Isaac Construction Ltd v Nu-Way Energy (NZ) Ltd
[2018] NZHC 1775
•18 July 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2015-409-670
[2017] NZHC 1775
BETWEEN ISAAC CONSTRUCTION LIMITED
Plaintiff
AND
NU-WAY ENERGY (NZ) LIMITED
Defendant
Hearing: 28 September - 5 October 2017, 27-30 November 2017, and
26-27 March 2018
Appearances:
C Shannon and L McLoughlin-Ware for the Plaintiff C Langstone and B Alcorn for the Defendant
Judgment:
18 July 2018
JUDGMENT OF MANDER J
ISAAC CONSTRUCTION LTD v NU-WAY ENERGY (NZ) LTD [2017] NZHC 1775 [18 July 2018]
Contents
Background [2]
The bitumen plant [2]
The burner [6]
Installation of new burner [12]The fire [15]
Events after the fire [19]
Isaac Construction’s claim [22]
Contract [26]
Negligence [27]
The prime issue – did the burner cause the fire? [29]
Mr Jenkins’ theory of how the burner caught fire [34] Mechanical damage to the tappet (seal holder) and the inner seal [36] Blocked oil gallery and the testing of Mr Jenkins’ theory [49]
Temperature of the oil [71]
Atomisation [75]
Ignition, burn back, and location of fire inside burner [79]
The flame detector and the question of clean burning or incompletecombustion [83]
Failure of the burner housing [91]
Conclusion relating to Mr Jenkin’s fire theory [101]
The status or legality of the Nu-Way burner [102]
Prototype or new design [104]
Unregistered burner [110]
Modification of the burner to run on diesel [112]
Conclusions relating to the status of the burner [114]Sequence of alarms [120]
Conclusions regarding sequence of alarms [126]
Alternative causes of the fire [128]
The thermal oil heater’s exhaust duct [129]
Electric motor for the centrifuge pump [132]Thermal oil leak [134]
Conclusion as to source of the fire [140]
The question of liability [154]
Alleged breach of contract [155]
Fit for purpose at common law [158]
Negligence [174]
Alleged cause of breaches of duty of care [175]
The burner did not have WorkSafe approval and could not be legally used [176]
Failing to take appropriate steps having been told the burner was aprototype [179]
Res ipsa loquitur [186]
The monitoring of the burner [193]
Contributory negligence [216]
Conclusion as to liability [221]Quantum [222]
Replacement of the tank room (plant replacement) [224]
Building interruption claim [236]
Interest [242]
Result [243]
[1] Isaac Construction Ltd (Isaac Construction) is a roading company which operates a bitumen plant. In April 2014, a new industrial burner was supplied and installed by the defendant, Nu-Way Energy (New Zealand) Ltd (Nu-Way), at Isaac Construction’s plant. Hours after the commissioning of the burner, a fire occurred at the plant. Isaac Construction claims the burner was the cause of the fire and sues Nu-Way for its resulting losses. Nu-Way denies liability.
Background
The bitumen plant
[2] The bitumen plant consisted of a number of buildings, which included a large shed which housed holding tanks that contained bitumen. In order for bitumen to have sufficient viscosity to be in a usable state it is required to be kept at a certain temperature. The plant used a thermal oil heating system to heat the bitumen. A thermal oil heater was used to heat the thermal oil which the system circulated in pipes from the heater to heating coils at the bottom of the bitumen tanks and back to the heater.
[3] The thermal oil heater is a large cylinder-shaped object. Around its circumference run coils of pipe containing the thermal oil. Heat is generated inside the thermal oil heater by a burner which blasts flames through the inside of the heater. The circulating thermal oil is thereby warmed and piped back to the holding tanks where it heats the bitumen.
[4] The thermal oil heater was housed in a large shed (the oil heater shed) which adjoined a building in which the bitumen holding tanks were stored (the tank room). On the other side of the thermal oil heater shed was another adjoining shed containing a compressor (the compressor shed).
[5] The thermal oil heater shed contained a number of sensors and alarms, including a heat detector on the ceiling of the shed, a burner fault alarm, a thermal oil pressure differential alarm, and a centrifuge pump alarm.
The burner
[6] Over the course of a number of months, Isaac Construction’s asphalt plant production manager, Shane McLaughlin, discussed replacing its existing burner (the Riello burner) with a representative of Nu-Way, Paul Dudley. Nu-Way was looking to complete a trial of a particular burner (the Nu-Way burner) with a South Island client. In early April 2014, the Nu-Way burner was offered to Isaac Construction on a trial basis for three months. The trial would be at no cost to Isaac Construction and at the end of the three month period Isaac Construction would either pay for the Nu- Way burner as a replacement for the Riello burner or the Nu-Way burner would be removed at Nu-Way’s cost. It was agreed that Nu-Way could take prospective clients to view the burner at Isaac Construction’s site.
[7] The existing Riello burner was used by Isaac Construction to burn either waste oil or diesel and the Nu-Way burner was supplied to it on the basis it had the same capacity. At the time of the fire the burner was being fuelled by waste oil.
[8] Before describing the installation of the Nu-Way burner, it is necessary to detail how the burner operated in conjunction with the thermal oil heater. In order for the waste oil to be burnt to generate heat, the oil must be preheated, atomised and then ignited. At Isaac Construction the waste oil fuel was stored in a tank, and when the burner was in use the oil ran through a pre-heater which heated the oil to approximately 61-65 degrees Celsius before moving to another tank (the day tank).
[9] The Nu-Way burner contained a pump which drew the heated waste oil from the day tank through a smaller pre-heater which is a component of the burner itself. This preheater further heated the oil to 143-149 degrees Celsius. The heated waste oil fuel was then pushed through small tubes inside the burner to nozzles which created a fine spray or mist inside the heater. That process is called atomisation. The atomised oil is ignited with a spark created between the burner’s electrodes. The pump and the small pipes, hoses and cables that facilitate this process are internally housed within the burner.
[10] The burner is a large piece of equipment which, while separate from the heater, is designed to be bolted to one end of the larger cylindrical heater. Both the
burner’s nozzles, which generate the mist of waste oil, and the electrodes, which create the spark to ignite the atomised oil, extend from the burner into the heater. The resulting flame is projected internally through the heater’s cylindrical chamber, around which the thermal oil pipes coil. So long as the mixture of atomised waste oil fuel and air is maintained to the correct ratio, the flame is self-sustaining. The process is entirely housed within the burner and the heater.
[11] There is also a fan inside the burner at the opposite end from where it attaches to the heater. This provides a strong flow of air that assists to project the flame in the one direction through the heater. The air generated by the fan travels around a diffuser plate which can be used to control the supply of air and assists with the appropriate ratio of air to fuel mix to maintain the flame. When the burner is not required to produce a flame, the waste oil fuel bypasses the nozzles and is directed back into the day tank.
Installation of new burner
[12] At the beginning of ANZAC weekend in April 2014, the Riello burner was removed and the new Nu-Way burner installed by Mr Dudley with the assistance of Mr McLaughlin. An electrician, Jean-Luc Marshall, was engaged to carry out the electrical work necessary to install the new burner. This included the wiring of all electrical control circuits and the undertaking of a modification of the Nu-Way burner to provide for a duel fuel supply (diesel and waste oil). Mr Marshall tested the electrical systems and certified his work.
[13] At around 6.30 pm on Sunday 27 April, Messrs Dudley and McLaughlin returned to the plant to commission the Nu-Way burner. This was done to heat the bitumen so it was available to be used by Isaac Construction for the start of the working week the following day. The testing and commissioning was completed successfully. The computer monitoring data at the time showed the systems at the plant were running normally. Neither Mr Dudley nor Mr McLaughlin noticed any leaking of oil. The newly commissioned burner was considered to be operating satisfactorily.
[14] Sometime between 9.00 pm and 10.00 pm, Messrs Dudley and McLaughlin left the plant with the Nu-Way burner in operation. Before leaving they instructed a nightshift worker, Mr Andrew Garside, to periodically check the Nu-Way burner approximately every hour. Mr Garside worked as a frontend loader driver at Isaac Construction’s quarry which was about half a kilometre from the asphalt plant. He had no training or knowledge of the plant’s operation. He was briefed to periodically check the burner. In particular, he was asked to check to make sure he could see a flame in the burner. He would be able to check this through a small viewing window situated on the burner’s housing. He was also instructed to hit the stop button and to ring Mr McLaughlin if there were problems.
The fire
[15] As instructed, Mr Garside checked on the burner at approximately hourly intervals, driving from the quarry to the plant in his loader. On his first two visits everything seemed in order. At around 12.30 am, he again checked that the burner was going by viewing the flame through the viewing window. He confirmed that it was. However, on this occasion, he thought the room “seemed a bit warm”. While he thought it seemed “a bit strange”, because he did not usually work at the plant he was unsure whether this was normal. He thought the room might just be hot because the burner had been running for a few hours. He did not see any oil or any smoke but noted there was a heat haze in the shed sitting above the heater.
[16] On his next visit at around 1.30 am, Mr Garside walked to the door of the oil heater shed from his loader but it was too hot for him to go inside. He observed that the burner was still operating and a haze was sitting above the thermal oil heater, like a “heatwave”. There was no fire or smoke in the shed. Mr Garside described an “oily smell but not an electrical smell”.
[17] Mr Garside returned to his frontend loader, which was parked a short distance from the shed, to raise the alarm. At that point, he heard a “whoosh” sound and saw flames coming out of the opposite side of the shed where there was a roller door. Not having a phone on him, Mr Garside drove a short distance to a smoko hut to call
the fire service before calling Mr McLaughlin. The fire service logged Mr Garside’s call as being at 1.50 am.
[18] The fire was substantial. Seven fire appliances attended. The oil heater shed was extensively damaged by the fire and, apart from a few components, the burner was destroyed. The compressor shed sustained extensive fire damage, as did the tank room.
Events after the fire
[19] Two fire investigators, Mr Gary Luff on behalf of Isaac Construction and Mr Russell Joseph who was engaged by Nu-Way, attended the site to investigate the fire. Nu-Way removed what was left of the burner and its components and took possession of its internal pump. The pump was dismantled in the presence of both investigators. When the union nut was removed, it was found that the inner shaft seal was damaged. The pump and the damaged seal have become the subject of much focus in attempting to identify the cause of the fire.
[20] Isaac Construction took immediate steps to get its plant back into action. Three days after the fire, the fire investigators handed back control of the site. Mr Dudley reinstalled the original Riello burner and, with the use of a replacement control panel, the thermal oil heating system was running again within the following 24 hours. In the interim, because of Isaac Construction’s need to meet current contracts, it purchased asphalt off a third party supplier and instigated the establishment of a temporary alternative system for heating the bitumen. Because of the successful reinstallation of the Riello burner, the alternative system was not required.
[21] In the months after the fire, Isaac Construction undertook further work to remediate the damage to its plant. Its loss adjuster considered its overall loss amounted to $451,132.15 excluding GST.
Isaac Construction’s claim
[22] Isaac Construction brings its claim for damages against Nu-Way on the basis that Nu-Way’s burner was the cause of the fire. It submitted that previously it had operated the old Riello burner safely, and had done so for many years prior to the installation of the Nu-Way burner without a fire. Yet, within seven and a half hours of the Nu-Way burner having been commissioned a fire had started in the oil heating shed.
[23] In furtherance of its claim that the Nu-Way burner was the cause of the fire, Isaac Construction presented a theory that oil had leaked inside the burner because of a damaged internal seal on the shaft of the pump, which had caused an internal fire within the burner. That fire had melted the burner’s housing where it attached to the oil heater. This had resulted in the burner dropping to the floor and the flames generated by the burner, ordinarily directed into the heater, becoming exposed. Acting in a manner akin to a flamethrower, the burner had continued (at least for a short period) to operate, causing the oil heater shed to catch fire and spread to the adjacent buildings.
[24] Isaac Construction further alleged that the Nu-Way burner was a prototype or new design which had been modified without the manufacturer’s consent and had not been certified for use in New Zealand. Had Isaac Construction been aware that the Nu-Way burner had not been approved for use in this country it would not have allowed it to have been installed at its asphalt plant.
[25] Isaac Construction relies on two causes of action: breach of contract and negligence.
Contract
[26] Nu-Way acknowledges that the arrangement between the parties which provided for the three month trialling of the burner constituted a contract. It also concedes that an implied term of that agreement was that the burner be reasonably fit for the purpose for which the parties intended it to be used during the trial period.
However, Nu-Way denies that its burner was the cause of the fire and maintains it was fit for purpose at the time it was installed and commissioned.
Negligence
[27] As an alternative cause of action, Isaac Construction sues in negligence. It claims that Nu-Way as an importer, supplier and installer of the burner owed it a duty to exercise reasonable skill and care. Isaac Construction alleges that Nu-Way breached its duties to it in the following way:
(a)Nu-Way supplied and installed a burner that did not have WorkSafe approval and could not be legally used in New Zealand at the time. Isaac Construction would not have accepted the burner had it known it had not been approved.
(b)Nu-Way, after having been informed by the manufacturer that the burner was a prototype, failed to take certain steps in discharge of its duties to Isaac Construction, namely:
(i)failed to check whether the prototype met local standards and regulatory requirements;
(ii)failed to inform Isaac Construction that the burner was a prototype that had been in research and development and therefore that there was a risk of unknown problems arising;
(iii)failed to advise Isaac Construction that after the burner’s initial commissioning it should be monitored by a skilled person and not left unattended.
(c)Nu-Way failed to monitor the burner for an extended period and conduct robust testing for a sufficiently long period to ensure the burner would operate safely.
[28] Nu-Way’s response to these allegations of negligence is that if it is not proved that the burner caused the fire, then Isaac Construction’s allegations of negligence are irrelevant. In any event, it submits the burner was fit for use in New Zealand, and that if the burner is found to have caused the fire it was not as a result of its negligence but because of Isaac Construction’s own contributory negligence in allowing an unqualified worker to monitor the burner.
The prime issue – did the burner cause the fire?
[29] The parties are agreed that the prime issue for determination is whether Isaac Construction can prove that the Nu-Way burner caused the fire. Isaac Construction’s case relies on a combination of circumstantial evidence to establish on the balance of probabilities that the new burner was the source of the fire.
[30] A major plank of that circumstantial case is the timing of the fire, which occurred within hours of the Nu-Way burner being put into operation for the first time. Essentially, Isaac Construction submits the fire’s occurrence very shortly after the commissioning of the Nu-Way burner cannot simply be dismissed as a coincidence.
[31] It also points to the timing of the triggering of monitoring alarms inside the oil heater shed, and the evidence of the damaged oil seal in the burner’s pump which it submits supports a theory presented by its expert engineering witness, Stephen Jenkins, of how an internal fire within the Nu-Way burner was generated. It also points to a lack of any realistic alternative as to how the fire was started, other than from its source being the new burner.
[32] A great deal of the focus at trial was on Mr Jenkins’ theory as to how the burner had failed. Nu-Way’s position is that Mr Jenkins’ theory does not withstand scrutiny, and that, as a result of its own testing and expert evidence, it has disproved this theory. At best, Nu-Way maintains Mr Jenkins’ theory, as he himself acknowledged in his evidence, can only be a possibility, and that it is insufficient to discharge the burden that lies on Isaac Construction to prove the burner caused the fire. As a result, Mr Langstone on behalf of Nu-Way submitted that should bring Isaac Construction’s case against his client to an end.
[33] Mr Jenkins’ theory was unproven and at the conclusion of the evidence remained unproven. However, I do not consider Isaac Construction’s case is solely dependent on it being proved on the balance of probabilities that the series of events postulated by Mr Jenkins as to how the burner failed and caused the fire occurred. There are significant impediments to accepting Mr Jenkins’ theory. However, there are also elements of his analysis upon which Isaac Construction can rely in support of its circumstantial case that the likely cause of the fire was the burner. These need to be scrutinised. It is first necessary to summarise Mr Jenkins’ theory.
Mr Jenkins’ theory of how the burner caught fire
[34] Mr Jenkins concluded that there was a fault in the burner’s pump. He opined that an inner seal, which prevents leakage from the pump’s shaft, and a tappet, which holds that seal in place, had suffered mechanical damage before the fire. As a result of the flow of oil that assists to lubricate the pump within the pump housing, small particles of the failed seal had been carried through to the small gallery or relief passage designed to recirculate this oil within the pump. These particles had caused the relief passage to become blocked or significantly occluded. The blocked oil gallery had resulted in pressure building within the pump which caused the oil to leak through the damaged seal and the clearance between the shaft of the pump and a counter-ring.
[35] Mr Jenkins opined that as the oil travelled from the pump’s chamber to its exit point it became heated as it passed through the narrow clearances between the shaft of the pump rotating at over 2000 revolutions per minute (rpm) and the static elements within the pump housing. As the heated oil leaked out of the pump housing onto the shaft it was sprayed inside the burner’s housing and into the airstream (generated by the fan) by the rotation of the shaft. This oil ignited when it reached the “ignition zone”, or the flame in the thermal oil heater, having been discharged at a rate which fell within the air to fuel ratio that allowed for combustion. This internal fire within the burner was maintained by the oil leak until the burner collapsed as a result of heat from the fire causing the burner’s aluminium casing to soften and fail.
Mechanical damage to the tappet (seal holder) and the inner seal
[36] The inner seal within the oil pump rotates with the shaft of the pump and the tappet at over 2000 rpm. Mr Jenkins, who is a consulting mechanical engineer of over 42 years’ experience, considered that both the inner seal and the tappet had suffered mechanical damage. This is to be distinguished from heat damage or damage caused by the fire. The importance of Mr Jenkins’ evidence was that, in his opinion, the seal had been damaged prior to the fire and that this fault had allowed oil to leak. He could not identify when or how that damage had been caused.
[37] Mr Jenkins’ view that the tappet and seal had been “mechanically” damaged was based on the shape of the tappet, the arms of which were distorted, and the reliance he placed on the appearance of the counter-ring which, despite being exposed to the fire, had been found in essentially good condition. That was to be contrasted with the severely fractured and damaged inner seal which would have been protected from the fire by a covering union nut. It was noted that the elements that rotate with the shaft (the tappet and the inner seal) were damaged but that the more exposed counter-ring was relatively unaffected. This, in Mr Jenkins opinion, was consistent with the tappet and inner seal having suffered prior mechanical damage rather than fire damage.
[38] Mr Robert Nelligan who is also a very experienced mechanical engineer was called by Nu-Way. In his evidence-in-chief he described the pump as having clearly been involved in a very hot and intense fire that had caused what he described as the “brittle mechanical shaft seal” to disintegrate. He considered the damage to the brittle carbon pump seal components to be consistent with them having been subject to an intensive oil fire with sufficient heat to totally destroy most of the aluminium body of the burner to which the pump was attached.
[39] Under cross-examination, Mr Nelligan’s attention was drawn to the tappet and he was asked whether he accepted the tappet had suffered mechanical damage. Mr Nelligan replied that he had “not observed that”, and admitted that he had not examined those components closely which he regretted. He confirmed that the arms of the tappet were distorted. It was put to him that was because significant
mechanical forces had been applied at the time the pump had been operating. Mr Nelligan could not confirm that was the case. He suggested such damage was possibly due to the impact “of the thing falling on the floor”, but he could not say why the tappet’s arms had been distorted.
[40] Mr Nelligan accepted that the seal inside the tappet had suffered mechanical damage. Although, when asked whether that could have occurred while the pump was operating, Mr Nelligan replied by observing that the seal had been exposed to intense fire and heat, as indicated by marks on the shaft of the pump and that the aluminium casing had melted, suggesting temperatures in excess of 600 degrees Celsius. Mr Nelligan had earlier confirmed that the seal was made of a silicone carbon mixture which was very strong, although he did not know whether it was capable of resisting very high temperatures. When asked whether that material would be stronger or weaker than the body of the burner itself, Mr Nelligan replied that “silicon carbide is a ceramic which has very, very high strength but which is brittle and cannot withstand mechanical or thermal shock”. He stated that a mechanical shock might include dropping it on the ground, and a thermal shock might be heating it up and then subjecting it, for example, to a fire hose.
[41] Mr Langstone submitted that Mr Jenkins’ theory regarding mechanical damage to the inner seal was reliant upon his comparison with the counter-ring seal, and his understanding that both were carbon ceramic seals. He submitted the evidence showed the two seals were made of different materials and that therefore Mr Jenkins’ approach was flawed. However, the evidence is not clear as to the composition of the two seals.
[42] Mr Russell Joseph, Nu-Way’s fire investigator, was involved in testing that was undertaken by Nu-Way in preparation for the trial. He recalled having read that the two seals were considered to be of the same material, but that during testing it was found that the inner seal was of a different material. He referred to the inner seal being particularly difficult to cut and that considerable force was required, whereas the “top seal” was very easily cut with a hacksaw. A difficulty with this evidence is that the pump used for the testing and the seals from it, unsurprisingly, were not those from the fire.
[43] A further difficulty arises from the fact that while the damaged inner seal was taken possession of by Nu-Way, and seized by Mr Joseph during his investigation, it has subsequently been lost and can neither be examined nor subjected to testing. Despite Mr Joseph keeping a register of seized items and explaining his involvement with the exhibit, no adequate explanation has been given as to how this important piece of evidence has gone missing. Messrs Jenkins and Nelligan were only able to view the damaged seal from photographs.
[44] Mr Russell’s reference to having read that the two seals were considered to be of the same material is consistent with Mr Nelligan’s evidence who referred during his testimony to the two seals being made out of silicon carbide. He referred to being present when one of those seals was cut, which he described as being extremely difficult to do, but did not compare it with the cutting of another seal. As it turned out, the wrong seal was cut at the testing Mr Nelligan attended. The counter-ring seal was misidentified as the seal required to be subject to testing.
[45] Mr Joseph in his evidence stated that he proceeded on the basis the tappet and inner seal had been mechanically damaged. However, it was his belief that such damage had occurred when the burner had dropped to the floor during the fire. Mr Russell accepted that fire damage alone could not have caused the type of damage observed to the tappet, but that he could not discount the fire having caused the damage to the seal.
[46] Taking this evidence together, I consider on balance that it is more likely that the tappet and inner seal had suffered mechanical damage. A difficult question is whether that damage had been caused prior to the fire, or resulted as a consequence of the burner falling to the floor during the fire. The tappet and the inner seal are covered by a steel union nut which must have afforded protection to those components when the burner fell. There is no impact damage identified to the exterior of the union nut, and there is no evidence that the pump’s shaft was bent.
[47] The tappet is a metal object that survived the fire intact and remained in place. All the experts struggled to explain how the misaligned arms of this small component could have been rendered into that state. It is apparent from the nature of
the fracture where the burner joins the heater (the flange of the burner), that the aluminium had softened and became stretched. Mr Jenkins opined that this would have resulted in a “quite gentle” falling of the burner to the ground. No other expert offered a different view to contest that scenario. Any fall would only have been from approximately waist height.
[48] The presence of dual damage to both the inner seal and the tappet cannot be dismissed as coincidental. It is an unusual feature of those particular components of the pump which cannot simply be put to one side as a consequence of damage caused by the fire. It is a factor which I am satisfied is to be taken into account as part of Isaac Construction’s circumstantial case. The presence of the damage to the inner seal may provide a potential source for the leakage of oil from the pump, which is a fundamental part of Mr Jenkins’ theory, but it is only the first step. More importantly, the dual damage to the tappet and the inner seal is evidence of a fault within the pump which is a component of the burner.
Blocked oil gallery and the testing of Mr Jenkins’ theory
[49] When the pump is operating normally, excess oil that acts as a lubricant flows through the oil gallery or relief passage. In Mr Jenkins’ opinion, the relief oil gallery became blocked or significantly occluded as a result of very small pieces from the failed inner seal being carried into the oil passage. Mr Jenkins considered this blockage would have caused the oil pressure to rise and the oil to be pushed past the broken inner seal and out of the pump housing between the shaft and the counter- ring from where it was sprayed as a result of the rotating shaft into the airstream.
[50] Mr Jenkins arrived at this conclusion by way of an iterative process in response to testing carried out by Nu-Way of Mr Jenkins’ theory of a leakage of oil from the pump as a result of damage to the inner seal. That testing resulted in the conclusion that notwithstanding damage to the seal, and therefore a potential leak while the pump was in operation, the internal pressure on the oil within the pump was to the reverse effect from that contended by Mr Jenkins. The oil did not leak out past the seal but was drawn in the opposite direction. It is necessary to say
something more about the series of tests that were undertaken up until immediately before trial.
[51] The first tests were undertaken six weeks before trial and sought to replicate the workings of the burner relevant to Mr Jenkins’ theory of a leak from the burner’s pump. A new oil pump of the same model as the Nu-Way burner was utilised.
[52] The test rig was first configured to approximate the running of the burner at the bitumen plant with an undamaged pump seal. There were no oil leaks and the rig operated in good running order. The seal was then removed from the pump and damaged, with a piece taken out of it using a pair of cutters, before being put back into place. Oil was seen to drip out of the damaged seal onto the pump shaft. The pump was then started. At that point, the oil ceased to leak from the damaged seal. This was because air was sucked through the broken seal back into the body of the pump. There was no dispute that this is what the first test showed.
[53] As a result of this testing, Nu-Way submitted that notwithstanding a broken seal, while the pump was in operation oil would not leak out of the burner onto the shaft. Furthermore, because air would be sucked into the pump creating a vacuum, this would decrease the overall pressure in the pump. Mr Dudley’s evidence was that as a result there would be insufficient oil pressure to fire a flame in the burner because the oil would not be sufficiently pressurised to create the necessary fine spray through the burner’s nozzles to cause the oil to burn. This would result in the burner shutting itself down. However, the evidence of Mr Garside was that the burner was running when he last observed it, immediately before the fire.
[54] Isaac Construction was critical of Nu-Way’s testing. The oil pump actually involved in the fire was not used, and differences in the nature of the seal damage and other variations between the test rig and the configuration of the burner were highlighted by Mr Jenkins in his evidence. The diameter of tubes and heights of various parts of the test rig were different to how they were arranged at the bitumen plant. It was submitted that pressures would accordingly be different. Mr Jenkins observed that the pump was operating at a lower delivery pressure than it would have operated at the plant. In his opinion, if 100 psi was added to the driving force
and the oil put through an orifice with a significantly different profile, it would behave differently. Isaac Construction’s experts were not invited to observe the testing, and Mr Nelligan, the defendant’s expert engineer, was only present for the first set of tests. It was noted that Nu-Way’s test rig ran for only a matter of minutes, not for hours as was the case with the burner on the night of the fire.
[55] Isaac Construction was particularly critical of this first set of tests, and with some justification. The wrong seal was damaged; the counter-ring was damaged rather than the inner seal, and the counter-ring was then inserted the wrong way around when the testing was undertaken.
[56] In response to Nu-Way’s testing, Mr Jenkins supplemented his original theory by opining that the pump’s relief oil gallery must have been blocked or significantly occluded by debris from the seal failure on the night of the fire. Nu-Way was critical of Mr Jenkins’ changing theory in an attempt to meet the results of its testing. Mr Langstone submitted that Mr Jenkins had come up with an entirely different theory once his first theory had been disproved, and that must count against the reliance which can be placed on the evolving nature of his evidence.
[57] After having received Nu-Way’s evidence, Mr Jenkins went to Mr Joseph’s office and carried out a test on the pump body that had been involved in the fire. Using an oil can, Mr Jenkins forced oil down the relief oil gallery of the pump. Mr Jenkins’ evidence was that there was initially resistance and oil wept from the entry to the passage through which he was attempting to force the oil down. Mr Jenkins’ evidence was that resistance then dropped and that oil flowed from the hole. This was gathered on absorbent white paper and small particles were observed to be visible in the oil which had discharged from the gallery. These particles were retained and examined by Mr Jenkins under a microscope. In his opinion, they were particles of seal material and this demonstrated that the relief oil gallery had either become blocked or significantly occluded by debris from the seal failure.
[58] Mr Joseph witnessed Mr Jenkins undertaking this procedure at his office. His evidence was that he did not see a blockage as initially observed by Mr Jenkins. However, Mr Joseph was not carrying out the test, and I have no reason to doubt
Mr Jenkins’ evidence that at the time he was using the oil can to force oil down the passage of the pump, that this is what he observed.
[59] Mr Joseph noted that the pump had been exposed to both the fire and the fire suppression response, and that the pump had been in storage for some three years. He referred to the possibility of a build-up of rust and debris in and on the body of the pump as the source of any blockage and the particles Mr Jenkins observed. However, Mr Joseph did not examine the debris from the oil gallery under a microscope, and he fairly acknowledged that he did not know what the particles were. Mr Jenkins considered the very sharp, clearly defined edges indicated the debris was not rust. However, he conceded that pieces of the broken seal were not the only possible cause of the blockage and that a small piece of manufacturing debris, such as a drill swarf, could have blocked the gallery. Apart from Mr Jenkins’ observations of the debris under a microscope, there is no other evidence as to its composition. The particles were not tested.
[60] Following this development, Nu-Way undertook a second round of testing nine days before trial on 19 September. A hexagonal metal rod was inserted to block the oil gallery. A series of tests were then undertaken. These included the pump being run with the blocked oil gallery and with a damaged seal and counter-ring. Nu-Way’s evidence was that there were oil leaks when the motor was not running, however, when the motor was turned on there was no leakage through the mechanical seal due to the suction or vacuum effect of the pump, as had been the case with the first set of tests. Mr Dudley, who conducted this testing, again observed that the resulting suction of air into the pump meant that it would not be able to deliver enough pressure to the nozzles to generate the required atomisation of the oil. That would result in a flame failure which, Mr Dudley opined, would cause the burner to shut down.
[61] Nu-Way’s expert mechanical engineer, Mr Nelligan, was not present for the second round of testing, nor was Mr Jenkins invited to attend on behalf of Isaac Construction. Upon receiving these results, Mr Jenkins was not satisfied the oil gallery had been properly blocked, although it is to be observed that Mr Jenkins’ second theory had only required the oil gallery to be significantly occluded. He
further noted that the pump was not operated at its full delivery pressure for the purpose of the testing.
[62] As a result of that critique, Nu-Way undertook a third set of tests, this time using a grub screw to completely block the oil gallery and address the criticism of the use of a hexagonal object. The pump was first run with the entire mechanical seal removed from the pump (the hex nut, the seals and the tappet). A slight leak was observed between the shaft and the shaft housing at a rate of one drip every 10 seconds over the course of that particular test and the temperature of the oil was recorded as rising from 97 degrees Celsius to 114 degrees Celsius after the pump was switched on.
[63] In a second test, the grub screw was removed from the oil gallery. The mechanical seal was also removed. Oil leaked out of the oil gallery. However, once the pump was turned on the leak stopped. In this configuration, the pump generated a pressure of 20 psi which, in Mr Dudley’s view, would not be sufficient to cause the burner to generate a flame and it would shut itself down. This was the extent of the third set of tests.
[64] It was submitted on behalf of Nu-Way that the conclusion to be drawn from the third set of tests was that the only time there was an oil leak (a drip approximately every 10 seconds) when the pump was operating was when there was no mechanical seal (the hex nut, the seals and the tappet removed) and the oil gallery fully blocked. As with the first set of testing, when the oil gallery was not blocked, even without any seal, there was no leak. This was the only test that showed oil leaking when the pump was on, but that, importantly, this was not how the burner was operating at the time of the fire (with the hex nut and seals removed entirely).
[65] It is indisputably the case that at the time of the fire the burner was not operating with the hex nut, seals and tappet removed from the pump. However, I do not understand why, in light of Mr Jenkins’ criticism of the second set of tests, namely that the hexagonal nut had insufficiently blocked the oil gallery, that when a grub screw was used to completely block the oil gallery for the third set of tests, the pump was not tested in the same way it had been for the earlier tests. That is, with
the inner seal damaged in a manner to replicate how it had been observed in the original pump and the oil gallery blocked using the grub screw which, it appears, would have effectively blocked the gallery.
[66] In my view, the testing was ultimately inconclusive as a rebuttal to Mr Jenkins’ theory, or at least his second theory. Nu-Way is critical of Mr Jenkins’ second theory being entirely dependent on the oil passage being blocked. However, Isaac Construction is able to point to Mr Jenkins’ findings, where, at least on his evidence, he identified particles blocking the oil gallery.
[67] For the third set of tests, in response to Mr Jenkins’ criticism that the oil gallery was not completely blocked, there was no retesting of the pump with a broken seal while the pump was operating with a fully blocked oil gallery. That round of testing only confirmed that when the oil gallery is not blocked, even without a seal, there will be no leak. Nu-Way acknowledged that the third set of tests demonstrated there was an oil leak (every 10 seconds or so) when the pump was operating without a mechanical seal at all (hex nut, seals and tappet) and the oil gallery fully blocked. The question left begging was whether such a leak would occur during the pump’s operation if the oil gallery was totally blocked and the inner seal damaged.
[68] There are aspects of the testing upon which Isaac Construction place some reliance. The first was that the temperature of the oil increased during testing. The second was that the oil when it leaked sprayed from the spinning shaft, travelling approximately a metre from the pump. It was submitted that this is what could have occurred within the burner, spraying oil towards a point of ignition. It was noted that, unlike in the testing, the spray would have been further spread in the direction of the flame by the fan within the burner.
[69] Mr Dudley acknowledged the oil spray or spatter which had occurred during the course of the testing had resulted in the oil travelling approximately one metre from each side of the pump. However, he attributed that to oil which had been sitting on the shaft following a leak that had occurred when the pump was not operating. When the pump was started, the oil would spray everywhere.
Mr Dudley’s explanation for the spray or splatter generated from the testing, that it was sourced from oil on the shaft which had leaked when the pump was not in operation, would account for the splattered oil that can be seen in photographs taken of the test rig. However, as observed, the third set of testing demonstrated that with the oil gallery blocked, and no mechanical seal (hex nut, seals and tappet) in place, oil would leak during the operation of the burner at a rate of approximately one drip every 10 seconds. This is not how the burner would have been operating at the time of the fire because it is accepted the hex nut and counter-ring were in place. However, it does demonstrate how leaking oil could have been distributed inside the burner if a leak had occurred.s
[70] Nu-Way emphasised Mr Dudley’s evidence that the testing demonstrated that if the seal was broken the pump would not have been able to generate sufficient pressure to spray oil from the burner’s nozzles in the form of a combustible spray. However, Mr Jenkins was critical of the pressures being used for the purpose of the test rig as not being representative of that generated by the pump when operated as a component of the burner. As with the contended for leak itself, it remains unclear how the damage to the inner seal would have manifested itself in terms of the operation of the burner.
Temperature of the oil
[71] Waste oil is not flammable at room temperature. It has a flashpoint of 200 degrees Celsius. However, it can ignite at temperatures below that flashpoint when atomised, and there was evidence that in mist or spray form a flashpoint as low as 75-140 degrees Celsius is possible.
[72] Because waste oil is not flammable at room temperature, in order to provide fuel for the burner, it needs to be preheated and atomised before it can be ignited. The waste oil in the day tank was heated to 60-65 degrees Celsius, and the preheater incorporated in the burner was capable of heating the waste oil to about 140 degrees Celsius.
[73] It was submitted on behalf of Nu-Way that any leaking waste oil from the pump would not be heated to a sufficient temperature anywhere near its flashpoint.
However, Mr Jenkins maintained that the temperature of leaking waste oil would rise, as a result of the operation of the pump mechanism, as it leaked onto the shaft of the pump. Isaac Construction points to the temperature during the third set of testing of the oil being recorded at 114 degrees Celsius after less than a minute of the pump’s operation, and that, during the first set of testing, the waste oil could be observed steaming. Against that, there was evidence from Mr Dudley that air velocity from the fan would cool any leaking oil inside the burner.
[74] In large measure, the temperature of the oil is a secondary issue because, however hot the leaking waste oil may have potentially become, without atomisation of the oil in some form, it would not ignite.
Atomisation
[75] Atomisation was a critical part of the process of burning waste oil as a fuel in the Nu-Way burner. It involved forcing a stream of waste oil through the burner’s nozzles to create a mist in the thermal oil heater’s chamber. Without atomisation the oil would not ignite. It was part of Mr Jenkins’ theory that the pump’s spinning shaft, rotating at over 2000 rpm, was capable of generating a fine spray, which he likened to the spray or spatter which had been produced during the course of Nu- Way’s testing in preparation for trial.
[76] There are a number of difficulties with this aspect of Mr Jenkins’ theory. Firstly, the spray off the shaft would have to move through the fan and past various components inside the burner to reach the flame in the thermal oil heater. Mr Jenkins acknowledged that some of the oil would be caught by the deflector plate and also by the fan itself, which would also have a cooling effect on the sprayed oil sourced from the leak. Mr Jenkins maintained that the fan might break up large drops of oil, projecting it further down the burner, although, it would then have to make its way past the various pipes and tubing around the diffuser plate to reach the flame.
[77] The second significant difficulty with Mr Jenkins’ atomisation theory is that identified by Mr Nelligan. For complete combustion of waste oil to occur it needs to be heated and mixed with air at the correct ratio (the stoichiometric ratio (14:1)) and
atomised under pressure. Where the air to oil ratio does not approximate the stoichiometric ratio there will be incomplete combustion which will produce black smoke. That has ramifications for a detection system within the burner (the photocell) which, when unable to detect a flame, would cause the burner to shut down. This monitoring device is further discussed at [83]-[90].
[78] In addition to the leaked oil having to be in an atomised state in the correct air to oil ratio, and to be of a sufficient temperature, it needs to be set alight by a source of ignition.
Ignition, burn back, and location of fire inside burner
[79] The Nu-Way burner was designed to ignite the preheated and atomised waste oil by a spark generated between two electrodes which extend from the burner into the thermal oil heater. As the flame continues to be supplied by oil and air it becomes self-sustaining and the electrodes are not required to produce any further sparks. In effect, a continuous flame is produced.
[80] Mr Jenkins’ theory is that the leaked waste oil sprayed through the burner from the pump was ignited when it reached the ignition zone in the heater. The parties accept that the only source of ignition for a fire within the burner is the flame in the thermal oil heater. Mr Jenkins’ theory would require there then to be some burning back from that point of ignition into the burner. This would require the “rogue” fire burning in the opposite direction of the forced air from the fan taking hold within the burner itself. It was not adequately explained how this would occur.
[81] The airflow from the fan down the burner is towards the thermal oil heater in the same direction the waste oil is sprayed from the nozzles. There was no evidence of any possible flow of air circulating in the opposite direction. As submitted by Mr Langstone, Mr Jenkins’ theory needs to establish how the flame could burn back against the constant flow of air being forced through the burner by the fan in the direction of the thermal oil heater. Mr Nelligan acknowledged that if there is insufficient airflow it is possible to get what is described as afterburning or flame detachment which could cause the flame to impinge on the back end of the heater
but, in the present case, where there is a constant high velocity airflow into and through the burner, he considered backburn could not occur.
[82] There is an absence of evidence to explain how a fire caused by leaking waste oil from the pump, even if atomised to the appropriate ratio and ignited in the ignition zone in the heater, could burn back into the burner itself to create an internal fire in that location.
The flame detector and the question of clean burning or incomplete combustion
[83] As previously observed, in order for the burner to achieve clean combustion the air to fuel ratio is required to be mixed to the correct level. Incomplete combustion will produce smoke and soot, and result in a residue being left from the fire. Mr Jenkins opined that clean combustion from an oil leak was possible because the burner was set to operate with up to a 15 per cent excess of air relative to the amount of oil being delivered in the course of its normal operation. He considered the burner had a fairly wide tolerance, so a small fuel leak exposed to an excess amount of air would still be able to burn cleanly.
[84] Mr Langstone submitted that Mr Jenkins’ evidence to this effect was contrary to his original evidence, which was that combustion in the burner would have been incomplete because the fire would not be burning all the waste oil, and that would have resulted in smoke and soot and explained the oily smell reported by Mr Garside on his last visit to the burner shed.
[85] Conflicting opinion evidence was given by the fire investigators and Mr Dudley regarding the presence of deposits inside the thermal oil heater and whether that was evidence of incomplete combustion, and whether the absence of any build-up of soot on the electrodes and fuel nozzles was significant. Mr Nelligan’s evidence was that an oil leak of any volume would not burn cleanly. He considered that without the correct stoichiometric ratio, or within a narrow range of that ratio, there would either be no combustion or, at least, incomplete combustion and, as a result, unburnt fuel and smoke.
[86] The significance of incomplete combustion and the consequential generation of smoke and soot related to the operation of the flame detector or photocell device which was a safety feature installed inside the burner. The photocell was designed to perform a safety shutdown function. When the burner is instructed to produce a flame, the photocell registers the light from the flame in the thermal oil heater. If light is not detected within seconds of the solenoids opening to allow oil through the nozzles, the fault will be registered with the burner’s control panel and it will shut down. Similarly, if the burner is set only to recirculate waste oil, if the photocell detects a flame it will register a fault and the burner will shut down.
[87] Mr Nelligan opined, in relation to Mr Jenkins’ theory, that if there had been a leaking of oil into the burner it would have resulted in incomplete combustion and it would have produced soot and particles which would have obscured the photocell. This would have prevented it from detecting a flame and shut the burner down. Mr Garside had observed the burner was operating at the time of his last visit.
[88] Evidence was given by an electrical engineer, Mr Ross Oliver, about the photocell. His evidence was that if there had been a fire inside the burner the photocell would have detected it as being the same as if the fire was in the thermal oil heater, and the burner would not have shut down so long as it could register a flame. Mr Oliver accepted that if the photocell was obscured and could not register from the flame it would send a signal to shut the burner down. However, in his view, notwithstanding a fire becoming dirty or sooty, the photocell would still be able to detect a flame. Mr Shannon, on behalf of Isaac Construction, submitted that because of where the photocell was positioned within the burner, at the opposite end from the fan and the direction of the airflow from the fan, there would have been no accumulation of soot or smoke preventing the sensor from detecting a flame.
[89] Mr Dudley’s evidence was that the upper operational limit of the photocell was 60 degrees Celsius and that it had a melting point of 80 degrees Celsius. He opined that it followed that had there been a fire within the burner sufficient to melt its aluminium casing, which would have required temperatures in the order of 660 degrees Celsius, the photocell would have shut the burner down at a much earlier
point in time when the photocell failed. However, Mr Dudley’s evidence was superseded by that of the electrical engineer, Mr Ross Oliver.
[90] Mr Oliver’s evidence was not challenged. He was the only electrical engineer to give evidence. His evidence was that the photocell was not a failsafe measure. In his opinion, if the fire melted the photocell the burner would not necessarily shut down. This was because the first part of the photocell to fail would be the insulation on the wiring that connects the detector to the burner’s control panel. He described how when the plastic insulation melts it results in a short-circuit which would be detected by the burner management control system as a flame signal. Accordingly, although the photocell sensor has failed, the burner’s computer would register it as a normal signal. Notwithstanding the fire being present within the burner itself, the photocell’s destruction would not necessarily result in the burner shutting down.
Failure of the burner housing
[91] The parties were agreed that the burner’s aluminium casing where it connected to the thermal oil heater must have softened at that point and caused the burner to fall to the ground. This left a small part of the burner still attached to the thermal oil heater, which was referred to as the burner’s flange. The final part of Mr Jenkins’ theory is that an internal fire within the burner caused the aluminium housing to soften and collapse at that point. Because the burner continued to operate as it did this, it effectively acted as a flamethrower, setting the thermal oil heater shed alight.
[92] The burner’s casing melted in the fire and was largely destroyed. Significant amounts of melted aluminium were located on the floor where the burner had been situated. Some pieces of the burner’s body and other components, such as the pump housing, which were made from other material, survived the fire. This debris was the subject of examination.
[93] Mr Jenkins’ evidence was that it would take time for the aluminium to heat to the point of softening and there would not necessarily be any external detectable signs of the burner’s body getting hotter than normal. However, Mr Langstone submitted that account needed to be taken of Mr Garside’s evidence that he was able
to go up to the burner and view the presence of an internal flame through the viewing window. While Mr Garside noted that the shed seemed strangely warm at the time of his third inspection at around 12.30 am, he was able to get very close to the burner and did not remark on the burner’s housing being particularly hot.
[94] Each of the parties’ experts, including their fire investigators, gave conflicting and varying evidence about what could be taken from the presentation of the melted and stressed portion of the burner which had remained connected to the oil heater, and whether the extent of the damage to the burner’s casing was consistent with an extremely high and focussed heat that could only have been generated from within the burner itself.
[95] Mr Joseph gave evidence of his examination of the burner’s flange which had remained connected to the heater. He opined that it had sustained greater heat and fire damage to its external side, rather than its internal aspect. By reference to the appearance of the damage to the outside of the flange, he concluded this was an indication of a fire impacting on the burner from an external source, rather than from a fire inside the burner. However, Mr Luff, the fire investigator called by Isaac Construction, did not accept that analysis.
[96] Mr Luff considered there were too many variables to place reliance on Mr Joseph’s opinion regarding greater fire damage having been sustained by the exterior aspects of that part of the flange. He considered there was too much uncertainty as to the extent to which a fire within the burner’s housing may have affected the interior of the flange, which was dependent upon where the burning was taking place inside the burner. He also noted there was obviously a very intense fire in the oil heater shed which would have likely affected the appearance of the exterior of the flange after the heater had fallen to the floor.
[97] In particular, Mr Luff noted there was almost no heat damage to the bottom of the flange, which would not be consistent with a fire having commenced externally under the burner. Importantly, he noted that, in his opinion, had there been an external fire, he would have expected the heat detector alarm to have been activated before the burner fault alarm activated. Mr Luff’s overall opinion was that
because of the intense nature of the fire that took place in the oil heater shed, caution was required before drawing anything from the nature of the damage to the flange.
[98] Mr Joseph also gave evidence of his examination of the scene of the fire and, in particular, noted that, in his opinion, melted aluminium from the burner had fallen and solidified on top of fire debris that was already on the ground. He explained that for fire debris to be under the melted parts of the burner, the debris had to already be on the floor before the aluminium melted. This supported the fire having an external source with there having been a build-up of debris on the floor of the shed before the burner tore away from the oil heater, coming to rest on existing fire debris already on the floor.
[99] Mr Joseph rejected this layering or mixing of fire debris could have been caused by distribution and disturbance from the response by the fire services when fighting the fire as suggested by Mr Luff. Nor did he accept that the heavier debris could have fallen into a puddle of molten aluminium and sunk to the bottom. Mr Joseph did not consider those explanations could realistically account for the distribution of the debris. He acknowledged that while some of the fire debris could have been disturbed that did not take account of the heavy items sitting on the debris. This suggested to him that the burner had fallen much later in the fire’s development. However, Mr Luff considered there was too much uncertainty relating to the state of the fire scene to safely draw the type of conclusions that Mr Joseph had from his examination.
[100] Mr Joseph rejected the theory that when the burner fell to the ground it would have acted like a flamethrower. In his opinion, if there was a fire in the burner which fell to the floor, it would be localised inside the burner itself and would have been what he described as a “lazy” flame which would go no distance from where the burner had fallen. It should also be noted that the nozzles which create the atomised waste oil to burn inside the heater were still located in the heater after the fire. If there had been an internal fire within the burner, the connecting pipes or tubing would have either been destroyed or at least broken away from the nozzles when the burner collapsed to the floor. In either case, even if the burner was still in operation
at the time it fell to the floor, the spray of atomised waste oil required to generate a “flamethrower effect” would not have been possible.
Conclusion relating to Mr Jenkin’s fire theory
[101] Mr Jenkins’ theory does not satisfactorily explain how an internal fire within the burner would have been caused. Insofar as Isaac Construction relies upon Mr Jenkins’ fire theory to definitively prove its case, it must be put to one side. However, that is not fatal to the plaintiff’s case. Isaac Construction is still entitled to point to the mechanical damage to the tappet holding the inner seal, the damage to the inner seal itself, and Mr Jenkins’ evidence that he found a blockage in the relief oil gallery of the pump, as proof of defects in the burner’s pump as part of its circumstantial case that the burner was the genesis of the fire. However, Mr Jenkins’ theory as to how those defects ultimately resulted in an internal fire within the burner remains unproven.
The status or legality of the Nu-Way burner
[102] In support of its circumstantial case, Isaac Construction submitted that the Nu-Way burner (NOG35-34 T3L 240) was an unproven product or prototype that had been modified without the manufacturer’s knowledge and had not been approved for use in New Zealand at the time it was installed at the bitumen plant.
[103] Nu-Way contested these criticisms but submitted that, in any event, the issues raised by Isaac Construction regarding the status of its burner were not causative of the fire and therefore were irrelevant to its liability for any loss incurred by Isaac Construction.
Prototype or new design
[104] The Nu-Way burner was designed and manufactured by the defendant’s holding company in the United Kingdom, Enertech Ltd (Enertech).
[105] An email about the burner from Enertech to Nu-Way of 23 September 2013 was introduced into evidence. Relevantly, it informed Nu-Way:
· ... We have developed a lower cost (Base Spec) option which only recirculates the valve block re-located in the burner heard (sic) with a reduction in price of about £1000 GBP net (see attached).
...
Are you interested in a lower cost option (Base Spec) or would you like a special price for the standard NOG35-34T??
[106] The attachment to the email was titled “Addendum Base Design” and dated August 2013. The lower cost option of the NOG35-34T burner was set out in the attachment. Subsequent emails referred to this low cost option as being a prototype that had been in “research and development”, and which Enertech was willing to let Nu-Way have for the purpose of installing as a trial burner. It was observed that it would be good to progress a trial to get some experience of the new design.
[107] This was the burner which was installed at Isaac Construction. Mr Dudley accepted in evidence that he had been told that this particular burner was a low cost prototype burner. However, he claimed that he had told Isaac Construction that it was a prototype. Mr McLaughlin’s evidence was that the first time he heard the Nu- Way burner being described as a prototype and as having been in “R & D” was when he was shown emails provided in belated discovery to Isaac Construction’s solicitors.
[108] Mr McLaughlin testified that this was not what he had understood the position to be at the time he agreed to the installation of the burner, and that he would not have agreed to that being done unless Mr Dudley could have shown him that the burner had been tested and was fit for purpose. He would have required further information and would then have elevated the decision as to whether to install this particular burner at Isaac Construction’s plant to higher management.
[109] Insofar as Isaac Construction sought to rely upon the fact the burner was described as a prototype in support of its case that the burner had been the source of the fire, Mr Langstone submitted that the pump and its components, including its seals, were items that had been used previously with success in other burners. He relied upon the evidence of Mr Dudley, as the representative of Nu-Way, as the basis for that submission. Specifically, in relation to the contention that the inner seal of
the pump had failed, Mr Langstone argued that it was relevant that the pump itself, including its inner seal, was not a prototype. Mr Dudley pointed out in evidence that the same pump with the same inner seal had been used in Isaac Construction’s previous Riello burner and in thousands of other burners.
Unregistered burner
[110] Burners are required to be approved and registered in New Zealand.1 The NOG35-34 Enertech burner was not registered in this country until 14 September 2016, almost two and a half years after the fire. The Nu-Way burner could not therefore be legally used in New Zealand at the time it was installed by Nu-Way in the absence of it being approved and registered with WorkSafe New Zealand.
[111] Nu-Way acknowledged the burner had not been registered. However, it submitted that in order to gain approval the burner was required to comply with one of the standards listed in the Hazardous Substances (Dangerous Goods and Schedules Toxic Substances) Transfer Notice 2004.2 Mr Rex Alexander, an approved test certifier under the Hazardous Substances and New Organisms Act 1996, confirmed in his evidence that the burner had been designed and manufactured in accordance with one of those standards.3 It was submitted that nothing turns on its non-registration.
Modification of the burner to run on diesel
[112] The Nu-Way burner was designed to run on Class G fuels such as waste oil. Diesel is not a Class G fuel. Mr Jenkins gave evidence to the effect that from his reading of the burner’s specifications, as purchased from the United Kingdom manufacturer, it was not fit for purpose for installation at Isaac Construction, which required the burner to run on both waste oil and diesel fuel.
[113]
Alterations were made to the burner in order for it to operate on alternative fuels. Mr Marshall, the electrician, modified the electrical circuit system to allow1 Hazardous Substances (Dangerous Goods and Schedules Toxic Substances) Transfer Notice 2004, pt 14, sch 8, cl 68(2).
2 Hazardous Substances (Dangerous Goods and Schedules Toxic Substances) Transfer Notice 2004, pt 14, sch 8, cl 68(4).
3 EN267:1999.
the burner to disengage the preheater required for the use of waste oil when the diesel fuel option was selected. Mr Marshall tested this work and supplied an electrical safety certificate. Nu-Way submitted it was apparent that the burner was capable of burning diesel and had been modified for that purpose with Mr McLaughlin’s knowledge. In any event, at the time of the fire when the burner was operating, it was only using waste oil.
Conclusions relating to the status of the burner
[114] I accept that had Isaac Construction, and in particular Mr McLaughlin, been informed that the burner had not been certified for use in New Zealand and been provided with information relating to it being considered a prototype or a recently developed low cost variant of its base design, he may have paused before agreeing to its installation, if only out of concerns as to its reliability. If Mr Dudley had mentioned to Mr McLaughlin the trial burner’s background as he testified in evidence, I do not consider he adequately communicated that the burner was a recently developed product not yet registered in this country. I accept Mr McLaughlin’s evidence that he was not informed of these facts.
[115] The emails from Enertech which disclosed that the burner was a prototype and that the manufacturer was interested in progressing a trial to get experience of the new design were initially redacted in the discovery provided to Isaac Construction and categorised as irrelevant. The information was only belatedly disclosed, either on the eve or during the first days of the trial. No evidence was received from Enertech regarding the status of this particular burner, or its expectation as to how it should be used or trialled with a client. The fact the burner was described by the manufacturer as a prototype in emails to Nu-Way and that post- production modifications would be required are relevant circumstances relating to the installation of the burner and the fire.
[116] However, the possibility or even probability that the burner would not have been installed had Isaac Construction been fully informed of the burner’s status does not advance its claim unless it can prove that the alleged breach of duty by Nu-Way of omitting to inform Isaac Construction of those details was a material and
substantial cause of its loss.4 There is no causal connection between the lack of certification of the burner and the plaintiff’s loss in the absence of proving that the Nu-Way burner was the source of the fire. It follows that the status of the burner in New Zealand does not advance Isaac Construction’s case.
[117] For similar reasons, the fact the burner could be described as a prototype does not assist Isaac Construction to demonstrate that Nu-Way breached a duty of care owed to it in the absence of proving the burner caused the fire. Mr Jenkins gave evidence that he expected, as a matter of industry practice, that a supplier of a prototype would advise the recipient and pass on information from the manufacturer that it was a prototype that had been in research and development, in order to allow the recipient to assess whether they wished to participate in what could be described as a trial, and what precautions should be taken.
[118] I accept that this type of information may be relevant to the question of what precautionary steps should be taken in terms of monitoring a new piece of equipment and who should be charged with that task. Failing to inform the recipient of the burner of its recent development and that it was a prototype may influence the assessment of the appropriate steps taken by the respective parties. However, in order for that alleged breach of duty to be relevant to Isaac Construction’s claim, it is necessary to prove the breach of that duty was causative of its loss. Again, in the absence of proving the burner caused the fire, the failure by Nu-Way to fully inform Isaac Construction of the background circumstances of the burner sought to be commissioned at its plant is irrelevant.
[119] Having made that acknowledgement, as already observed, the manufacturer’s description of the Nu-Way burner as a cheaper, recently developed prototype that it would be good to trial remains a relevant part of the circumstantial factual matrix when standing back and assessing the likely cause of the fire.
4 Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA) at [28].
Sequence of alarms
[120] There were a number of sensors designed to trigger alarms installed at the plant. These sensors were wired to the computer (programmable logic controller or PLC, also known as the “Honeywell”) used to monitor and control the bitumen plant housed in the control room. These sensors included:
(a)A heat detector situated on the oil heater shed’s ceiling which was designed to trigger at 79 degrees Celsius. There was some variation in the evidence as to where on the ceiling this detector was located. Two of Isaac Construction’s managers, Messrs McLaughlin and Ross, indicated the heat detector was closer to the roller door end of the shed, a little way from the burner. However, the electrician who had installed the sensor, Mr Marshall, thought it was on the ceiling above the burner. He accepted the sensor may have been where Mr McLaughlin had located it and that he only had a vague recollection.
(b)A thermal oil flow differential alarm to detect leaks from the thermal oil heating system. This sensor was designed to measure the flow of thermal oil, and in the event of a change in pressure it would shut the system down.
(c)A sensor monitoring the operation of the centrifuge, which was a machine used to separate solids from the waste oil. Should there be a fault in the operation of the centrifuge, the sensor would activate.
(d)A temperature sensor on a flue connected to the thermal oil heater situated outside the shed which did not trigger.
(e)A “burner fault” indicator which would display if a signal was received from the burner indicating it had a fault.
[121] Mr Marshall gave evidence of how he installed the heat detector. He described that when he wired it there were no spare control wires back to the
monitoring and control computer, so two wires were paired together and used to indicate that the heat detector had activated. The signals “BRN1 WO HIGH LVL” and “BRN1 DO HIGH LVL” would be displayed at the same time when the heat detector was triggered. However, the wiring paths from the sensor were physically separate from each other and took entirely separate paths to the computer system.
[122] Isaac Construction places some emphasis on the simultaneous triggering of the heat detector on the shed’s ceiling and the burner fault sensor. On the night of the fire these two alarms triggered at 1:45:18.
[123] The thermal oil flow sensor triggered at 1:46:03. At 1:47:14, a sensor which gauges the thermal oil temperature activated as being too hot, and at 1:47:57, sensors triggered indicating the level of bitumen in tank one in the tank room was both above and below the correct level. Mr Marshall’s evidence was that these sensors may have triggered either because they detected faults they were designed to detect or because of damage to the cabling or wiring as a result of the fire.
[124] In relation to the heat detector, Mr Marshall considered it unlikely that it would have triggered at 1:45:18 as a result of its wiring being burnt in the fire because of the two separate wiring routes to the computer’s display, and the fact the two signals on that display triggered simultaneously.
[125] Mr Shannon submitted the fact the burner fault alarm and the heat detector activated at the same time was consistent with a fire associated with the burner. He submitted the timing of the two alarms could not be passed off as coincidental and indicated an internal fire within the burner which had finally escaped from the burner’s housing when its aluminium housing failed. He submitted this was consistent with Mr Garside’s observations.
Conclusions regarding sequence of alarms
[126] I accept that, because of the way the heat detector was wired, some reliance can be placed on the timing of that alarm as having been generated from an excess temperature, rather than as a result of its wiring being burnt as part of the general fire. I note that an “automatic dialler” which was part of the system designed to alert
Mr McLaughlin at his home address of a fault in the system did not appear to work. It was submitted this could be indicative of how the monitoring systems failed on the night and cannot be relied upon. However, there is a suggestion that Mr McLaughlin’s number may not have been the first number in the auto dialler which is why he was not alerted before receiving a call from Mr Garside.
[127] Overall, I do not consider the simultaneous triggering of the burner fault alarm and the heat detector can be ignored. No determinant conclusions can be drawn from the sequence of the triggered sensors, but the fact the temperature alarm and the burner fault alarm activated at the same time is a feature which is consistent with Isaac Construction’s scenario that the fire was sourced from the burner.
Alternative causes of the fire
[128] A number of possible causes of the fire were canvassed in the evidence. Upon review, none of them emerged as likely.
The thermal oil heater’s exhaust duct
[129] Mr Joseph referred to a possible leak from a flange or join in the thermal oil heater’s exhaust duct as a potential source of the fire. He referred to timber around the exhaust duct as having been fully consumed by the fire, which he considered would have been out of sight of Mr Garside on the other side of the oil heater shed at the time of his last visit.
[130] I do not consider this is realistic having regard to the observations made by Mr Garside, both when he visited at about 12.30 am and on his last visit. On neither occasion did Mr Garside notice any fire or smoke, yet, at his visit at 12.30 am, he observed that the room had got much hotter, which he considered to be strange. While hot air escaping from a flange in the exhaust duct could be considered consistent with the rising temperature within the shed, Mr Joseph accepted that “pyrolysis of adjacent timber framing is an unlikely cause for ignition”.
[131] The join in the exhaust duct was sealed with a thermal heating compound which acted like a bandage. It sealed any gap in the joint and prevented air or heat
from escaping. Any burning wood would cause smoke, and the flue temperature alarm next to the duct did not trigger. Mr Ross, Isaac Construction’s engineering manager, gave evidence that there was no combustible material around the exhaust duct prior to the fire. Mr Luff testified that there was no evidence of concentrated heat or flame in that particular area, as compared to the level of damage to the burner. Mr Nelligan also did not believe the exhaust duct was the cause of the fire.
Electric motor for the centrifuge pump
[132] Mr Joseph, in his oral evidence, suggested the electric motor that controls the centrifuge for the waste oil as a potential fire cause, although the pump did not appear to have been examined or seized. Mr Joseph referred to aspects of fire damage to the motor from photographs, and noted that copper wiring associated with the motor had melted. Because copper melts at around 1080 degrees Celsius, this indicated significant heat and damage in the immediate vicinity of the motor. Mr Joseph considered that the direction of the fire had come from the end of the shed where the centrifuge pump was situated, which was the opposite end to where the burner was positioned.
[133] However, Mr Garside did not see flames nor smoke from that area, nor was it explained how the rising temperature in the shed experienced by him on his previous visit was related to this electric motor. The centrifuge fault alarm does not appear to have triggered, at least not before the burner fault alarm and heat detector. Even if the triggering of those sensors was due to the burning of wires, that does not explain how wires associated with the burner fault alarm and the heat detector would have been burnt or triggered before the centrifuge pump’s alarm if the fire had been associated with that piece of equipment. Mr Joseph had earlier in his evidence discounted an electric event as being a cause of the fire.
Thermal oil leak
[134] After the fire, a small leak of thermal oil was observed in the thermal oil shed from a valve or gland situated on a pipe carrying thermal oil. Mr Ross recalls putting a bucket down after the fire to catch this minor leak, which appeared to him to have been caused by fire damage.
[135] Mr Nelligan, who did not visit the site for some months after the fire but had read about the described leak, postulated that it may have caused escaping hot oil vapour to have accumulated at a height where light fittings and other electrical equipment were located, and that a broken fitting may have caused an ignition, resulting in an explosion and fire. Nu-Way also placed reliance on evidence that Isaac Construction had not tested its thermal oil for some 13 months prior to the fire. Mr Dudley’s evidence was that thermal oil degrades with age and that its flashpoint or auto ignition point drops considerably. He also opined it was likely to cause a smoky haze effect. Mr Nelligan suggested that his theory fitted with Mr Garside’s evidence, that there was a building heat within the thermal oil shed and that there was a haze but no fire before a sudden explosion.
[202] Having viewed both witnesses giving their oral evidence and being subject to cross-examination, I am satisfied that had Mr Dudley told Mr McLaughlin that the burner could not be safely left to operate on the Sunday night without being monitored by an appropriately experienced and qualified person such as himself, the younger and less experienced Mr McLaughlin would have accepted that requirement.
[203] Mr McLaughlin’s evidence was that had Mr Dudley expressed reluctance to allow the burner to continue to operate overnight, he would have viewed that as “a pretty significant conversation” and would have discussed it at length with Mr Dudley because of the consequences for Isaac Construction and the need to have the bitumen hot for the start of the working week. He does not recollect such a conversation.
[204] Mr Dudley was aware that Isaac Construction’s normal processes involved the burner being left to run overnight to heat the bitumen for the following day. I consider that he must have been aware that the reason for coming back over the weekend, in particular on the Sunday night, was to allow the bitumen plant to be operational by the Monday morning.
[205] I also accept Mr McLaughlin’s evidence that Mr Dudley did not tell him before installing the Nu-Way burner that it needed to be monitored after it was installed. Furthermore, if Mr Dudley had truly been of the view at the time that a suitably qualified person was required to safely monitor the newly commissioned burner, there is no reason why he could not either have insisted on the work being undertaken earlier on the Sunday, or that either he or Mr McLaughlin remain into the early hours of Monday morning to complete that task.
[206] I reject Mr Dudley’s evidence that he reluctantly agreed to leave Mr Garside to check the burner every hour. Mr Dudley referred in his evidence to having successfully completed all the safety tests and that he was happy with the way the burner was operating. I am satisfied that both Messrs Dudley and McLaughlin, upon the apparent successful commissioning of the burner, were comfortable to leave it running with Mr Garside providing periodic checks. I am also satisfied that Mr McLaughlin took his lead from the more experienced Mr Dudley who had particular expertise in this area. On his own evidence, Mr Dudley said that he told Mr McLaughlin that the burner needed to be monitored. Mr Dudley cannot now disavow responsibility for the engagement of Mr Garside as an appropriate person to carry out that task when he was complicit in that decision.
[207] Mr Dudley gave evidence of he and Mr McLaughlin “training” Mr Garside on the burner’s operation. Mr Dudley refers to having insisted on providing “onsite training” for Mr Garside which included him using the approved Code of Practice for the Design, Safe Operation, Maintenance, and Servicing of Boilers. I consider this overstates the briefing provided to Mr Garside. Both Mr McLaughlin and Mr Garside himself gave evidence of the extent of the instructions to Mr Garside, which basically amounted to him checking the burner’s operation by going to the small viewing window to check whether he could see a flame. In the event of there being a problem or if he noticed anything out of the ordinary, he was to ring Mr McLaughlin. Unlike the impression that it appears Mr Dudley seeks to convey of detailed training, I prefer the evidence of Mr McLaughlin and Mr Garside that the instructions provided were brief.
[208] Apart from Mr McLaughlin being aware that the burner was to be installed for a three month trial period, his evidence was that he was not told it was a prototype nor that the burner had recently been developed by the manufacturer. Mr Dudley’s evidence under cross-examination was that he could not remember having a conversation with Mr McLaughlin regarding that, although he thought he could have. Mr Dudley accepted he had not told Mr McLaughlin that because the burner was a prototype there was a risk of unknown problems. When asked whether, because he knew it was a prototype, the burner should not have been left unattended at all, Mr Dudley repeated his earlier evidence that he had not been happy to leave it unattended.
[209] Mr Dudley sought to suggest that Mr McLaughlin had taken responsibility for the engagement of Mr Garside to monitor the burner. That contention was echoed in a submission that was to be subsequently made on behalf of Nu-Way. It was submitted that Isaac Construction had stopped relying on the advice, care, and skill of Mr Dudley, and chosen to rely on their own staff when Isaac Construction, through the auspices of Mr McLaughlin, elected to have its own employee, Mr Garside, monitor the burner. It was submitted that any duty of care owed by Nu- Way was suspended at that point.
[210] That submission is reliant upon a factual finding in respect of which I find to the contrary. On this point, I again prefer the evidence of Mr McLaughlin who was reliant upon Mr Dudley’s expertise in relation to all matters relating to the installation and commissioning of the burner. This included the adequacy of the monitoring of the burner. Even had there been some discussion regarding whether the burner should have been shut down at that point or allowed to continue to operate (which I do not, in any event, consider to have occurred having regard to Mr Dudley’s knowledge of the ordinary operation of the plant and of Isaac Construction’s production needs), the two men agreed the burner could continue to operate so long as it was monitored by another person. Mr Dudley was aware that Mr Garside was an unqualified employee who did not work at the plant, yet he was content for him to be the nominated monitor. Mr Dudley, as the responsible expert installer of the Nu-Way burner, cannot divest himself of responsibility for that decision.
[211] I am satisfied that Mr Dudley was not reluctant to leave the burner operating on the basis that Mr Garside would check the burner. It is telling that Mr Dudley’s own written report on the fire of 1 May 2014, three days after the event stated:
Shane McLaughlin and I were completely happy with how the burner was running and we then both decided that it was acceptable to leave it running through the night, which was the normal standard practice for this Isaac Construction site for the previous burner’s operations.
Shane McLaughlin and myself discussed the operation of the burner and we decided that the Isaac Construction Ltd existing “onsite overnight worker” at the quarry was to check on burner running operations each and every one hour through-out the night and to ring Shane if there is any problem or any burner issues. Shane and myself instructed the overnight worker on what was required for this supervision and what to check on every hour and then we both left the site.
[212] There is no mention in Mr Dudley’s report of him being reluctant either to leave the burner operating or to have the burner monitored by Mr Garside. There is no suggestion that Mr McLaughlin was seeking to deviate from Mr Dudley’s advice and embark on a course independent from that being recommended or counselled by Mr Dudley, and upon whose expertise and knowledge Mr McLaughlin was entitled to rely.
[213] I am satisfied that Nu-Way had a responsibility to adequately monitor the burner which it failed to discharge in accordance with its duty of care. It is not disputed that the burner should have been monitored by an appropriately qualified and experienced person for at least eight hours after it was commissioned. Nu-Way failed to discharge that obligation. Had an experienced technician monitored the burner over the accepted requisite period of eight hours before allowing it to run on automatic unattended control, it is likely a fault in the burner would have been detected, if only from the rising temperature inside the thermal oil shed, and the burner would have been shut down.
[214] The failure to inform Isaac Construction of the burner having only been recently developed by the manufacturer and considered by it to be a prototype prevented Isaac Construction, and in particular Mr McLaughlin, from factoring that relevant piece of information into the approach to be taken to the monitoring of the burner. However, I consider that in the circumstance that piece of information would likely have been overtaken by Mr McLaughlin’s reliance on Mr Dudley insofar as it may have influenced the approach to be taken to the monitoring of the burner’s operation on the Sunday night. Even had Mr McLaughlin been informed by Mr Dudley of that feature of the burner’s background, I consider it likely that he would have continued to have been guided by Mr Dudley’s expertise and experience.
[215] I find that Nu-Way breached its duty of care owed to Isaac Construction by failing to adequately monitor the burner as a newly installed piece of equipment, and that its failure in the circumstances was a material and substantial cause of the fire and therefore of Isaac Construction’s subsequent loss.
Contributory negligence
[216] Nu-Way alleged that Isaac Construction must accept its share of responsibility for its loss arising from its contributory negligence.18 Mr Langstone submitted there was a clear connection between Isaac Construction’s failure to act and the fire occurring. He submitted the fire had occurred while Isaac Construction had sole responsibility for overseeing and checking the burner. He argued it was
18 Contributory Negligence Act 1947, s 3.
apparent at 12.30 am that something was wrong in the oil heater shed, and that Mr Garside, an employee of Isaac Construction, failed to take the appropriate steps to prevent the fire from occurring. Mr Garside had been specifically tasked with oversight of the burner and of taking action should it be apparent that something had gone wrong.
[217] I have already rejected the proposition that Isaac Construction, by requiring the burner be left operating overnight and being content with the oversight provided by Mr Garside, had voluntarily assumed the risk that something might go wrong. I also consider that Mr Garside’s failure to raise the alarm at 12.30 am does not constitute an act of contributory negligence. Mr Garside had become aware of a significant increase in temperature within the thermal oil heater shed and observed a heat haze within that building. However, the very reason he did not raise the alarm only underlines why the monitoring should have been carried out by an appropriately experienced and qualified person. Mr Garside was not familiar, either with the operation of the thermal oil heater shed, nor with the operation of the burner. He simply was not placed to assess whether the increased temperature or haze was abnormal. This is why he hesitated and resolved to reassess the situation on his next visit.
[218] I do not consider Mr Garside’s failure to raise the alarm at 12.30 am should be viewed as a contributing factor. To the contrary, it is a consequence or part of the chain of events that followed from the decision to allow the burner to continue to operate after its commissioning without it being monitored by an appropriately experienced and qualified person who would have been able to appreciate something was wrong, and that the burner should have been shut down immediately. While the decision to engage Mr Garside to carry out the monitoring was a joint one, made by Messrs McLaughlin and Dudley, as I have already found, I consider that Mr McLaughlin was dependent upon the expertise and experience of Mr Dudley who had responsibility for the safe installation and commissioning of the burner.
[219] In pleading contributory negligence, Nu-Way referred to a failure to install appropriate fire and/or heat detection devices in the thermal oil heater room, or to set those detectors at appropriate levels and adequately maintain and test those devices.
No evidence was called in direct support of those contentions, and that pleaded claim was not pursued in closing submissions. Insofar as there was a heat detector on the shed’s ceiling set to trigger at 79 degrees Celsius, there was no criticism directed to any witness or question posed for their comment regarding that temperature setting.
[220] Similarly, it was pleaded that Isaac Construction had failed to appropriately maintain the thermal oil heating system and failed to ensure the thermal oil had not degraded. There was evidence to the effect that a testing of the plant’s thermal oil was overdue and that degraded oil could have a reduced flashpoint. Again, that matter was not pursued in final submissions. Apart from its relevance to the fire theory proposed by Mr Nelligan that I have addressed earlier in this judgment, I do not consider it material to a claim of contributory negligence.
Conclusion as to liability
[221] Based on the above findings, I consider Nu-Way to have breached the implied term that the burner it supplied be reasonably fit for purpose. It breached that implied term by supplying and installing a burner that was faulty and resulted in the fire at Isaac Construction’s premises. Additionally, I find it established that Nu- Way breached its duty to exercise reasonable skill and care in the supply and installation of the burner by failing to monitor the burner in an appropriate way and for a sufficient period to ensure its safe operation. As a consequence of the breach of the implied term and its negligence, Isaac Construction suffered loss from the fire.
Quantum
[222] Isaac Construction claims that as a result of the fire it suffered loss in the sum of $451,132.15. It particularised its losses in its pleading in the following way:
(a) Building replacement: $118,519.20 (b)
Plant replacement:
$222,874.50
(c)
Business interruption losses:
$109,738.45
[223] There was no dispute in the event of liability being established regarding Isaac Construction’s entitlement to claim $222,874.50 for plant replacement. That sum represents costs associated with the reinstatement of the thermal oil heater system and restoring it to an operational standard. That part of the claim also includes the costs associated with employees’ time being diverted to that task, including to clean up after the fire, reconnect the thermal oil system, and to supervise that system which could no longer operate unattended. Evidence was provided by a loss adjustor of those costs which fall within the type of expenses recoverable, whether as a result of a breach of contract or a tortious breach.19
Replacement of the tank room (plant replacement)
[224] The fire significantly damaged the tank room. Prior to the fire, the bitumen storage tanks were housed in the building described as the tank room. After the fire, Isaac Construction had two new bitumen tanks installed which were protected from the weather by corrugated iron walls and a corrugated iron covering. Isaac Construction does not seek the cost of the new tanks but the cost of the corrugated iron and insulation used to waterproof the new tanks. The cost of that replacement “housing” was $95,918.00.
[225] Isaac Construction originally claimed $118,519.20 for “building replacement”. That figure was based on a quote obtained from a building firm for the cost of reinstating the tank room on a “like for like” basis, whereby a new building would be constructed. The quote did not include the cost of reinstating the thermal oil heater shed or the compressor shed, nor the cost of meeting more stringent code requirements.
[226] Isaac Construction has chosen to convert its system for heating the bitumen from a thermal oil to an electric system. The reason the thermal oil shed has not been rebuilt is because a burner and thermal oil heater are no longer required. Mr Ross of Isaac Construction gave evidence that the cost of reinstating the tank room to comply with current building code requirements would have been significant. A more economic approach was to corrugate and insulate the tanks, which he said
19 Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3.
would be required regardless of whether the tanks were heated using thermal oil or electricity.
[227] Mr Shannon submitted that the reinstatement of the tank room was achieved by insulating and weatherproofing the tanks, and a claim has only been made for costs associated with completing that exercise, as that was the work required to reinstate the damage caused to the tank room. Isaac Construction has not claimed for any upgrade or betterment associated with purchasing new tanks. The compressor shed has not been rebuilt because a new compressor and other items previously stored in the compressor shed have been relocated to an existing storage shed.
[228] Nu-Way contested the claim under the heading “Building Replacement” on the basis that Isaac Construction’s claim did not meet the necessary prerequisites for an award based upon reinstatement. Mr Langstone submitted that in order to recover such damages, Isaac Construction must intend to reinstate the tank room and that such reinstatement must be reasonable. Because Isaac Construction’s claim for building replacement ($118,519.20) was based upon a quote to reinstate the tank shed and the associated electrical work, its claim must fail because Isaac Construction does not intend to reinstate the tank shed and it will never be rebuilt. It will never therefore incur those costs. Accordingly, it was submitted that an award based upon the cost of reinstatement must fail.
[229] A related submission was Mr Langstone’s objection to part of Mr McLaughlin’s evidence relating to the approximate $96,000.00 cost incurred by Isaac Construction’s decision to weatherproof the tanks as opposed to rebuilding the tank room. Mr Langstone submitted this evidence did not relate to a head of damages pleaded by Isaac Construction in its statement of claim. He submitted the pleaded claim of “Building Replacement: $118,519.20” had effectively been abandoned and that the claim for the costs of weatherproofing the tanks fell outside that pleaded head of damages.
[230] I do not consider there is merit in the stance taken by Nu-Way to this aspect of Isaac Construction’s claim. It is premised on the head of damages claimed for the
replacement of the tank shed being restricted to the cost of reinstating that building. It relied for that proposition on the authority of Chase v De Groot, which in my view is not authority for such a limited approach to the assessment of compensatory damages.20 In that case, a debate arose as to whether the plaintiff should be compensated by an award on the basis of the cost of reinstatement or by an award on the basis of diminution in value. In examining that issue, Tipping J made the following observation:21
... The object of damages in tort is to put the plaintiff into the same position as would have prevailed if there had been no tort. Assessment of damages is essentially a question of fact. Any rules or principles constitute guidance only. The object is to be fair to both sides.
Reinstatement will be adopted as the appropriate measure when to do so will be fair as between the parties. There is no immutable or even prima facie rule against or in favour or reinstatement as the correct measure.
[231] Only after that statement of general principle did Tipping J note that where an award is to be based on reinstatement, the necessary prerequisites contended for by Nu-Way must be made out. There are echoes of those observations in Tipping J’s subsequent judgment in the Supreme Court decision of Marlborough District Council v Altimarloch Joint Venture Ltd, when he remarked:22
[156] It is as well to remember at the outset that what damages are appropriate is a question of fact. There are no absolute rules in this area, albeit the Courts have established prima facie approaches in certain types of case to give general guidance and a measure of predictability. The key purpose when assessing damages is to reflect the extent of the loss actually and reasonably suffered by the plaintiff...
[232]This approach is also reflected in the observations of the Court of Appeal in
Johnson v Auckland Council:23
[110] There is support in Hamlin, and in the pre-Hamlin cases on which the appellants relied, for the proposition that in these types of cases the measure of loss will be “the cost of repairs, if it is reasonable to repair, or the depreciation in the market value if it is not”. As Professor Atkin notes in The Law of Torts in New Zealand, a “more flexible, pragmatic” approach is adopted and courts “will award the cost of reinstatement where the plaintiff
20 Chase v De Groot [1994] 1 NZLR 613 (HC).
21 At 627.
22 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726.
23 Johnson v Auckland Council [2013] NZCA 662 at [110].
intends to restore and occupy the property and it is reasonable to do so”. This court in Warren & Mahoney v Dynes referred to a “prima facie, but not inflexible, rule” that the main concern should be to “ascertain the amount required to rectify the defects”. That was a contract case, although the Court indicated that in the circumstances of that case there was no difference in the measure of damages. We emphasise, as the authorities here and overseas relied on by Ms Thodey posit, that the assessment is a factual one and it is necessary to do fairness between the parties.
[233] In the present case, Isaac Construction had lost the means by which it protected its tanks from the weather. It initially sought the cost of rebuilding the tank room but made the decision not to do so. However, the tanks still needed to be protected from the weather in the same way the tank shed had provided such protection prior to the fire. It opted for a cheaper option that did not involve the actual construction of a replacement building, but involved the construction of a corrugated iron surround to achieve the same result.
[234] I do not consider the description in the pleaded claim of “Building Replacement” excludes a claim for the cost of protecting the tanks in the manner chosen as a result of the loss of the tank room in the fire. Effectively, the tank room was replaced with the protective system previously described. It follows that I do not consider the evidence given by Mr McLaughlin to be inadmissible. Isaac Construction’s claim for its loss in having to replace the tank room has been modified insofar as the amount claimed is now less in light of its decision not to reconstruct that building. There is no unfair prejudice to Nu-Way from that modification. I consider the claim for that expense falls under the head of damages pleaded as “Building replacement”.
[235] The particulars of the costs totalling $95,918 incurred in having to insulate and weatherproof the tanks, which was required regardless of whether the tanks were heated using thermal oil or electricity, as a result of the loss of the tank room, were not contested. I therefore allow Isaac Construction’s claim for that expense.
Building interruption claim
[236] The amount claimed for building interruption is not contested, apart from the cost incurred by Isaac Construction for an unused temporary alternative thermal oil heating system, valued by Mr Jameson, the loss adjuster, at approximately $35,000.
Immediately following the fire, Isaac Construction purchased bitumen from another company to supply its customers. The approximate cost to Isaac Construction over the course of April and May 2014 was claimed to be some $8,000. This was the amount it claimed from its insurers. Nu-Way submitted that this cost was markedly lower than that of the temporary system installed by Isaac Construction in the immediate wake of the fire.
[237] While the fire investigation was being carried out, Isaac Construction put in place an alternative system for processing bitumen which involved the use of a road tanker capable of heating and storing hot bitumen. However, this temporary system was never used because the plant was only out of operation for approximately three days. Following the conclusion of the fire investigation, the plant was operational again within 24 hours. Mr Jameson accepted that with hindsight the system did not actually achieve anything in any practical sense.
[238] Mr Shannon submitted that when the alternative system was being put in place, Isaac Construction did not know how severely the thermal oil system had been damaged in the fire. It sought to minimise its potential loss of earnings by developing a means to keep the bitumen at a temperature whereby it could store the heated product in order to meet customer orders. Its priority, once it regained control of the site after the fire investigation was completed, was to get the bitumen plant running again. It could have no confidence that the existing system would be able to work again, and there was no certainty that by reinstalling the Riello burner with the thermal oil heater, and using tanks and pipes that had been in the fire, it would be successful. Mr Shannon submitted that simply because Isaac Construction had been successful in that endeavour did not mean that its development of an alternative system was other than a reasonable step to mitigates its loss.
[239]
Whether Isaac Construction is entitled to recover its costs from establishing this alternative system turns on whether it was an expense that was reasonably incurred in the discharge of its duty to mitigate its losses.24 Mr Langstone submitted that Isaac Construction paying $35,000 to mitigate its losses for a three day period24 Jaggar v Lyttelton Marina Holdings Ltd (in rec) [2006] 2 NZLR 87 (HC) at [189], citing The World Beauty: Owners of the Steam Tanker Andros Springs v Owners of the Steam Tanker World Beauty, [1969] 3 All ER 158 (CA) at 163.
does not stand scrutiny in comparison to the alternative of paying $8,000 across a two month period. He submitted that Isaac Construction’s claim for business interruption was required to be adjusted accordingly.
[240] When questioned about the $8,000 figure included by Isaac Construction as part of its insurance claim, Mr Jameson did not accept that amount represented its real loss from accessing replacement bitumen from its competitor. Isaac Construction, in fact, paid $107,000 over the two month period in order to supply their customers with product sourced from another company. The $8,000 claim did not include losses associated with labour, machinery, and profit, which could otherwise have been factored into the true cost to Isaac Construction of choosing that means to continue to supply their customers with product. Based upon Mr Jameson’s evidence, Mr Shannon submitted the claim of about $8,000 to source and supply bitumen from a third party could have been for substantially more. It is therefore not clear what the comparative costs were from obtaining bitumen from a competitor and the $35,000 lost in establishing an alternative system.
[241] A plaintiff is entitled to recover expenses reasonably incurred to mitigate its loss. That will be the case even where the measures taken prove to be unsuccessful, or the ultimate cost turns out to be greater than if the measures had not been taken.25 In my view, the reasonableness of Isaac Construction’s steps to establish an alternative system cannot be assessed with the benefit of hindsight. The daily turnover of the bitumen plant was estimated to be approximately $60,000 a day. With the plant being inoperable, Isaac Construction faced a significant loss of turnover. It had no guarantee that the thermal oil heating system could be repaired, and it was obliged to take reasonable steps to mitigate its situation as a result of the fire. No evidence was adduced to suggest that it was readily apparent the old thermal oil heating system could be reinstated. Having regard to the value of the daily turnover of the bitumen plant, I do not consider the expenditure of $35,000 was unreasonable. Accordingly, I allow that expense as a component of the business interruption claim.
25 Gardner v R [1933] NZLR 730 (SC); New Zealand Forest Products Ltd v O’Sullivan [1974] 2 NZLR 80 (SC) at 83; Jaggar v Lyttelton Marina Holdings Ltd (in rec), above n 24, at 126-127.
Interest
[242] Isaac Construction is entitled to interest for the sums claimed at the prescribed rate. Interest will run from the date of the fire, 28 April 2014, in respect of the amounts awarded for plant replacement ($222,874.50) and business interruption ($109,748.45). Because Isaac Construction’s claim in respect of its cost to replace the tank room altered over time, interest will only be calculated from the date of the issue of the proceeding.
Result
[243] There will be judgment in the sum of $428,540.95 (exclusive of GST), together with interest at the prescribed rate, to be calculated in accordance with [242]. As the successful party, Isaac Construction is entitled to costs against Nu-Way on a 2B basis.
Solicitors:
Duncan Cotterill, Christchurch Fee Langstone, Christchurch
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