.
[111] I allow HIL’s claim for the sum of $89,632 in respect of item 14. There is no dispute that anti-corrosion protection was required for the truss and associated parts. Mr Cowdell did not dispute that painting was an appropriate response nor the quantum claimed. If Worley wished to propose the cost of the anodes to which it referred as a substitute, it needed to provide the requisite evidence. It also needed to confront, and it did not, the obvious conflict between Mr Cowdell’s evidence on the point and Mr van der Veen’s. Lastly, I am not persuaded that there is any merit in Worley’s criticism of HIL for acceding to NZDF’s request for paint. NZDF’s expectations when it awarded the tender to HIL had been sorely disappointed, and the cause of that disappointment was Worley’s omissions. If NZDF specified painting on the change to the truss design, HIL was not well placed to argue the point.
16 — on-site installation of new items associated with gangway and truss
[112] HIL claims a base value of $361,616 for costs associated with the installation of the truss and gangway. This is the sum HIL paid SPIIND for this work, or at least that is what appears from a Payment Schedule that HIL issued under the Construction Contracts Act 2002.
[113] There is no dispute that additional work was rendered necessary by the change to the tender design but there is a dispute as to quantum. In particular, Worley contends that HIL has not proved that the sum claimed related only to the installation of the
truss and related changes to the gangway, nor that the sum claimed is reasonable for the work done.
[114] The starting point is that in January 2017, after receiving the detailed drawings for the truss, SPIIND made a variation claim to HIL for the installation and associated work of $178,266.49.
[115] HIL did not accept this price and the parties proceeded on a “measure and value” basis, with SPIIND to be paid for time and materials. In response to questions from Ms Bryant, Mr Revis accepted that, in the usual course of events, this would mean that SPIIND could be expected to keep detailed time sheets of the work done, and also that the site manager could be expected to maintain a schedule of the work done on site each day. However, no such time sheets or schedules were available to Mr Revis, let alone Worley, if indeed they were ever kept.
[116] The best information that Mr Revis had as to SPIIND’s work is a summary of its day works between 22 November 2017 and 30 April 2018, the costs on this totalling
$299,987.37. Mr Revis acknowledged to Ms Bryant that, absent the time sheets referred to in the previous paragraph, he could not make any comment on this claim or what precisely it covered. Nor had HIL informed Mr Revis of the reason for the difference between this sum and the base value claimed of $361,616.
[117] Given this, Mr Revis adopted an alternative, “build up”, method to assess the reasonableness of HIL’s claim. This entailed Mr Revis drawing on HIL’s construction programme and, after making various adjustments, arriving at the number of working days (63), that he estimated was associated with the installation work. Mr Revis then calculated a daily rate for the crew he thought would be required, and estimated sums for disbursements, and the cost of plant and equipment. On this basis, Mr Revis’s calculation of the base value costs associated with item 16 is $364,013, and thus he considers HIL’s claimed base value of $361,616 to be reasonable.
[118] In cross-examination, Mr Revis accepted that his 63 working days included provision for installing items that HIL was no longer pursuing or which could not be attributed to the change in the tender design.
[119] On my reading of Mr Revis’s evidence, although the number of days to be deducted on this ground might be relatively modest, any reduction would also reduce the other components of Mr Revis’s build-up.
[120] This claim is the only one on which Mr Cowdell expressed an opinion as to quantum. Mr Cowdell’s evidence was that the time necessarily involved in a claim for such an amount must have substantially exceeded that which he would have accepted in the absence of further information. Mr Cowdell’s evidence was that the claim seems disproportionally large for the task at hand.
[121] Mr Quinn criticised Mr Cowdell’s evidence on this point, on the ground that it is speculation. Mr Quinn submits that Worley has produced no independent evidence to suggest this cost is overstated and that HIL’s evidence is sufficient to prove the quantum of this item on the balance of probabilities.
[122] As Mr Cowdell said, any speculation in Worley’s criticisms derives from HIL’s failure to provide the information necessary to prove a substantial part of its claim. It is reasonable for Worley to seek that information so as to satisfy itself that all the work undertaken was for the installation of the truss and gangway alone, and also that the sum claimed is reasonable. Mr Revis’s exercise does not prove either of these matters.
[123] In the circumstances, I am not satisfied HIL has proved the claim in full. Given that, I shall allow the next best evidence of the base value of this item which I consider to be SPIIND’s original $178,266.49.
Overheads
[124]HIL claims 12 per cent of the base value for on-site overheads, and then
6.3 per cent on the combined “base value and on-site overhead” sum for off-site overheads.
[125] Worley disputes liability for these items. Fundamentally, its submission is that Worley has not proved this part of its loss.
[126] Mr Revis’s evidence was that he considered HIL entitled to recover on-site overheads associated with managing and implementing the change to the truss design. Mr Revis’s 12 per cent is the percentage sum included in HIL’s tender, and Mr Revis adopted it accordingly. Mr Revis’s 6.3 per cent for off-site overheads is a proportion of HIL’s tender provision of 13 per cent for off-site overheads and profit combined. Mr Revis said that this percentage figure derived from Mr Geoffrey Hunt, previously president of McConnell Ltd and the Chief Executive Officer of the Hawkins Group of companies prior to the sale to Downer. Mr Hunt’s brief of evidence was admitted by consent but it does not touch on this issue in any detail.
[127] Mr Revis accepted that he had applied these percentages as proxies for any investigation of what actual cost had been incurred.
[128] HIL’s claim for overheads is complicated by its transaction with Downer. There is no evidence of any payment from HIL to Downer for Mr Sandhu’s services, or that of any other personnel. Mr Revis was unable to say whether Downer had charged HIL for the provision of Mr Sandhu, or any other member of staff. As for Alta, it provided its services on a fee paying basis. However, Mr Revis’s evidence is that he had advised HIL not to pay Alta’s fee, because Alta had not provided any timesheets to support the sum it claimed.
[129] In his closing submissions, Mr Quinn maintained that the percentages claimed were reasonable and that HIL must have continued to incur costs for on-site and off-site overheads, notwithstanding absence of any evidence of payment to Downer or Alta or anyone else.
[130] Ms Bryant submits that Mr Revis’s percentages bear no relation at all to actual cost and that, in the absence of evidence of payment from HIL, whether to Downer or Alta or anyone else, HIL cannot prove its loss.
[131] Leaving aside cl 20.5 for the moment, I accept that in the usual course of events on-site and off-site overheads are a cost capable of recovery and that a reasonable percentage might be allowed for, in place of a “line by line” analysis of actual cost. The difficulty in this case is that there is no evidence of an actual cost to HIL. There
is no evidence before me of what staff HIL retained, if any, and how it administered the project. Absent that evidence, I accept Worley’s submission that HIL has not proved this item of loss, and I decline its claim for overheads accordingly.
Contributory negligence
[132] Worley’s second affirmative defence is that HIL was contributorily negligent and that such loss as HIL has suffered is the result, in part or in whole, of its own fault.
[133]Section 3 of the Contributory Negligence Act 1947 provides:
3 Apportionment of liability in case of contributory negligence
(1)Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage:
provided that—
(a)this subsection shall not operate to defeat any defence arising under a contract:
(b)where any contract or enactment providing for the limitation of liability is applicable to the claim, the amount of damages recoverable by the claimant by virtue of this subsection shall not exceed the maximum limit so applicable.
[134] Worley contends that, although it submitted a design that could not be built, HIL knew that further investigations were required “to verify the design”, and that it failed to take “basic precautions” to protect itself against the risk of a change.
[135] Worley’s case on this issue is that HIL should have submitted its tender, appropriately tagged or qualified, to accommodate the possibility of a substantial change in tender design and, at the very least, HIL should have allowed a substantially greater contingency than the 2.4 per cent HIL reserved to itself. Had the tender been so tagged or qualified, a claim to NZDF for a variation might have been possible.
[136] In response, HIL submits that Worley did not notify it in advance of it lodging the bid that the mooring design might change so fundamentally. Nor was a change of
such magnitude reasonably foreseeable. As Mr van der Veen acknowledged in his evidence, Worley itself did not contemplate that the design it had proposed would prove to be so deficient. Mr van der Veen’s evidence was that Worley considered that aspect of its design “settled”.
[137] HIL also notes that, on 11 November 2015, it asked Worley to inform it of any design risks. Worley did notify some risks, but it did not notify a risk to any change to the mooring arrangement. Had it done so, HIL states that it would have made provision for the risk, and indeed it did so in respect of other risks identified by Worley, and by other third parties, SPIIND and Hauraki Piling.
[138] I do not accept Worley’s submission that HIL was contributorily negligent in failing to make provision in its tender for such a fundamental change in the mooring design. I accept HIL’s submission that it was incumbent on Worley to notify of the risk. That it did not do so, and on Mr van der Veen’s evidence did not consider it likely, speaks for itself. If Worley did not anticipate the risk of a change, let alone one so fundamental, it is not clear to me how HIL could be expected to have done so.
[139] Worley may be correct that HIL’s contingency of 2.4 per cent was too modest in the circumstances. Again, however, it is not clear to me that any greater contingency, which I accept might have been prudent, would have had a significant impact on the loss that was sustained. The nature of the risk which came to pass in this case was such that it had to be notified expressly to NZDF and it was for Worley to put HIL on notice of that possibility.
[140] It follows that I am not persuaded of any contributory negligence on HIL’s part. Accordingly, the issue referred to in [34] above therefore does not arise.
Result
[141] For the reasons given above, I am satisfied that Worley breached the warranties it gave in cl 3.3 of the PBCA.
[142] I am also satisfied that HIL’s claim, at least for the base value sum, is not excluded by cl 20.5 of the PBCA.
[143] I allow HIL’s claim for the base value of items 1(a) and 14, and part of its claim for the base value of items 4, 11 and 16, all in the sums referred to in [85], [111], [98],
[104] ($16,669), and [123]. These sums, together with that referred to in [75], total
$777,851.78.
[144]I decline HIL’s claim for overheads.
[145]HIL was not contributorily negligent
[146]Worley has a setoff of not less than $120,081.01.
Interest and costs
[147] This judgment does not determine awards of interest or costs. The parties will wish to make submissions on these items. HIL should file and serve its submissions within, say, two weeks or such longer time as it requires. Worley should file and serve its submissions within, say, two weeks thereafter.
Peters J
Two-Pile Solution
Truss
0
2
0